The Battle for 5G Sovereignty - a Qualitative Patent Portfolio Analysis Executive Summary

5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

The battle for 5G sovereignty - a qualitative patent portfolio analysis Executive Summary

In the discussion about European sovereignty in the area of system-critical 5G infrastructure, the thesis of China's 5G technology leadership and of European companies being left behind is often spread. The present analyses were able to show that despite the high number of 5G patent applications filed by Chinese companies (here: Huawei and ZTE), the quality of these, evaluated using the proven ARIAD Patent Rating Methodology, lags significantly behind the other top global applicants. Furthermore, the possibility of a European "IT- AIRBUS" with Nokia and Ericsson, as well as in an additional analysis with InterDigital, was considered as the merging companies. Based on the 5G patent portfolios, it was possible to show that such a group could compete qualitatively, as well as quantitatively, with the international 5G technology leaders (Qualcomm and LG). According to the patent data-based analyses, Europe thus has the potential to build the future-oriented 5G infrastructure on its own while maintaining sovereignty and security.

Introduction

The fifth generation of mobile communications technologies (5G) represents an enormous step in the development towards a completely connected world: the technology enables wireless data transmission at speeds previously unavailable to the public. They form the basis for future concepts, which are often described as "smart": Smart City, Smart Mobility, Smart Home, Smart Factory, Smart Everything. 5G technology offers the possibility of taking digital communication between humans, humans and machines, but also between machines, into a new age, and represents the backbone for autonomously operating vehicles, robots and household appliances, i.e. the Internet of Things. 5G has therefore also dominated the political discussion regarding digital infrastructure. This is even more the case for European countries, which are currently (as of April 29, 2020), with the approval of Huawei technologies, taking a different path compared to the USA. Often discussed in this context is the danger posed by the dependence on Chinese technology for the essential digital infrastructure around 5G1.

The present short study will evaluate the 5G field based on published international patent data: international technology leaders (according to 5G patent activity) will be identified and analyzed. The focus is purely on data from published patent applications (and not on the "Standard Essential Patents" used in other studies).

Besides the usual comparison of the number of 5G patents, the quality of the 5G patent portfolios of the key players will be considered. The quality is assessed using ARIAD Asset Management GmbH’s (ARIAD) IP Rating method, which has already been applied in various scientific studies and serves as the basis for the first investment strategy worldwide (ARIAD Patent Equity Strategy) that is systematically and purely based on patent data. This strategy has been successfully implemented in various investment funds for over five years2.

1 https://www.golem.de/news/mobilfunk-telekom-warnt-intern-vor-5g-ausschluss-von-huawei-1901-139048.html; https://www.merics.org/de/papers-on-china/chinas-digital-rise; 2 Monega Innovation R, I (WKN: 532102) 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

This study intends to provide clues as to whether Europe is technologically dependent on American or Asian companies in the key technologies surrounding 5G, or whether it is already well positioned with companies such as Nokia and Ericsson.

Could a possible merger of these two European companies, as a kind of "IT Airbus", secure European sovereignty and digital security in 5G key technologies3?

1. Identification of 5G related patents

The first step in the quantitative analysis is to determine what are 5G-related patents4. Not every patent whose underlying technology can be used in the 5G field has the term "5G" or a variation of it in its description. In addition, there is currently no standardized technology class according to IPC or CPC classifications, in which 5G-related patents are technologically grouped.

In order to define 5G-related technology classes, a semantic query was used to find all international patents (published from 20085 onwards) whose titles or abstracts contain the terms "5G", "5 G", "5-G" or "fifth generation" in connection with "network", "communication", "internet" or "mobile".

Figure 1 illustrates the filing dynamics of the identified patents that meet these conditions. As expected, the number of published patents6 has grown exponentially in recent years.

9000 8000 7000 6000 5000 4000

3000 patents with 5G semantics 5G with patents

veröffentliche Patente veröffentliche 2000 1000

Published 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Figure 1: Patent applications with 5G semantics in the title/abstract by year of publication

The distribution of patent applications in different technology classes (IPC subgroups) can be seen in Figure 2, whereby the 30 largest subgroups according to their share of total technology classifications are shown7. It is important to notice that the patent office can assign several technology classes to a single invention, depending on its functionality and versatility.

