China's mobile phone patent war: a mind game of self-absorption

Recently, there have been many comments and articles about the patent war in China's mobile phone industry. But what surprised and puzzled us was that last year, when the National Development and Reform Commission launched an antitrust investigation into Qualcomm, the leader in mobile phone chips, for charging so-called patent licensing fees (excessive licensing rates) to Chinese mobile phone companies, it was criticized and disdained by domestic mobile phone companies and some people in the industry. However, this year, the situation suddenly changed. Our domestic companies and industry insiders seemed to have become patent defenders overnight, and even promoted the role of patents to the level of determining the life and death of mobile phone companies. This is almost a 180-degree turn, which makes us have to think about the real reasons behind it and the actual role of mobile phone patents in the competition of the mobile phone industry for mobile phone companies.

Looking back at the source of the current hotly discussed Chinese mobile phone patent war, according to our observation (not necessarily objective and not targeted), when Qualcomm's antitrust investigation in China was delayed, several analytical articles on the comparison of patents of Chinese mobile phone companies by an industry insider appeared in various mainstream online media. Through these articles, the biggest conclusion we have drawn is that manufacturers who may provoke patent wars in the domestic mobile phone market have patent advantages. During this period, Chinese Premier Li Keqiang stated at the World Internet Conference on Qualcomm's antitrust investigation that he believed Qualcomm could find a solution to the problem with China's antitrust agency, and emphasized that technology companies need an "equal competitive environment" in the Chinese market. At the same time, Qualcomm CEO Paul Jacobs told the Wall Street Journal after the meeting that Premier Li Keqiang's statement made him very happy. This series of statements was interpreted by the industry as a sign that China wanted to downplay the antitrust investigation of Qualcomm. In other words, for Qualcomm, the worst result is to appropriately reduce the rate of patent licensing fees charged to Chinese mobile phone companies, and its business model based on patent licensing will still be unimpeded in China. The hope of Chinese mobile phone companies to cancel Qualcomm's licensing fees through antitrust measures will be dashed. After that, articles about patent wars among Chinese manufacturers began to appear and intensified. I wonder what people in the industry think of this process?

We believe that this is a carefully planned scheme by some domestic mobile phone companies that hold certain patents. That is, they have already anticipated the worst outcome of the antitrust investigation of Qualcomm, so they have released the view that they have patent advantages in advance, which is nothing more than using Qualcomm to collect patent licensing fees from other domestic companies that have no patent accumulation or have relatively weak patent accumulation. The popular explanation is that Qualcomm, which is under antitrust investigation, can still collect patent licensing fees, so why can't we, a domestic company, do the same?

At this point, some people may argue that if the final result of the Qualcomm antitrust investigation is to require Qualcomm to cancel the patent licensing fee, wouldn't these companies have set up the scheme in vain? What we want to say is that this possibility is very small. Even if this result is achieved, it is not a problem for them to release their patent advantages over other manufacturers before, and they can make a fuss from the perspective of innovation. However, the subsequent reports of the so-called intention to start a patent war in China's mobile phones may not appear, at least not as fierce as it is now. It is precisely Premier Li Keqiang's remarks on Qualcomm's antitrust investigation that have given these companies a positive basis for their previous judgments, and the subsequent large-scale reports of China's intention to start a patent war (media and self-media) are just a matter of course. As the saying goes, it is too clever to be too calculating. But they overlooked and misunderstood some facts behind the patents. For example, Qualcomm, although patent licensing accounts for most of its profits, the reason why it has become the boss of mobile phone chips is more importantly that it has applied the innovation represented by the patents to its products. From the facts of the success and failure of mainstream foreign mobile phone manufacturers, the role played by patents is minimal.

According to relevant statistics, Apple and Samsung in the smartphone industry are the manufacturers that have encountered the most patent lawsuits (in addition to patent lawsuits between each other, there are also lawsuits similar to NPE non-business entities). Among them, Apple ranked first with a total of 191 lawsuits from 2009 to 2013; Samsung followed closely with 152, ranking second. It is a well-known fact that Apple and Samsung are not among the best in the industry in terms of patent applications and reserves related to the smartphone industry. In other words, in addition to paying licensing fees to some manufacturers in the industry that hold relevant patents like other mobile phone manufacturers, Apple and Samsung also face more lawsuits similar to NPE organizations or companies that profit from patents than other manufacturers. That is, Apple and Samsung should be the companies that are most negatively affected by the patent licensing model in the smartphone industry. And this has not affected the performance of these two companies in the smartphone market.

