Fri, Aug 26, 2011 - Page 10 News List

ANALYSIS: China’s telecom patent boom heralds innovation era

Reuters, SINGAPORE

China’s telecom giants are building up a war-chest of patents to help give them an edge in the legal battles raging between the world’s smartphone makers, aided by Beijing’s push to transform the country from workshop to innovator.

Huawei Technologies Co Ltd (華為) and ZTE Corp (中興), China’s top two telecommunications equipment makers, are stealing a march on rivals both in traditional network gear and, increasingly, high-end phones.

ZTE was the second-highest filer of international patent applications in the world last year according to the World Intellectual Property Organization, making 1,863 different filings. Huawei was the fourth most active filer with 1,528 applications, having been in the top spot in 2009.

Patent filings are soaring across most sectors in China: There were 313,854 patents registered in the country last year according to the Thomson Reuters Derwent World Patents Index, a 12 percent rise from 2009.

China was the third-highest filer of patents last year, just behind the US, which registered 326,945, and Japan with 337,497. Japan has been the leading patent filer in the world for the past decade but its lead is narrowing, with its filings volume down 12 percent since 2006. China is up 83 percent.

The China telecom space in particular is seeing a lot of action as the likes of ZTE and Huawei, along with Taiwan’s HTC Corp (宏達電) move from being contract manufacturers for big foreign firms to making smartphones and tablets under their own brands.

“A lot of know-how flows through the contract manufacturer. The next logical step for these contract manufacturers is to climb up the value chain,” said Elliot Papageorgiou, a partner at intellectual property law firm Rouse in Shanghai.

As they move up the value chain, they use patents to protect some of the knowledge and ideas they have picked up as contract manufacturers in order to give them room to maneuver in the increasingly competitive market.

“The more this market matures the more you are searching for the margins and China is now probably the biggest mobile-phone market in the world,” Papageorgiou said.

The surge in the size of patent portfolios is causing a corresponding rise in litigation.

ZTE filed a lawsuit in China in April saying Huawei infringed on its fourth-generation technology. The move came a day after Huawei sued ZTE in several European countries saying its rival had infringed on a series of its patents.

These lawsuits are hardly surprising given that their foreign counterparts such as Apple Inc, Google Inc and Samsung Electronics Co are all trying to use an armory of patents to stifle competition in the global smartphone industry.

Google Inc’s biggest deal ever, the agreement to buy Motorola Mobility Holdings Inc this month for US$12.5 billion, is an attempt to buy insurance against increasingly aggressive legal attacks from rivals such as Apple.

So far, though, the likes of Apple and Samsung have stayed out of legal battles in China, wary of finding themselves at the wrong end of a court order in a country they rely on for their manufacturing.

However, for Chinese firms being sued in Europe or the US, many are now using their home turf for retaliation.

ZTE has filed a patent infringement lawsuit against Ericsson’s China unit after the Swedish telecoms giant filed patent lawsuits against ZTE in Britain, Italy and Germany.

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