In the capital and technology-intensive semiconductor industry, as the number of semiconductor companies increases, the weight of patents is also growing day by day, and the awareness of patent protection is significantly strengthened. Nowadays, a chip is often composed of tens of billions or even hundreds of billions of transistors, and each transistor or component can apply for a patent. The chip giants in the semiconductor field are undoubtedly the best in the patent pool, and their accumulation of patents in the past is bringing them new sources of revenue, and Huawei is a good example.

The Evolution of Semiconductor Patents

In the past 60 years, the semiconductor industry has gradually formed the current mature industrial model of integrated device manufacturers (IDM), fabless, and foundries. During this evolution, semiconductor patents have also undergone significant changes [1].

In the early stage from 1960 to 1970, the design of integrated circuits was a daunting task. At that time, there were no EDA tools, and engineers had to manually create circuits and layouts, so the semiconductor industry was mainly in the IDM model during this period. These manufacturers' patents involved all aspects. Early IDM representatives such as Texas Instruments and Intel accumulated a wide range of patents, including from design to manufacturing, and even logic and storage products. Figure 1 below is the 4MB CMOS DRAM of Texas Instruments. Although Texas Instruments no longer produces any storage products or logic processors, their past accumulation of a large number of patents is also bringing them considerable income.

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Around 1980, EDA tools began to rise, leading to the standardization of integrated circuit design. These standardizations gradually separated chip design and manufacturing, allowing more players to enter, and fabless and foundries began to emerge.

Fabless manufacturers mainly focus on designing their own products, such as Qualcomm and Huawei, who have applied for a large number of patents in the communication field. Huawei has formed a high-value patent package in fields such as 5G, WiFi 6, audio and video coding and decoding, optical transmission, and optical intelligence. In June 2022, Huawei stated that by the end of 2021, Huawei had applied for more than 200,000 patents worldwide, with more than 110,000 authorized, and PCT exceeded 60,000. According to reports from the Securities Times, Huawei's patent applications in China are still on the rise, with Huawei's patent applications exceeding 10,000 in 2020 and 12,000 in 2021. Moreover, in the past two years, Huawei has continued to research advanced chip process technology, such as 3D chip stacking patents and EUV lithography machine patents, etc. Although facing the difficulty of export licenses, continuing patent research is also a way for Huawei to maintain competitiveness.

When it comes to Qualcomm's patents, the most impressive is the patent war between Apple and Qualcomm around mobile baseband chips from 2017 to 2019, which was full of twists and turns, almost enough to write a whole chronicle. Although the two companies finally shook hands and reconciled, Apple had to sign a six-year patent licensing agreement with Qualcomm, and Apple still needs to continue to pay Qualcomm a high patent fee. Since then, although Apple has been actively developing baseband chips, it seems not very optimistic. In July of this year, according to the well-known Apple analyst Ming-Chi Kuo, Apple's 5G baseband chip development may have failed. This also means that Qualcomm will continue to benefit from Apple's baseband chip.

In the process of process node evolution, wafer foundries also face different manufacturing challenges, such as defect density, etch selectivity, and filling of high aspect ratio structures. TSMC is the leader in the wafer foundry field. According to reports from Taiwan's "Central News Agency," as of May 2022, TSMC's total global patent applications exceeded 75,000, with more than 52,000 approved. Among the world's top 20 semiconductor manufacturers, TSMC ranks first in patent strength and second in patent quantity, second only to Samsung.The Outsourced Semiconductor Assembly and Test (OSAT) model emerged in the late 1990s. OSAT manufacturers are mainly concentrated in Asia, and they have accumulated a large number of patents in the fields of testing and packaging. It is worth mentioning that packaging and testing is a relatively mature field in China's semiconductor industry chain. According to data statistics from Smart Seeds, Changdi Technology ranks first in China's packaging and testing field with more than 3,000 valid patents.

Software now plays an increasingly prominent role in the development of chips. The industry insiders call software the "soul" of the hardware chip, including semiconductor manufacturing software, EDA tool software, etc. Software can also be protected by patent.

In summary, now including IDM, foundries, fabless companies, and software companies are all applying for patents in their respective fields. With more cross-border manufacturers (such as cloud manufacturers like Google and Amazon) joining the self-developed chip array, the patent portfolio from different groups will be more abundant, and the collision and combination of patents will also produce new technologies.

The huge patent pool of chip giants is being transformed into a new source of income.

