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INSIGHT: Could Huawei Retaliate Against U.S. With Its Massive Patent Portfolio?

May 28, 2019, 8:00 AM

On May 15, the Trump administration issued an executive order authorizing Commerce Secretary Wilbur Ross to prohibit and transaction that “poses an unacceptable risk to the national security of the United States.” The order is clearly directed to Huawei, as it’s directed to information and communications technology where a foreign country, a.k.a. China, has an interest.

Stepping back, today’s smartphones operate over 3G/4G networks. It is 5G though that brings long-term AI innovations for essentially all products. The Internet of Things (IoT) will unify global mobile communications, as every conceivable machine, building, product, and vehicle will use sensors and embedded 5G tech to communicate over a cloud architecture.

But according to sources, it is Huawei that’s the leading owner of 5G standard-essential patents (SEP). So could its portfolio of more than 11,000 patents in the space issue a global risk to the West?

At first blush, the legal framework would say ‘no.’

The 5G and other advanced telecom standards are not under a domestic or international governmental umbrella. Instead, they are set by respected, private standard-setting organizations (SSO)—notably the Institute of Electrical and Electronic Engineers (IEEE), International Telecommunication Union (ITU), and European Telecommunications Standard Institute (ETSI).

To ease cross-licensing and prevent bullying by those companies whose technologies are major contributors, SSO members give each other (and sometimes others) FRAND (“Fair, Reasonable, and Non-Discriminatory”) terms. This alleviates the high risk of patent lawsuits by individual contributors.

Here, Huawei enjoys sowing its own tech innovations and reaping the many innovations of other private-company members, so it is incentivized not to enforce. However, persistent bullying by the U.S. and a stiff-elbow from participation in the enormous U.S. market disincentivizes its good-guy participation.

Potential Ramifications of U.S. Bullying

There are additional ramifications as well.

Because 5G builds off 3G/4G networks and the interoperability involved, Huawei’s European expansion could be adversely impacted. European leaders have refused, however, to single out Huawei and by extension, China, despite coercion by the U.S. Their solution has been to implement additional cyber security measures, which does reduce the patent enforcement issue.

But it is by no means a foregone conclusion that Huawei will not pull out of 5G SSO’s and commence patent retaliation against other members. And there have been examples sparked by far lesser economic motive. Rambus’ 90’s behavior is oft-cited as an example.

After an SSO for memory chips adopted Rambus’ memory SEP patents, Rambus famously itself withdrew and began suing the other members for infringing the same patents.

Notwithstanding patent enforcement, though, Huawei’s withdrawal from SSO patent participation could issue an even greater risk. The entire fabric of 5G development and East-West AI participation could be injured.

The Patent Public Policy Bargain

The reasoning goes to just how the patent public policy bargain really works. A patent in most systems provides 20 years of limited technology monopoly to its owner. In exchange, the owner shares the innovation publicly, and the world enjoys the corresponding benefits of the information exchange. Across thousands of companies and millions of patents, the massive exchange propels entire industries. (Abraham Lincoln, the only U.S. president to hold a patent, called it adding “the fuel of interest to the fire of genius.”)

If Huawei, and by proxy the Chinese government, feels victimized, it could, instead of patenting, keep its advances trade secreted—the metaphorical equivalent of taking its ball and going home. Given Huawei’s enormous advances in 5G, undoubtedly 5G and other AI advances for Western countries would suffer, as would China’s own advances from not participating with the West.

In the long run, entire industries of memory, software, telecom and related AI innovations would suffer immeasurably. Former U.S. Treasury Secretary Hank Paulson has warned about the prospect of an international “economic iron curtain” between China and the West, and Huawei could simultaneously be its first victim and enabler.

Accordingly, while the executive order may attempt to address genuine concerns of cyber security and national security, the implications to our advances in science and technology are vast. The scalpel here works better than the ax. And shouldn’t decisions of this magnitude be determined by the people’s representatives and not the executive branch?

Contrary to Dylan Thomas’ sage advice, this is one case where the U.S. should actually go gentle into that good night.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Cameron Tousi is managing partner at IP Law Leaders PLLC in Washington, D.C. and was a former head of IP for Samsung Electronics. Having represented hundreds of Fortune 100s, multinationals, startups and venture firms, Cameron regularly advises industry leaders and disrupters alike in their bet-the-company legal matters.

To contact the reporter on this story: Lisa Rockelli in Washington at lrockelli@bloomberglaw.com

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