3 https://www.zeit.de/politik/deutschland/2019-11/huawei-5g-mobilfunknetz-netzausbau 4 Hereinafter, the term "patents" includes both granted patents and patent applications that have not (yet) been granted. 5 This point in time was chosen due to the fact that some inventions necessary for 5G were already developed for 4G/LTE, and were therefore patented early on. 6 Patents counted by year of publication, 2008 to 2019. 7 Technology classes that are not included in the IPC section "H - ELECTRICITY" were excluded from consideration. 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

H04W 72/04 H04L 5/00 H04B 7/06 H04W 72/12 H04W 74/08 H04L 1/00 H04L 27/26 H04W 28/02 H04W 36/00 H04L 29/08 H04W 24/10 H04W 88/08 H04L 29/06 H04L 1/18 H04W 56/00 H04W 74/00 H01Q 1/50 H04B 7/04 H04W 88/06 H01Q 1/38 H04J 11/00 H01Q 1/24 H01Q 1/36 H04W 16/28 H04W 52/02 H04W 24/02 H04W 76/27 H04W 28/06 H04W 12/06 H04W 88/02 SonstigeOthers Figure 2: Classification of 5G patents in IPC subgroups, according to percentage in the total number of classifications

The subdivision into IPC subgroups is very granular (over 50% of the classifications have a very small share and fall under "Others"). This IPC level is therefore not a suitable basis for the selection of 5G-related technology classes for further investigation. Nevertheless, it provides a first impression of important technology areas. The five most significant IPC subgroups in terms of their share in the total technology classifications are shown in Table 1 with their respective descriptions, illustrating their fields of application.

IPC subgroup Share Description (IPC subclass) Description (IPC main group) Description (IPC subgroup) 1 H04W 72/04 5,6% WIRELESS COMMUNICATION NETWORKS Local resource management, e.g. Wireless resource allocation selection or allocation of wireless resources or wireless traffic scheduling 2 H04L 5/00 4,6% TRANSMISSION OF DIGITAL INFORMATION, e.g. Arrangements affording multiple Arrangements affording multiple TELEGRAPHIC COMMUNICATION use of the transmission path use of the transmission path 3 H04B 7/06 2,7% TRANSMISSION Radio transmission systems, i.e. at the transmitting station using radiation field (H04B0010000000, H04B0015000000 take precedence) 4 H04W 72/12 2,4% WIRELESS COMMUNICATION NETWORKS Local resource management, e.g. Wireless traffic scheduling selection or allocation of wireless resources or wireless traffic scheduling 5 H04W 74/08 2,0% WIRELESS COMMUNICATION NETWORKS Wireless channel access, e.g. Non-scheduled access, e.g. scheduled or random access random access, ALOHA or CSMA Table 1: The five most significant IPC subgroups of the 5G patents

The data can be aggregated at a higher level in order to determine the most important IPC main groups to which the 5G patents semantically identified above are assigned (see Figure 3). The top 10 main groups (see Table 2) account for more than 50% of all classifications and should therefore be suitable as a criteria for the identification of 5G-related patents, since patents that have been classified in these IPC main groups are likely to cover most of the other technology classes shown. 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

H04W 72 H04B 7 Others H01Q 1 H04L 5 H04W 36 H04W 76 H04W 28 H04L 1 H04W 88 H04W 74 H04W 24 H04L 12 H04W 4 H04L 29 H04W 48 H04L 27 H04W 52 H04W 12 H04W 8 H04W 16 H04B 17 H01Q 21 H04B 1 H01Q 5 H04W 56 H04L 25 H03M 13 H04W 84

Figure 3: Classification of 5G patents in IPC main groups, according to percentage in the total number of classifications

