“Huawei has 56,492 patents,” ran the headlines on June 15, “and it’s not afraid to use them.” Huawei holds patents “on telecommunications, networking and other hi-tech inventions worldwide,” and reports have emerged in recent days of “protracted licensing talks” and “disputes” with U.S. companies including Qualcomm, Harris and most notably Verizon, where the patent settlement being sought is reportedly valued at $1 billion, according to Forbes.
This has presented the U.S. with something of a dilemma. Does it allow the under-fire Chinese telecoms manufacturer to use the U.S. legal system against U.S. companies? And, if not, how does it prevent a loss of confidence in U.S. IP protection and rule of law?
Cue national security. Two days after those headlines, U.S. Senator Marco Rubio filed legislation to “prevent Huawei from seeking damages in U.S. patent courts.” Reuters reviewed the amendment to the National Defense Authorization Act which would mean that “companies on certain U.S. government watch lists would not be allowed to seek relief under U.S. law with respect to U.S. patents, including bringing legal action over patent infringement.”
It was the latest swipe at China from U.S. lawmakers. With its blacklisting preventing Huawei from accessing the world’s largest market and causing chaos in its supply chain, this move would essentially remove access to critical parts of the U.S. legal system.
Does China care about this? You bet they do.
The response from the official mouthpiece of China’s Communist Party, the People’s Daily, has been brutal. “America’s most radical anti-China politician rears his ugly head,” ran the newspaper’s headline, followed by a stinging attack on the Senator. “Rubio, along with the hypocrites who accuse China of intellectual property theft in the U.S., apply a double standard to Huawei and its more than 50,000 patents… It is ridiculous that Rubio would accuse Chinese companies of stealing intellectual property from the U.S. and then turn around and try to rig the U.S. patent system so that the U.S. can blatantly grab the intellectual property of Chinese companies, and then brazenly call Chinese companies ‘patent trolls’.”
Rubio personally leveled the patent troll accusation at Huawei, inferring that it was being used to leverage an advantage in the broader ongoing dispute. “Huawei is using the tactics of patent trolls to attack U.S. companies,” he tweeted, “in retaliation for Trump administration national security actions against them. We should not allow China government-backed companies to improperly use our legal system against us.”
“Although many people frequently dismiss his remarks as the ranting of a madman,” the official newspaper of China’s governing party responded, “many Americans in the scientific community agree that Huawei can demand patent fees from U.S. companies. The senator from Florida intends to let the U.S.—not steal—but blatantly grab the intellectual property and patents of Chinese companies.”
Huawei filed a record number of patent applications last year and has become the biggest spender on R&D in its industry. In 2017, Huawei’s $13 billion R&D budget put the company hot on the heels of Amazon ($22.6 billion) and Alphabet ($16.6 billion), and Huawei has pledged to increase this to $15 to $20 billion. Its path to unassailable 5G market leadership was only thwarted by the U.S. government blacklisting the company over security concerns.
This is a significant moment in the dispute between the U.S. and China’s Big Tech. If Chinese companies are denied access to the various facets of the U.S. market, then it can only encourage further action from Beijing. China’s government has already announced new cyber laws, export restrictions and even its own “entity list” to hit back at the U.S. blacklist.
The economic consequences of the so-called “splinternet” that will likely result from this technology cold war will be stark for U.S. companies that dominate the global market, and leading software and hardware companies have already started to lobby Washington to ease off. What happens through the remainder of 2019 could set the tone for the technology sector for years to come, reversing swathes of the technology globalization seen in the last generation.