Reporter: Jing Wang Editor: Xia Yang
After two years and seven months of legal battles, OPPO and Nokia have reached a resolution in their global patent dispute.
On January 24th, OPPO announced the signing of a global cross-licensing patent agreement with Nokia. The agreement encompasses essential patents related to 5G and other cellular technologies held by both parties. Following the signing of the agreement, all pending litigation in every jurisdiction will be discontinued. Specific terms of the agreement are confidential, as agreed by both parties.
Regarding this development, OPPO’s Chief Intellectual Property Officer, Feng Ying, expressed, “We are delighted to reach a global cross-licensing patent agreement with Nokia that includes essential patents for the 5G standard. This agreement reflects mutual recognition and respect for each other’s intellectual property and lays the foundation for future collaboration.” Jenni Lukander, President of Nokia Technologies, also said, “This new licensing agreement, in addition to other significant mobile phone licensing agreements Nokia has reached over the past few years, will provide our licensing business with long-term financial stability.”
Since 2021, OPPO and Nokia have launched related patent lawsuits in Germany, the United Kingdom, France, India, Indonesia, and other places, with both sides experiencing wins and losses. The global patent dispute between OPPO and Nokia not only drew worldwide attention from the tech industry but also became a case study for Chinese companies combating unreasonable patent fees from global communication giants.
Image Source: Visual China
Escalating 5G Patent Fees Pose a Burden on Businesses
A report by research firm Strategy Analytics identified that by 2025, the global patent licensing revenue from 5G phones is expected to bring nearly $20 billion annually to patent holders, with Ericsson, Nokia, and Qualcomm likely securing the vast majority these profits.
The growing number of patent holders and escalating 5G patent fees are becoming a financial burden for smartphone manufacturers as well as emerging industries such as new energy vehicles and the Internet of Things (IoT).
“Nokia claims a 5G fee rate of 3 euros per unit, while according to a report by the China Academy of Information and Communications Technology, Nokia’s claimed share of 5G standard-essential patents is 6.82%. If all patent holders charge in accordance with this standard, the fees for 5G standard-essential patents would exceed $45 per device. This is a heavy burden on smartphone manufacturers who already operate on razor-thin profit margins.” Zhu Juan, senior director of intellectual property at OPPO, explained to reporters. Essentially, the dispute between OPPO and Nokia was not about whether to pay but rather about how the patent fees would be priced.
To resolve disputes over patent licensing rates, in December 2023, the Chongqing First Intermediate People’s Court ruled in a case on standard-essential patent licensing fees between OPPO and Nokia. The court determined the global, fair, reasonable, and non-discriminatory (FRAND) rates for Nokia’s 2G to 5G standard-essential patents: For 5G multimode mobile phones, the per-unit license fee in the first global tier is $1.151 per unit, and $0.707 per unit in the second tier (China) and third tier; for 4G multimode mobile phones, the fee in the first tier is $0.777 per unit, and $0.477 in the second and third tiers. Moreover, the ruling, for the first time, determined an accumulative rate for the mobile phone industry’s 5G standards to be between 4.341%—5.273%. According to this judgment, without considering different mode proportions, the maximum patent fee for a pure 5G mobile phone priced at $200 would be $10.55. This decision significantly reduces the cost pressure on OPPO.
Furthermore, the Beijing Hanking Law firm believes that “the judgment of Chongqing’s court is a solid step forward in China’s participation in the governance of standard-essential patents globally and in leading the formation of global judicial rules. As the world’s largest 5G market and the country with the largest number of 5G standard-essential patents, China believes that the judgment will not only play a role in resolving individual case disputes but will also provide extremely valuable references for the mobile phone, automotive, IoT, and other related industries from a macro perspective. It will not only ensure that the innovation efforts of rights holders are reasonably compensated but will also safeguard the widespread implementation and use of standard technologies, promoting the formation of a healthy and sustainable industrial ecosystem.”
In addition to this, OPPO once had to clear out its official website in Germany due to patent disputes with Nokia. With the signing of the global patent cross-licensing agreement between the two parties, OPPO’s operations in the European market this year are also under close watch. In response, an OPPO representative stated that since entering the European market, the company has continued to deepen its engagement, with existing business operations remaining stable. OPPO’s commitment to the European market and its consumers will not change, continuing to provide innovative products and services to European users.
Patent Licensing: A Significant Asset and Revenue Source for Nokia
After its decline in the smartphone era, the former feature phone giant Nokia has been re-entering the mobile phone market as a “patent powerhouse,” triggering a new round of global patent litigation. After 2021, Nokia initiated hundreds of lawsuits in various countries against Chinese mobile phone brands such as OPPO, vivo, and realme. Beyond Chinese manufacturers, Nokia has also sued Apple, BlackBerry, and even automobile manufacturers like Mercedes-Benz over patents.
Nokia’s business is divided into network infrastructure, mobile networks, cloud and network services, and Nokia Technologies (responsible managing their patent portfolio and monetizing intellectual property). In 2022, Nokia Technologies saw an 82% increase in net sales compared to the previous year, with related patent licensing revenue of €1.595 billion and an operating profit of €1.208 billion. With sales costs of only €5 million, the gross margin stood at an impressive 99.7%, underscoring how critical the patent licensing business is to Nokia’s profitability and assets.
However, Nokia began to feel financial pressure starting in the second quarter of 2023. Financial reports showed that Nokia achieved revenues of €5.710 billion in the second quarter of 2023, a 3% decrease year-over-year, and an operating profit of €626 million, a 12% decline. The main contributor to this dip in performance was attributed to a decrease in net sales of its network infrastructure business. However, in that quarter, Nokia Technologies’ net sales amounted to €334 million, a 10% increase.
In the third quarter of 2023, Nokia reported revenues of €4.982 billion, a 20% decline year-over-year, and a net profit of €133 million, a 69% drop. Nokia explained that this downward trend was primarily due to weak demand for next-generation 5G equipment.
Pekka Lundmark, Nokia’s CEO, believes that despite the uncertainty of the market’s recovery timing, the company must take action in terms of strategy, operations, and cost control. As a result, Nokia announced plans to adjust its operational strategy with an aim to reduce overall cost base by €800 million to €1.2 billion by the end of 2026 compared to 2023, especially aiming for a 10%-15% reduction in personnel expenses.
Looking forward to the full year of 2023, Nokia once forecasted sales of between €23.2 billion and €24.6 billion with an operating profit margin of 11.5%-13.0%. However, at the beginning of this month, Nokia indicated that patent license renewal negotiations with customers had not yet been completed, and the related revenue could not be recognized. Consequently, Nokia expects it will not achieve its financial targets for net sales and operating profit margin for the full year of 2023. This suggests that if Nokia cannot secure sufficient income from its patent licensing business, its business downturn may further intensify.
Insiders view performance pressure as one of the factors leading to Nokia and OPPO signing the global patent cross-licensing agreement.
(Cover image source: Daily Economic News Archive)
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