IPC main Share Description (IPC subclass) Description (IPC main group) group 1 H04W 72 9,9% WIRELESS COMMUNICATION NETWORKS Local resource management, e.g. selection or allocation of wireless resources or wireless traffic scheduling 2 H04B 7 7,6% TRANSMISSION Radio transmission systems, i.e. using radiation field 3 H01Q 1 5,5% ANTENNAS, i.e. RADIO AERIALS Details of, or arrangements associated with, antennas 4 H04L 5 5,1% TRANSMISSION OF DIGITAL INFORMATION, e.g. TELEGRAPHIC Arrangements affording multiple use of the transmission path COMMUNICATION 5 H04W 36 4,0% WIRELESS COMMUNICATION NETWORKS Handoff or reselecting arrangements 6 H04W 76 4,0% WIRELESS COMMUNICATION NETWORKS Connection management 7 H04W 28 3,8% WIRELESS COMMUNICATION NETWORKS Network traffic or resource management 8 H04L 1 3,8% TRANSMISSION OF DIGITAL INFORMATION, e.g. TELEGRAPHIC Arrangements for detecting or preventing errors in the COMMUNICATION (arrangements common to telegraphic information received and telephonic communication H04M) 9 H04W 88 3,6% WIRELESS COMMUNICATION NETWORKS Devices specially adapted for wireless communication networks, e.g. terminals, base stations or access point devices 10 H04W 74 3,2% WIRELESS COMMUNICATION NETWORKS Wireless channel access, e.g. scheduled or random access Table 2: The ten most significant IPC main groups of the 5G patents

In order to verify whether the above IPC main groups are suitable for the identification of 5G-related patents and technologies, a second semantic analysis was performed, also taking 5G-related technologies into account. The results in Table 3 show significant overlaps. The four “new” technology classes in the table were previously also in the Top20 of the IPC main groups, but now displaying significantly higher weights (↑↑). The four “displaced” technology classes are also still in the “new” Top20.

IPC main In relation Share Description (IPC subclass) Description (IPC main group) group to table 2 1 H04B 7 ↑ 14,9% TRANSMISSION Radio transmission systems, i.e. using radiation field 2 H04L 27 ↑↑ 7,9% TRANSMISSION OF DIGITAL INFORMATION, e.g. TELEGRAPHIC Modulated-carrier systems COMMUNICATION 3 H04W 72 ↓ 6,8% WIRELESS COMMUNICATION NETWORKS Local resource management, e.g. selection or allocation of wireless resources or wireless traffic scheduling 4 H04L 5 -- 5,1% TRANSMISSION OF DIGITAL INFORMATION, e.g. TELEGRAPHIC Arrangements affording multiple use of the COMMUNICATION transmission path 5 H04L 1 ↑ 4,7% TRANSMISSION OF DIGITAL INFORMATION, e.g. TELEGRAPHIC Arrangements for detecting or preventing errors COMMUNICATION in the information received 6 H04W 36 ↓ 4,2% WIRELESS COMMUNICATION NETWORKS Handoff or reselecting arrangements 7 H04W 88 ↑ 3,1% WIRELESS COMMUNICATION NETWORKS Devices specially adapted for wireless communication networks, e.g. terminals, base stations or access point devices 8 H04W 16 ↑↑ 2,9% WIRELESS COMMUNICATION NETWORKS Network planning, e.g. coverage or traffic planning tools; Network deployment, e.g. resource partitioning or cell structures 9 H04L 25 ↑↑ 2,6% TRANSMISSION OF DIGITAL INFORMATION, e.g. TELEGRAPHIC Baseband systems COMMUNICATION 10 H04W 24 ↑↑ 2,6% WIRELESS COMMUNICATION NETWORKS Supervisory, monitoring or testing arrangements 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

Table 3: The ten most significant IPC main groups of patents in 5G-related technologies - comparison with Top 10 from Table 2: ↑↑new in the Top 10, ↑ higher rank within the Top 10, -- same rank within the Top 10

For the definition of 5G-related IPC classes, both approaches described above were combined and averaged. The selected 5G-related technology classes8, which will serve as a basis for further investigations in this study, are:

('H04B 7','H04W 72','H04L 27','H04L 5','H04L 1','H04W 36','H01Q 1','H04W 88','H04W 76','H04W 28')

From here on, all international patents published since 2008 that fulfill the semantics described above and belong to the determined 5G technology classes will be referred to as "5G patents". 2. Identification of key 5G companies

The most important international competitors in the 5G race can be identified by their number of 5G patent applications. The companies shown in Figure 4 are consistent with investigations based on 5G-SEP data, although the order differs slightly. It should be noted that patents that are not available in English, for example, purely Chinese patents, are not included in this analysis. This reduces the number of considered patent applications, especially from Chinese suppliers. However, this should not negatively influence the conclusions of the present study. On the contrary, the focus on internationalized patents ensures the quality of these patents9.

7000

6000

Patente) 5000 - 4000 3000

2000

patent applications patent

5G 1000

Number of Number Anzahl Patentanmeldungen (5G Patentanmeldungen Anzahl

Figure 4: The most important international companies filing 5G patents

The key 5G players selected for further analysis (red bars) are shown in Table 4 with their respective country of origin, size and name by which they will be referred to in this study. Four key centers of 5G technologies can be identified: USA, Europe, Korea and China.

8 Hereinafter referred to as "5G technology classes” 9 Purely local Chinese patents often show lower quality than those from high income countries. This may be explained by the fact that Chinese companies and private individuals are incentivized/rewarded by the government for national patent applications. 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

Company Country of origin Market capitalization10 From here on as (note) 1 Qualcomm Inc USA 92 Billion $ Qualcomm 2 Intel Corp USA 263 Billion $ Intel 3 LM Ericsson Europa 28 Billion $ Ericsson 4 Nokia Corp Europa 20 Billion $ Nokia (includes Alcatel- Lucent) 5 Samsung Electronics Korea 270 Billion $ Samsung 6 LG Electronics Korea 8 Billion $ LG 7 Huawei Technologies Co Ltd China not publicly listed Huawei 8 ZTE Corp China 33 Billion $ ZTE Table 4: Countries of origin and names of the most important international companies filing 5G patents

A compelling dependence of Europe on foreign 5G suppliers cannot be confirmed in view of the relatively high number of 5G patents held by the Swedish Ericsson and Finnish Nokia, even though the remaining companies shown are of Chinese, Japanese, American or Korean origin. In terms of size (market capitalization), Samsung and Intel are by far the heavyweights, followed distantly by Qualcomm. It is therefore surprising that the remaining top applicants have nevertheless so many 5G patent applications. This speaks for a strong focus on 5G research activities from the smaller players.

The further analyses will mainly focus on the quality of these companies' 5G patent portfolios, in order to investigate 5G technology leadership from this aspect. 3. Qualitative analysis of 5G patent portfolios 4.1 Quality of patents and patent portfolios The quality of patents is significantly more important than the mere number of patents, when investigating a company’s technological leadership over its competitors. This is all the more true when a significant change takes place in an industry, and the inventions represent or enable not only innovations, but even disruptions. The number of patents helps a company to isolate itself in a technological field, even though these patents and the underlying inventions may have no real economic value or trigger a technological change in an industry. For example, a small, technologically specialized company with 100 groundbreaking patents (often referred to as a "hidden champion") and truly innovative products can have a greater impact on an entire industry than multifaceted industry giants with thousands of patents.

There are two different approaches to determine the quality of patents: the monetary approach tries to determine a monetary value for patents and patent portfolios using internal data (licensing income, market transaction data of comparable patents, etc.). This often fails due to non-existent or non-representative data and lack of comparability between different technologies. The alternative approach uses quantitative means to determine the relative quality of patents/patent portfolios in relation to other patents/patent portfolios with the help of various patent quality indicators. Patent data have an internationally standardized structure, which allows important information, such as the number of citations it receives from other patents, to be used quantitatively.