Although Samsung's mobile phone business has declined sharply this year, the industry knows that this has almost nothing to do with patents, but is due to the impact of Apple's iPhone and Chinese mobile phone companies in the high, medium and low-end markets from the product level, especially due to its own misjudgment of the smartphone market demand and competition situation. For example, the sales volume of its flagship model Galaxy S5 was 40% less than Samsung expected, resulting in a mountain of inventory, and the decline in revenue and profit is understandable.

If the actual market performance of Apple and Samsung, the champion and runner-up in the smartphone industry, has positively confirmed that patents (the number of patents owned and patent lawsuits) do not play a decisive role as we thought, then compared with Apple and Samsung, Nokia, Motorola, BlackBerry, and Palm, which once had a glorious time in the mobile phone market, tell us from the opposite side that patents do not play a decisive role in competition.

As we all know, Nokia, Motorola, Blackberry, and Palm all have strong patent portfolios and reserves related to the mobile phone industry. This is proven by the fact that Google acquired Motorola for $12.5 billion; it was previously rumored that the largest asset (the most valuable part) of Blackberry's sale was patents; Nokia's acquisition by Microsoft once caused the industry to worry that it might use its huge patent reserves and portfolio to demand excessive patent licensing fees from other mobile phone manufacturers; although Palm withdrew from the mobile phone market after being acquired by HP, Qualcomm, which already has strong patent strength, still acquired a total of 1,400 patents and patent applications involving mobile communication technologies, including Palm, iPAQ, and Bitphone, from HP at the beginning of this year.

But the reality is that these manufacturers with a large number of patents have failed to prevent their own decline in the smartphone industry. Palm was acquired by HP early on; Nokia also failed to escape the fate of being sold; Motorola Mobility was sold again this year; BlackBerry finally admitted that its smartphone ecosystem had lost in the competition with Apple and Google after struggling.

It is worth mentioning that Microsoft, as one of the three major ecosystems in the current smartphone industry, is currently using its patents to charge patent licensing fees to mobile phone manufacturers using Google's Android system (the licensing fee for each Android phone is 5-10 US dollars). It is said that Microsoft received 2 billion US dollars in Android device patent licensing fees last year, but in fact, Microsoft lost more than the profit it gained from Android. According to relevant statistics, Microsoft's mobile and device department where Windows Phone is located lost about 2.5 billion US dollars last year. What's important is that Microsoft's approach has not prevented the expansion of the Android camp, and its own Windows Phone has never been able to get out of the downturn in the market.

Back to our domestic mobile phone industry, after rating the 25 popular mobile phones released this year, the Wall Street Journal recently selected the "2014 Most Worth Buying Smartphones". Unfortunately, none of the mobile phones from our domestic mobile phone companies that are influential in China were selected. In the selection of the 2014 China's Top 20 Android Mobile Phones by Phone Arena, a well-known foreign technology website, which takes appearance, performance and price as reference factors, we unexpectedly found that the top three mobile phones are actually mobile phones from manufacturers that some of our media and commentators have recently considered to lack patents and are most vulnerable to patent lawsuits. In comparison, among the manufacturers that are known as the top four mobile phone patents in China (with certain patent reserves), except for Huawei, which has 4 mobile phones selected, the other two companies only have one mobile phone selected in the TOP20, and both are ranked in the middle, and Coolpad does not have a single mobile phone in the TOP20 list.

We list these two statistics, not to deny the importance of patents. What is puzzling is why these manufacturers with so-called patent advantages cannot first apply the innovations behind these patents to their own products (such as Qualcomm, Apple, and Samsung) to enhance the competitiveness of their own products. This makes us doubt how much actual commercial value these patents have, and even if they win the opponent in the patent war, how much negative impact can they cause to the opponent, and how much improvement can they bring to the competitiveness of their own products. Just like the examples of foreign manufacturers we listed earlier, the number and gold content of their patents are definitely higher than ours, and the professional experience and strength of manufacturers who have encountered patent lawsuits (from the perspective of NPE) are definitely much higher than ours, but they have not been able to change the fate of the relevant mobile phone companies in the competition of the mobile phone industry, let alone our manufacturers. Therefore, we believe that the so-called patent wars that have been hyped up by domestic manufacturers recently have no commercial value and impact on all parties involved, and are at best a self-indulgent psychological game. In this case, we might as well return to the product itself, and don’t be so willful just because we have some patents, and miss the life of the beloved.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.