As an important carrier of intellectual property rights, patents not only reflect the company's innovation ability and core competitiveness, but also the authorization of patents is a considerable income for the company. Although the essence of the patent system is to encourage innovation, patent authorization fees can be said to be a mutually beneficial thing. For small and medium-sized enterprises, through patent authorization, semiconductor companies can focus on their core advantages and save the process of reinventing the wheel.

Next, we will analyze the patent authorization of Intel and Huawei as examples.

As the leader of the global semiconductor industry, Intel also has a pivotal position in patents. According to the statistics of insights.greyb, Intel has more than 210,000 patents worldwide, and the official website of Intel shows that Intel currently has about 70,000 patent assets (valid patents) worldwide. The following figure is the patent application situation of Intel from 2000 to 2021. The decline in the number of patent applications in the past two years does not mean a reduction in the number of patent applications, because a patent application may take up to 18 months to be published [3].

Global top semiconductor companies, including IBM, Samsung, Qualcomm, Infineon, TSMC, Micron, Apple, AMD, etc., are all using Intel patents to promote their research.In addition to licensed patents, patent transfer is also a way for companies to generate revenue. Over the past few years, Intel has been an important source of patent acquisition for Apple. In 2019, Intel announced its exit from the research of baseband chips and sold its team, related technology patents, and R&D equipment in this field to Apple at a price of $1 billion. This trend continued in 2020, with Apple obtaining about 4,600 patents, of which 3,650 came from Intel. In August 2022, Intel transferred nearly 5,000 patents to a newly established company within the IPValue Management Group. These patents cover a wide range of fields, such as "microprocessors, logic devices, computing systems, memory and storage, connection and communication, packaging, semiconductor architecture and design, and semiconductor manufacturing."

From 2019 to 2021, Huawei generated $1.3 billion in revenue through patent licensing, with an annual revenue of about $400 million, which only accounts for 1% of Huawei's annual revenue of more than 600 billion yuan. Huawei stated that patent fees are not for the sake of charging fees, but of course, the patent fees cannot be too low. If they are too low, it will suppress the innovation of the entire society, and no one will be willing to invest in R&D, leading to a de facto monopoly. The company also warned to be prepared for a "prolonged war," making patent licensing a common phenomenon [2].

In March 2021, Huawei officially announced the collection of 5G patent licensing fees, according to a reasonable percentage rate applicable to the selling price of 5G mobile phones, with a single mobile phone licensing fee not exceeding $2.5. As one of the earliest companies to develop 5G, Huawei can be said to be the latest and lowest charging manufacturer.

In 2022, Huawei stated that it has signed more than 20 new patent licensing agreements or expansion agreements with companies in the smartphone, automotive, and telecommunications industries.

In the field of smartphones, over the past five years, more than 2 billion smartphones have obtained Huawei's 4G/5G patent licenses. Nokia has been booking patent licenses from Huawei since 2017. On December 23, 2022, Huawei announced on Friday the renewal of the patent licensing agreement with Nokia, and the latest extension reflects Huawei's strength. In early December, Huawei and OPPO also announced the signing of a global patent cross-licensing agreement, covering basic patents of cellular communication standards, including 5G standards. Huawei and Samsung Group have signed similar agreements for their respective standard essential patent packages.

In the automotive field, currently, about 8 million smart cars with Huawei's 4G/5G patent licenses are delivered to consumers every year. This year, Huawei has reached agreements with about 15 car manufacturers, including Mercedes-Benz, Audi, Porsche, and BMW, who are all looking to add more communication technology to their vehicles. The patents authorized by Huawei to car manufacturers mainly involve communication technologies such as 4G, but the transaction terms vary.

In addition, patent wars are a common phenomenon in the semiconductor industry, with patent wars of varying sizes between the same industry and even between upstream and downstream. In fact, the essence of patent wars is nothing more than two purposes: one is the issue of patent fee collection, and the other is to restrict the development of competitors.

Conclusion

The collection of patent fees is only the smallest benefit brought by patents. The more profound significance of patents is to build a high patent wall for the enterprise itself, reduce the market share of competitors, and limit the entry of new competitors. Nowadays, patents are not only a powerful tool for manufacturers to compete in the market but also the key to competition in the global technology industry. Whoever applies for patents first will have more say and initiative. Under the current development trend of independent control in various countries, patents will be an invisible competition between countries and enterprises.