Huawei Sues ZTE Over 4G Patents 华为起诉中兴通讯侵犯4G专利
We’ve been reading for quite a while about the growing rivalry between homegrown telecoms giants Huawei and ZTE (HKEx: 763; Shenzhen: 000063), who are now taking their increasingly intense battle to Europe with a series of lawsuits. This latest development comes as both companies struggle with stagnating growth due a slowdown in the global telecoms equipment market over the last 2 years. Huawei’s rapid revenue growth has dropped sharply due to the slowdown, and ZTE fell into the red at the end of last year as many customers deferred their payments.Now the 2 companies are taking their rivalry to Europe, where Huawei has filed a series of lawsuits in Germany, France and Hungary accusing ZTE of violating its patents for various 4G technologies. (English article) In an interesting footnote to the bigger story, Huawei even accuses some ZTE data cards of illegally incorporating the Huawei logo in the market — a tactic that seems strange to me but perhaps isn’t so unusual for Chinese companies that have a reputation for this kind of copycat tactic.
Huawei said it has been trying to get ZTE to halt its violating practices since last year, but that the 2 companies failed to reach an agreement. ZTE issued its own statement, saying it is confident its relevant products don’t violate any Huawei copyrights. It added that the lawsuits won’t affect any of its global business operations, including those in Germany. (company statement)
This kind of conflict doesn’t surprise me at all, as this isn’t the first time Huawei has sued the smaller ZTE. Huawei took similar action in Chinese courts 2 years ago, again accusing its rival of stealing its intellectual property. (previous post) In that case, the nation’s telecoms regulator even took the unusual step of trying to mediate the dispute, which was eventually settled.
This latest action comes as both Huawei and ZTE are in a mad race to register as many technology patents as they can, as Beijing encourages more innovation from its high-tech industries. The 2 companies registered more than 4,600 global patents combined in 2011, making the pair 2 of the world’s 3 most active patent filer that year. I previously commented that many of those patents probably had little or no practical use, and were more likely designed to please Beijing. (previous post) This latest series of lawsuits shows that Huawei seems determined to use at least some of those many patents, and I suspect we could see the companies file more similar lawsuits in other markets in the months ahead.
The current conflict was probably inevitable, as these 2 companies have competed nearly non-stop in their rapid rises over the last decade. Both started as small networking equipment providers in the southern boomtown of Shenzhen, and rose to prominence first by selling to the domestic market and then later expanding to developing markets and Europe to compete with global giants like Ericsson (Stockholm: ERICb) and Alcatel Lucent (Paris: ALUA).
But like the other big giants, both Huawei and ZTE are discovering that the world can be a cold place, as telecoms equipment sales have slowed considerably in the last 2 years. Both Huawei and ZTE have made major moves into the smartphone sector to offset the slowing growth, undermining their profitability as they sell their products cheaply in a bid to quickly gain market share. Both companies also received a big setback last year when they were banned by Washington from selling telecoms equipment in the US due to security concerns. We can probably expect to see more of these kinds of conflicts between Huawei and ZTE in both China and throughout the world over the next 2 years, as the pair compete for a highly overlapping group of customers.
Bottom line: Huawei’s European lawsuits against ZTE are likely to be followed by more global conflicts in the next 2 years, as the pair compete for a similar customer base.
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