Qualcomm antitrust probe in China to trigger patent wars

Chinese regulators will end Qualcomm's 'reverse patent licence' practice that allows the chip makers' clients to employ each other's patents free of charge, Chinese reports said this week, indicating that the patent wars between smartphone makers are likely to begin.

After the year-long probe into US chipmaker Qualcomm, the National Development and Reform Commission has concluded its antitrust investigation, and the result is ready to go, Chinese newspaper First Financial Daily reported on Wednesday, citing an anonymous source close to the matter.

Besides huge fines on Qualcomm's monopolistic practice and a mandate to the company on lowering licensing fees, the Chinese regulator will also demand that the US technology giant ditch its so-called "reverse patent licence" — a compulsory agreement that Qualcomm imposed on its clients to lift their patent fees to each other, the source told the Chinese newspaper.

Under the agreement, any smartphone makers that use Qualcomm's chips must "authorise their patent rights to Qualcomm", and are not allowed to collect any relevant patent royalties from other Qualcomm clients, according to the report. It added that the practice has shielded the interests of smartphone makers with less patent rights, and should be deemed as unfair.

The decision, if proven to be true, will greatly benefit Chinese equipment vendors and mobile phone makers like ZTE and Huawei, which hold a substantial amount of smartphone-related patents in the country.

By the end of 2013, ZTE's patent total has exceeded 52,000 patents worldwide, while Huawei's total patent portfolio numbered over 30,000 by November this year. It contrasts sharply to other Chinese smartphone makers, including Xiaomi and Oppo, which only own a total of 10 and 103 patents, respectively, according to First Financial Daily.

Without an adequate patent library, smartphone manufacturers making budget handsets will see pressure mount in patent-related costs. However, both ZTE and Huawei responded ambiguously on the issue.

People close with ZTE said in the report that the company agrees it should enjoy more patent dividends, indicating that the patent competitions among Chinese smartphone makers have just started.

Huawei, on the other hand, stated clearly that it will not head to the courts on the issue in the future.