Chinese telecommunications giant Huawei will begin charging smartphone makers royalties of up to $2.50 for each 5G-enabled handset they sell that uses its patented 5G technology, the company announced on Tuesday.

Why it matters: The plan means global smartphone makers like Apple and Samsung are likely to pay 5G-related royalties to Huawei, the owner of the world’s largest portfolio of 5G patents, potentially opening a new revenue stream for the company as its smartphone sales shrink.

  • Huawei has declared ownership of 3,007 5G patent families—groups of the same or similar patents filed in different nations, according to GreyB, an intellectual property research firm.
  • Around 18.3% of Huawei’s patent filings are considered “essential” to the 5G standard—protocols and technical specifications that allow connectivity between 5G devices, according to GreyB. Smartphone makers have to pay for those “standard essential patents,” or SEPs, if they want to make 5G-compatible devices.

Details: Huawei has set the royalty for its 5G SEPs to up to $2.50 for each device, said Ding Jianxin, head of Huawei’s Global Intellectual Property, at a press event on Tuesday. The royalty will be charged based on the sales price of the handset at a “reasonable rate,” Ding said.

  • Other major 5G patent owners are charging more than Huawei’s planned rate. Nokia said in 2018 that it will charge EUR 3 (around $3.57) per device for its 5G SEPs. Ericsson said in 2017 that its rate would be between $2.50 and $5 per device.
  • Huawei will negotiate royalty rates and possible cross-licensing of patents with Apple and Samsung, Huawei Chief Legal Officer Song Liuping said on Tuesday. 
  • Huawei said in a statement that it expects to earn between $1.2 billion and $1.3 billion from its intellectual property inventory, but it didn’t say how much of it will come from its 5G patents. The company has said it has invested 10% to 15% of its revenue in research and development (R & D) every year for the past decade.

Context: Huawei is losing its status as a smartphone powerhouse following US sanctions over the past two years. The company has been cut off from the global semiconductor supply chain and now relies on stockpiles to maintain production. But it remains a major standard-setter in 5G, meaning the world’s largest handset makers will still need to cooperate with the company to make 5G phones.

  • In February 2020, Huawei filed two lawsuits against Verizon, alleging that the US carrier infringed on 12 of its patents.

Writing about semiconductors and telecommunications.