Huawei and Qualcomm lead the 5G SEP race

It is predicted that in the future, half of the world's data will be generated by non-human sources (eg, vehicles, machines and sensors). With this next industrial revolution increasingly integrating connectivity into mechanical products, the growing number of devices and volume of data are placing new demands on 5G and future 6G technologies and businesses will need to rely on connectivity standards that are subject to SEPs. However, the priorities of SEP owners will continue to be to actively monetise and enforce their portfolios. Both 5G SEP owners and standard implementers face the challenge of managing operational and financial risks and cost exposures while striving to maximise value.

The 5G technology revolution will not only disrupt business models for connected devices but also prompt industries to reconsider how best to deal with intellectual property.

The 5G SEP licensing challenge

Royalty payments from SEP deals play a crucial role in fuelling innovation cycles for connected products. SEP licence agreements are achieved when two parties – often with diverse objectives and motivations – negotiate an agreement and sign an SEP licence contract. To achieve this, companies must find a way to agree on long-term sustainable contracts and royalties. Portfolios that contain thousands of SEPs, which are part of accepted standards like 5G, hold significant value. This leads to the question of how much an SEP portfolio is worth.

The most common approach to determining a portfolio’s value is to rely on comparable licence agreements as reference points for other deals. However, these are not public and may not always be applicable.

With the growing complexity of licensing SEPs in new industry verticals, the need for transparency is increasing – as is the need for additional reference points. The European Telecommunications Standards Institute (ETSI) offers a database for 3G, 4G or 5G, serving as a comprehensive list of potentially essential patents. However, ETSI’s raw data of declared patents is highly inflated and messy and requires rigorous cleaning, matching and deduplication. Even more, the most challenging part is assessing the value of these patents and determining which self-declared patents are essential for the standard's implementation.

While claim charting seems obvious, it is expensive and time-consuming and becomes impractical when negotiating portfolios with hundreds or thousands of patents. Negotiating parties often agree to determine essentiality for smaller samples of larger portfolios. Nonetheless, the question of how large and valuable a given portfolio is compared to the overall number of SEPs for standards like 5G remains. Valuing SEP portfolios requires assessing the ultimate owner’s 5G portfolio (numerator) and the overall number of 5G SEPs (denominator). However, with around 60,000 declared 5G patent families (both pending and granted worldwide), it is unfeasible to value and determine essentialities for all declared patents.

How to count and value 5G declared patents

Patents vary in value – especially in relation to standards. On the one hand, SEPs may protect core technologies spanning generations of standards, but on the other hand may only describe only minor improvements to existing standards features. Further, not all self-declared patents are essential; expert estimates suggest that only about 10% to 20% of declared 5G patents are truly essential. Consequently, counting patents alone does not accurately reflect the value and enforceability of an SEP portfolio.

This report has collected over 60,000 declared 5G patent families with about 30,000 active and granted at the EPO or USPTO until 15 July 2023. Identification was carried out using the 3GPP technical specification (TS) database, mapping ETSI-declared TS to the 5G technology generation and considering 3G-to-5G and 4G-to-5G bridging technologies. Patents declared to 5G standards projects but declared only to 3G or 4G TS were not considered. Patents were counted according to the ultimate owner data, which is the latest assignee and highest parent company, as of 15 July 2023.  The analysis refines the patent count using indicators related to a patent’s value and the technical leadership in 5G standards development. Table 1 shows the top 10 companies declaring 5G patents ranked by three different measurements. 

The far-left column is a ranking of the average across these measurements. The first measurement ranks ultimate owners by the number of declared 5G patent families (extended INPADOC) that are active and granted (EPO or USPTO).

The second column ranks ultimate owners by the number of declared 5G patent families (active, granted, EPO or USPTO) by the Patent Asset Index. 

The third column ranks the ultimate owners by the number of technical 5G contributions submitted to the 3GPP – the organisation developing the 5G standard. For this analysis, only technical 3GPP contributions since 2015 (as these assumingly related mostly to 5G) have been counted (excluding non-technical contributions in categories A, D or F).

The Patent Asset Index represents a measure of a portfolio’s innovative strength. A patent family is more valuable when other innovations build on the technology protected by this family and the scope of protection that the ultimate owner considers appropriate. The index represents a patent family’s individual strength and is obtained by multiplying the technology relevance (global citations received from later patents adjusted for age, patent office practices and technology field) and the market coverage (weighted market size protected by active patents and pending patent applications protecting a certain invention). It is stated relative to the other parent families in the same field. The index methodology is based on years of scientific research and has been validated to correlate with a patent’s value from the world’s biggest patent holders across industries. 

The 5G standard is specified by the 3GPP, which is an umbrella organisation that develops the protocols for the mobile telecommunications generations 3G, 4G and 5G that are published by ETSI. The 3GPP follows the principle of consensus decision making. Consequently, it requires considerable research and investment to make technically meaningful and convincing contributions that are accepted, approved and incorporated by all members (if consensus is not reached, some decisions also follow majority voting procedures). Companies can only gain credibility by regularly participating and developing the best specifications, which allows them to bring their own developed and sometimes patented technologies into the standard. Therefore, 5G contribution data facilitates assessment of the involvement and investment of organisations in the development of 5G standards.

Beyond patent family counting

In Table 1, it is evident that relying solely on patent counting can lead to varying results when compared to other indicators of 5G leadership. For instance, InterDigital, a company that, unlike the other nine patent holders, generates profits mainly through SEP licensing, depends heavily on the essentiality and value of its SEP portfolio during negotiations and legal disputes. According to Table 1, InterDigital ranks 14th when only patent families (active, granted, EPO or USPTO) are considered. However, when utilising the patent asset index, InterDigital jumps up to 5th place in the ultimate owner 5G patent ranking.

Examining 5G patent rankings requires caution due to data limitations and varying filters. ETSI's patent declaration data lacks essentiality confirmation and is not cleaned or updated. Different declaration practices among 5G patent owners also affects rankings. Over-declaration is common and often in good faith due to ETSI's early declaration policy. Similarly, 3GPP contribution data is also inflated and not every contribution is subject to a patent.

In this report, we implement data refinement methods recommended by industry experts to eliminate systematic over-declaration or inflated standards contribution submissions. We count unique patent families, deduplicate across specifications, expand family counterparts, delete falsely declared patents and even rank 5G portfolios excluding earlier-generation patents to cross-check the results. That way, we eliminate intentional over-declaration practices that may inflate results. For contribution data, we also deduplicate and only consider technical contributions.

Five key considerations for the 5G future

Licensing 5G SEPs is a difficult task for any sector that depends on 5G technology. Senior patent directors, licensing executives or legal counsel should keep in mind that:

• future technologies that enable connectivity will increasingly rely on technology standards subject to SEPs, such as 5G;
• the number of 5G SEP declarations and SEP owners is constantly increasing, and fragmented SEP ownership increases the complexity of SEP licensing;
• connectivity standards implementers must consider royalty costs and appropriate security payments in advance;
• they ought not only to consider information retrieved from raw patent declaration data but refine it when using it as a reference point; and
• SEP determination and value estimation is crucial to make accurate assumptions about 5G leadership and market shares.