Since 2005, ARIAD has created and continually updated a database of worldwide patent data (Big Data). Using quantitative processes, ARIAD has developed numerous scientifically verified quality indicators to systematically analyze and evaluate patent portfolios. When examining a company's patent portfolio, it is

10 As of 29/04/2020 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

very important to take the corporate structure into account, including the patents of its subsidiaries. In addition, the patents from all database entries have to be found and allocated to the respective parent companies, as the name of a patent holder is often written in different forms or even misspelled in the official database from the patent offices (see Table 5 for an example on Ericsson). The finding and rectification of names is a particularly time-consuming process.

Entries for patent owners in the official patent database 1 TELEON AB LM ERICSSON 2 TELEPHONE AB LM ERICSSON 3 TELEPONAKTIEBOLAGET L M ERICSSON PUBL 4 TELFOANKTIEBOLAGET L M ERICSSON PUBL 5 TELFON AB LM ERICSSON 6 TELFONAKTIEBOAGET LM ERICSSON 7 TELFONAKTIEBOAGET LM ERICSSON PUBL 8 TELFONAKTIEBOLAGET LM ERICSSON 9 TELFONAKTIEBOLAGET LM ERICSSON PUBL 10 TELFONAKTIEBOLAGET LM ERICSSON (PUBL) 11 TELLEFONAKTIEBOLAGET L M ERICSSON (PUBL) Table 5: Section of the official patent database, which contains about 300 different spellings for the company TELEFONAKTIEBOLAGET L M ERICSSON as patent holder

4.2 Application dynamics and statistics of 5G patent portfolios An investigation of the patenting activities of the companies examined (Figure 5) shows that two companies don’t follow the general pattern in terms of application dynamics: all companies except Nokia and ZTE show a significant increase in activities in recent years. Nokia differs in particular with a relatively steady activity level. Both these companies also present comparably lower grant ratios in relation to their competitors in the observed period11. Reasons for lower grant ratios could be a particularly competitive research environment (a positive aspect, as it suggests it is a particularly interesting technology field), a company’s patenting strategy (a rather negative aspect: "file & drop" strategies to deter competitors, without the individual patents themselves having any significant economic value), or a lack of innovativeness of the inventions. These reasons will not be examined in detail in this study.

11 In general, several years elapse from a patent’s application to its publication and eventual grant. Grant ratios are therefore not fixed and may still change over time. This is especially the case for patents published in recent years. 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

1200 grant ratio (#grants/#total applications) 100%

not (yet) granted patent applications 90% 1000 80%

granted patents Patente) - 70% 800 60% 600 50%

40% ratio Grant

400 Erteilungsrate 30% 5G patent applications patent 5G 20% 200

10% Patentanmeldungen (5G Patentanmeldungen

0 0%

2008 2011 2014 2017 2020 2010 2013 2016 2019 2009 2012 2015 2018 2008 2011 2014 2017 2020 2010 2013 2016 2019 2009 2012 2015 2018 2008 2011 2014 2017 2020 2010 2013 2016 2019

Samsung Qualcomm Ericsson Huawei LG Intel Nokia ZTE

Figure 5: Granted and not (yet) granted 5G patents by year of publication

While the number of published patent applications shown in Figure 5 takes into account all applications for an invention in different countries/regions, Figure 6 shows the correspondent number of published patent families, i.e. the actual individual technological inventions. In this case, similar conclusions can be reached when comparing the companies according to their published patent families or the total number of patent applications.

600 500 400 300 200 100

2008 2011 2014 2017 2020 2010 2013 2016 2019 2009 2012 2015 2018 2008 2011 2014 2017 2020 2010 2013 2016 2019 2009 2012 2015 2018 2008 2011 2014 2017 2020 2010 2013 2016 2019 Samsung Qualcomm Ericsson Huawei LG Intel Nokia ZTE

Figure 6: 5G patent families by year of publication

Table 7 displays the average age of active 5G patents of the individual patent portfolios. The average age of a patent portfolio matters, since granted patents usually allow a monopoly position for inventions for a maximum of 20 years after filing. It also reflects the different company’s filing dynamics. Companies with younger patent portfolios are at an advantage here, although only a few years difference are of no great significance. This is the case, since the earlier a patent is filed in a relatively young technological field such as 5G, the more likely it is to be particularly relevant.

