Analyst: Intellectual property shifts hands with move to 4G

As the industry moved from 3G to 4G, the intellectual property among the major wireless players was supposed to shift with it, redistributing patents across a broad range of companies and institutions and easing what many viewed as Qualcomm’s patent stranglehold on the industry. But according to research group Informa, the dominant intellectual property holders in long-term evolution remain unchanged.

Qualcomm (NASDAQ:QCOM) and its GSM technology counterpart InterDigital (NASDAQ:IDCC) together control 40% of the LTE patent pool, with 19% and 21% of total patents, respectively. But Informa also found that the other traditional wireless heavyweights Ericsson (NASDAQ:ERIC) and Nokia (NYSE:NOK) lost much of their intellectual property standing, as emerging vendors such as Huawei contributed their research heft to 4G development.

Huawei accounted for 9% of all patents, coming in third. Samsung had 8%, while Nokia, Ericsson and LG Electronics tied for fourth place with 7% of total LTE patents each. Though that represents a sizable shift in patent power, much of it was largely expected. Huawei emerged on the international scene during the height of the 3G building boom, long after standards development for the technology was complete. While Huawei specialized in optimizing existing wireless technologies at the time, it promised to extend its considerable R&D might toward shaping the standards for future technology.

Samsung may not be mentioned in the same breath as Ericsson or Huawei when it comes to LTE technologies, but it was one of the first vendors to explore 4G early last decade. Its WiBro mobile broadband platform was eventually rolled into the WiMax standard, but it used the same orthogonal frequency division multiplexing access (OFDMA) technology common to both WiMax and LTE.

Qualcomm is the oddball of the bunch. Though it has always heavily relied on research and its own intellectual property portfolio to establish its dominance in wireless, it came rather late to LTE, defending its own internally developed CDMA technologies long after the world had caught OFDMA fever. But when it decided to come to the LTE table it did so in a big way: It bought mobile broadband pioneer Flarion Technologies for $400 million, giving Qualcomm the company’s extensive OFDMA portfolio.

Informa warned that its percentages reflected only the number of overall patents, not the overall value. Only a third of all LTE patents would be considered "essential," an innovation or process required for implementing an LTE network or building an LTE device, said Malik Kamal Saadi, principal analyst with Informa. The distribution of essential patents is much different from than the spread in total patents, and it’s also much more difficult to quantify because many of the patents deemed non-essential could become essential in the future. Where those patents are registered also determines their value, as one market might determine them as essential and another might not, Kamal Saadi said.

“For example, from the 182 LTE patents contributed by Huawei, 178 are registered in China and only a handful of these could currently be described as essential,” according to the Informa report. “This means that Huawei’s IPR wealth will be effective in China but to a certain extent less effective in the rest of the world unless Huawei validates its patents with other recognized trademark and patent offices.”

Meanwhile, Qualcomm is in a good position on both fronts. Not only does it have about a fifth of the global LTE patents, 60% of them are considered essential. Nokia’s total number is far smaller, but Informa deemed that 60% of its portfolio is also composed of essential patents. For LG, Informa labeled 50% of its patents essential, 40% for Samsung and 33% for Ericsson.

Ericsson’s success in LTE may wind up being a mixed blessing. Though it has sold more LTE networks than any other vendor, it may have to pay a sizable percentage of its revenues to its competitors in royalties. Overall, though, Kamal Saadi said the much broader distribution of LTE royalties will benefit the industry as a whole, making the technology accessible to a larger class of vendors.

“It’s clear that Samsung, LG and Huawei, who traditionally had a weak IPR portfolio in 3G and 3.5G wireless technologies, are becoming increasingly aggressive in the LTE landscape, not only by acquiring an increased number of LTE patents, but also by making these patents essential. This will enable them to better trade against the incumbent IPR holders and lower the cost related to licensing wireless technologies,” Kamal Saadi said in a statement. “Overall there is no doubt that a more widely distributed LTE IPR wealth is likely to help the whole industry, as it will reduce costs related to technology licensing and royalty fees.”