Trade wars generally aren’t good for technology companies or consumers, and neither are patent battles — they tend to burn millions of dollars in legal fees while delaying or halting the spread of new technologies. To help avoid future 5G licensing-related fights, Nokia today disclosed its licensing fee for 5G standard essential patents: €3 (U.S. $3.48) per device, a flat rate notably lower than 5G licenses announced by rivals Ericsson and Qualcomm.
The international 5G standard was finalized in June, and is based largely on engineering and testing accomplishments from wireless giants Qualcomm, Huawei, Ericsson, Samsung, and Nokia. In exchange for developing the standard, each of the companies gets the right to license its contributions to device makers, generally under “fair, reasonable, and non-discriminatory” (FRAND) terms that will enable as many people to use the technology as possible.
FRAND licensing is meant to help technology pioneers recoup and profit from their investments without unduly squeezing device makers — or consumers. Licensing has been estimated to add around $9.60 to the cost of 4G phones on average, though that number is likely on the low side: Cumulative licensing fees across multiple patent holders could total around 10 percent of a phone’s wholesale price.
Nokia’s €3 flat rate contrasts with Ericsson, which has a sliding scale of $2.50 to $5 per 5G device, depending on the handset’s price. And it’s considerably lower than Qualcomm, which plans to license its 5G patents at 2.275 percent of a single-mode 5G handset’s wholesale price, or 3.25 percent of a multi-mode 5G handset’s price, capped at $400.
That would be $13 in 5G licensing fees for Qualcomm alone, bringing the total royalty fees for just these three companies to over $21 per device — that’s before paying royalties to other essential 5G patent holders such as Samsung and Huawei. As IAM points out, however, larger device makers typically negotiate volume discounts that are “well below [patent] owners’ publicly disclosed rates.”
By setting a lower price and offering greater licensing transparency, Nokia appears to be working to avoid the debacle Qualcomm has recently faced with 4G patent licensing fees. The San Diego-based company has been hit with international investigations, lawsuits, and stock uncertainty, thanks largely to licensing fee disputes with Apple, Samsung, and Huawei.
To reassure licensees heading into the 5G era, Qualcomm dropped its cap from $500 to $400, reducing its top fee per phone from $16.25 to $13, and indicated that it hoped to settle its disputes with Apple. But no settlement has taken place, and Apple decided to dump Qualcomm for its 2018 iPhones.
By publicly disclosing its 5G patent fees — and keeping them low — Nokia is dramatically reducing the chances of future licensing turbulence, and increasing the chances it will make plenty of money from a wave of new 5G products. The company says that its €3 rate will apply to smartphones, but it’s leaving open the possibility of a different rate for other 5G devices as they emerge.
Nokia’s move leaves Huawei as the largest 5G contributor not to have announced its rates. But in June, rotating chairman Eric Xu said that the company will “stick to the FRAND principle and make every effort to reduce licensing fees for 5G patents.” Xu also said that “5G patent holders should ensure their cumulative licensing rates are lower and more transparent than 4G,” and claimed that Huawei would “never squeeze other companies or society as a whole” with its patent holdings.