5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

Company Average age of active 5G patents

SAMSUNG 4 Years 11 Months QUALCOMM 7 Years 9 Months ERICSSON 6 Years 10 Months HUAWEI 5 Years 1 Monat LG 6 Years 4 Months INTEL 5 Years 7 Months NOKIA 8 Years 9 Months ZTE 7 Years 1 Month Table 1: Average age of active 5G patents

When comparing each company’s distribution of technological classifications (IPC main groups) for their 5G patents (Figure 7), slightly different emphasis in their technological orientations can be seen: e.g. Nokia and Ericsson have significantly higher shares in IPC: H04W 3612 than their competitors, but in exchange relatively lower in IPC: H04L 2713.

Overall, it should nevertheless be noted that the companies have a fairly similar technological orientation in their 5G patent portfolios. This is a prerequisite for a meaningful qualitative comparison, making the selected patent portfolios thus suitable for the following analyses.

100% 90% 80% 70% 60% 50% 40% 30%

20% each company's 5G patents 5G company's each

10% Distribution groups IPC from main Distribution of 0% Samsung Qualcomm Ericsson Huawei LG Intel Nokia ZTE

H04B 7 H04L 27 H04W 72 H04L 5 H04L 1 H04W 36 H04W 88 H04W 28 H04W 76 H04W 24 H04L 25 H04W 4 H04L 12 H04J 11 H04W 48 H04W 16 H04W 52 H04W 74 H04W 84 H04B 1 H04L 29 H04W 8 H04W 92 H04B 17 H04W 56 H04W 12 H01Q 1 H04J 99 H04W 80 H04J 3

Figure 7: Technological DNA comparison with the 30 most important IPC main groups from each company’s 5G patents (the overarching Top10 in bold)

12 "Wireless Communication Networks - Arrangements for Handover [Handover/Handoff]". Handover describes the process when a network subscriber transfers from one base station (cell) to another by moving outside of the first’s coverage area. 13 "Transmission of digital information - systems with modulated carriers". During modulation, a useful signal to be transmitted (e.g. data) changes a so-called carrier, which enables a high-frequency transmission of the low-frequency useful signal. 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

4.3 Qualitative analysis of key 5G companies In order to evaluate the quality profile of each company’s 5G patent portfolio, this study will rely on the following five scientifically based patent quality indicators:

Patent Quality Indicator Description

Technological Scope (TS) The more technological applications an invention has, the higher its economic value Measures in how many countries/regions an invention is registered and thus the number of possible monopolies. Since every application involves costs, only promising inventions are International Scope (IS) registered internationally Current Impact Index (CII) Measures the relevance of inventions by the interest from third parties Due to the high costs involved, legal disputes over patents indicate an interesting technology Legal Attacks (LA) from an economic point of view Indicates the extent to which a company focuses on a particular technology and potentially Self-Citations (SC) tries to isolate itself from competitors Table 7: Description of selected patent quality indicators – each assesses the average quality of all active patents in a portfolio in its respective category

Figure 8 presents the results of the calculations with the different quality indicators14 for each 5G patent portfolio, whereby individual values are normalized with the highest value in each category. Qualcomm stands out with above-average results in all quality areas, clearly leading especially in IS and slightly ahead of Nokia in CII. The Korean LG is also very well positioned in terms of quality, except in LA. The LA category is led by Nokia, which implies that the Finnish company has essential technologies for 5G networks.

