4G / LTE Patent battle Gets Hot with InterDigital Complaint

On 31 January, the US International Trade Commission (USITC) started an investigation into Huawei, ZTE, Samsung, and Nokia for alleged patent infringement based on claims by InterDigital (IDCC US, not rated) filed on January 2, 2013. According to Forbes (“US ITC to investigate Samsung, Nokia, Huawei, ZTE for patent infringement”, 1 Feb 2013), the patent infringement lawsuit involves products such as smartphones, data cards, USB dongles, PCs, and other mobile Internet devices with cellular capabilities.

InterDigital is an R&D firm that develops wireless technologies and generates revenue by licensing those patented technologies to third parties. It owns 7.6% of 4G patents according to ETSI (European Telecommunications Standard Institute)’s LTE patent database. It has licensed its technology to Apple, LGE, NEC, Sharp, Blackberry, Ericsson, HTC, Nokia, and Samsung, according to InterDigital’s homepage.

We think the main intention of this lawsuit likely is not to block the import of Huawei/ZTE devices, but to charge royalty fees from ZTE (as well as other smartphone vendors). We note that ZTE owns a similar percentage of 4G/LTE essential patents as InterDigital (ZTE: 7.2% vs. InterDigital: 7.6%), based on the same study by Cyber Creative Institute. As a result we would expect limited financial impact to ZTE even it were to lose the lawsuit.

We believe ZTE/Huawei should benefit from big market share expansion in China when China’s telecom capex shifts from 2G to 3G/4G.