Technological Scope Samsung 1

0,8 Qualcomm 0,6 Ericsson 0,4 Self-Citations International Scope Huawei 0,2

0 LG

Intel

Nokia

Legal Attacks Current Impact Index ZTE

14 The normalized indicators range from 0 (lowest value) to 1 (highest value). 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

Figure 8: Quality scores of 5G patent portfolios according to each patent quality indicator (as of April 29, 2020)

0,9

0,8

0,7

0,6

0,5

0,4

0,3

0,2

0,1

0 Qualcomm LG Nokia Intel Samsung Ericsson Huawei ZTE

Figure 9: Average patent portfolio quality of 5G patent portfolios (as of April 29, 2020)

The different quality indicators can be (equally weighted) aggregated into a single index to allow for a direct comparison of the average quality of the individual 5G patent portfolios. Figure 9 displays the resulting patent portfolio quality index (PQI) for all competitors. Contrary to the often-heard belief that Huawei, as a 5G technology leader, would outpace particularly European companies, the quality analysis shows that Europe, especially with Nokia, has 5G companies that are technologically very well positioned15. The two American companies, Qualcomm and Intel, also performed very well in the comparison - Qualcomm is the 5G technology leader in the peer group with the highest rated patent portfolio, slightly ahead of Korean LG. It is remarkable that the two Chinese companies lag behind the other competitors in the PQI comparison, despite their high 5G patenting activity. The dynamics of PQI since 2008 (Figure 10) reveal that Qualcomm has consistently been the leader in 5G patents, even though the gap to the peer group has narrowed significantly since 2017. While Nokia is almost continuously in third place, the quality of Ericsson's 5G patent portfolio is permanently ranked last among the non-Chinese companies. Huawei and ZTE are far behind in this qualitative comparison, even though they have been able to gradually reduce the gap to the remaining competitors. The analysis thus shows that Europe has in Nokia a clear, albeit rather small, technology leader in the 5G sector from a qualitative point of view.

15 This analysis doesn’t take cost factors into consideration. 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

0,9

0,8 Samsung

0,7 Qualcomm

0,6 Ericsson

0,5 Huawei

0,4 LG

0,3 Intel 0,2 Nokia 0,1 ZTE 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Figure 10: Dynamics of PQI of 5G patent portfolios since 2008 4. “ITBUS” Nokia + Ericsson (+ InterDigital?) 5.1 “ITBUS” Nokia + Ericsson With the expansion of 5G networks, many economies in the West realized that the mobile communications technology of the Chinese company Huawei was built into many components of major Western network equipment suppliers. While instigating a trade war with China, the U.S. President Donald Trump warned that 5G technology was a gateway for China to conduct large-scale espionage. In addition to banning this technology in the USA, he also increased the pressure on other industrial nations in Europe to do the same. The United Kingdom has since banned Huawei from its own 5G mobile network in the medium term, while other countries are still in the decision-making process. It is clear that European security and independence in digital infrastructure is gaining importance in (economical) political debates – discussions are already taking place on various options to provide a European answer to foreign 5G competitors and their feared technological dominance. The fact that Mr. Trump suggested the USA should acquire a stake in Nokia and Ericsson is proof that Europe certainly already has the sought-after technological know-how. In this context, the idea arises, analogous to the conception of AIRBUS, to create a major European IT group with state support and participation. The two Scandinavian publicly listed companies Nokia and Ericsson are in this case prominent merger candidates16. Figure 11 shows the effects of a merger of Nokia and Ericsson (Nokia+Ericsson) on the PQI comparison with international competitors. Nokia+Ericsson would not only have the highest number of granted 5G patents and 5G patent applications, but the quality of its patent portfolio

16 https://www.handelsblatt.com/politik/deutschland/huawei-debatte-gruener-digitalminister-albrecht-schlaegt-airbus-projekt-fuer- den-5g-ausbau-vor/25538726.html?ticket=ST-2180852-zdfFnCCBlnLl1wZz0cz2-ap3 ; https://background.tagesspiegel.de/nokia-und-ericsson-als-it-airbus; https://de.reuters.com/article/deutschland-5g-gr-ne- idDEKBN20B0XZ

5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

would be almost equal to that of Intel. Nevertheless, the gap between its PQI and those of Qualcomm and LG would still be large.

1 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0 Qualcomm LG Intel Nokia+Ericsson Samsung ZTE Huawei

Figure 11: Average quality of 5G patent portfolios after a possible merger of Nokia + Ericsson (as of April 29, 2020)

5.2 “ITBUS” with international support: Interdigital In order to further expand its technological position in the 5G sector, Nokia+Ericsson could additionally acquire smaller companies that are also technologically well positioned in the field. From a political point of view, European takeover candidates might be preferable. Table 8 shows a small selection of such European companies that are currently researching 5G related technologies.

Company Country of origin TELIA COMPANY AB Sweden SAGEMCOM ENERGY & TELECOM France PEIKER ACUSTIC GMBH & CO KG Germany HMD GLOBAL OY Finland FRACTUS SA France UBLOX AG Germany ANDREW WIRELESS SYSTEMS GMBH Germany ACCELANT COMM GMBH Germany BEAMMWAVE AB Sweden Table 8: Selection of smaller European companies in 5G technologies

A meaningful evaluation of these selected companies can only be achieved through separate in-depth analyses. An interesting non-European alternative is the much smaller American technology company Interdigital Inc (Interdigital), with a market capitalization of $1.8 billion$17. The company can be considered as one of the international leaders (number of 5G patents rank 11 in Figure 4). Its technological DNA in the 5G sector is also comparable to that of Nokia and Ericsson (Figure 12, right). Its declining patenting activity could

17 As of 29.04.2020 5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

be explained by the fact that Interdigital started researching the 5G area very early on and is already working on the development of the next generation (6G). The very high PQI value (Figure 13) ultimately identifies Interdigital as the clear 5G technology leader among the analyzed competitors18.

150 100% 100%

80% 100 60% 50% 40% 50 20%

0 0% 0%

Ericsson Nokia Interdigital

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ErteilungsrateGrant ratio (ratio (Verhältnis granted erteilterpatents /zu total nicht applications) erteilten Patente) H04B 7 H04L 27 H04W 72 H04L 5 H04L 1 (noch)Not (yet) nicht granted erteilte patent Patentanmeldungen applications H04W 36 H04W 88 H04W 28 H04W 76 H04W 24 erteilteGranted Patente patents H04L 25 H04W 4 H04L 12 H04J 11 H04W 48

Figure 12: Application dynamics of Interdigital Inc (left) and the technological DNA of its 5G patents compared to Nokia and Ericsson (right)

1 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0

Figure 13: Average quality of 5G patent portfolios including Interdigital and a possible merger of Nokia+Ericsson (as of April 29, 2020)

It is therefore not surprising that Interdigital has won various patent disputes in the 5G sector, which is reflected in the LA quality indicator. This also indicates that Interdigital holds essential 5G patents19. By acquiring all patents from the French technology company Technicolor SA, Interdigital was even able to expand its 5G patent portfolio to include 5G-related applications in digital video and image processing20.

18 LG's PQI is here better than Qualcomm's because of the addition of Interdigital to the analysis, which has changed the basis for calculating the relative indicators. 19 https://www.reuters.com/article/us-interdigital-huawei-tech-settlement/huawei-interdigital-enter-licensing-pact-end-patent- litigation-interdigital-surges-idUSKCN22A31B; 20 https://www.technicolor.com/news/technicolor-agrees-sell-interdigital-its-patent-licensing-business

5G-Study – qualitative patent portfolio analysis (ARIAD IP-Rating) April 2020

The conclusion is that the American company would thus likely be a lucrative takeover candidate for Nokia+Ericsson. Figure 14 illustrates the effect of this takeover on the quality of its 5G patent portfolio: while Nokia+Ericsson was previously ranked fourth, lagging behind the peer group's 5G technology leaders, LG and Qualcomm, by a great margin, both its position in the ranking and the distance to the leaders could be significantly improved by integrating Interdigital's high-quality 5G patent portfolio.

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Figure 14: Effect on PQI of a possible merger Nokia + Ericsson + Interdigital (as of April 29, 2020)

A combination of Nokia, Ericsson and Interdigital has the capability to create a European 5G ITBUS that could stand up to global competition in both the number and quality of its patents, and therefore secure the sovereignty of digital infrastructure in Europe. Even though this IT conglomerate will probably not be able to catch up to Huawei's cost advantage, this should be of secondary importance for European politics, given the considerable security risks.