The Multitier Battle Against Chinese 5G Dominance

The 5G logo is seen displayed on an Android mobile phone with United States of America flag in the background
The 5G logo is seen displayed on an Android mobile phone with United States of America flag in the background

China’s ascent to global market share leadership in advanced commercial telecommunications has featured many tactics: subsidization of domestic producers, forced technology transfer and outright theft of intellectual property, essentially closing its huge internal market to foreign competition, and growing efforts to manipulate the patent system and related international standards setting. It has succeeded, for the present, in weakening the profitability of integrated infrastructure companies in Europe, and helped undermine the last U.S. infrastructure company, Lucent, which was sold to Nokia. While traditional U.S. allies in Europe and Asia (and many others) have begun a forceful challenge to Chinese tactics by limiting access on national security grounds to their domestic markets and have activated trade actions to combat the worst intellectual property abuses, other less visible actions need to be reinforced to limit the Chinese advance in 5G and eventually 6G technology. Focusing on international standards-setting and export control policies can supplement the blunt force, denial of market actions now being deployed by the United States.

In recent years, Chinese firms, led by Huawei and state-owned ZTE, have moved aggressively to win acceptance of their 5G standards (based on their own patents in many cases) in relevant international standards organizations (ISOs). These include the 3GPP organization for mobile broadband standards, the Institute of Electrical and Electronics Engineers (IEEE) organization for electronics standards, and the 5G Automobile Association for communications standards enabling autonomous and connected vehicles.

Chinese telecommunications and other technology companies are sending increasing numbers of engineers to the ISOs. They often engage in bloc voting in standards meetings, which is in some cases coordinated by Chinese Communist Party officials. These tactics reinforce their drive to establish important standards for 5G systems and related products favorable to their domestic producers. They also try to leverage their growing political and economic strength around the world to win support from engineers from countries under their influence.

In the past ISOs have operated on a good faith, consensus of interested parties process in which experts debate and decide the strength of competing technologies. Chinese firms’ alarming use of bloc voting and dubious claims of patent strength (see below) to win acceptance of their standards proposals slowly sap the integrity of ISOs in the most egregious cases.

The United States and its allies need to counteract this trend by reasserting their support for the consensus-based process which avoids political or national champion influence and has served well the rapid advance of telecommunications innovation for the past three decades.

While large U.S. players such as Cisco, Qualcomm, Intel and, increasingly, Apple (who is becoming more active in semiconductor design ) are engaged in ISOs, the U.S. Treasury Department could facilitate even more participation by clarifying that the rather sizable cost of sending engineers to ISO meetings is eligible for calculating the research and development tax credit. For the numerous smaller firms active in specific markets for telecommunications products, American policy makers ought to consider a small grant program coordinated by the National Institute of Standards and Technology (NIST) to support sending engineers from such smaller companies to ISO meetings.

U.S. officials at NIST and the Commerce and State Departments should also remain vigilant in tracking political manipulation at ISOs. They should coordinate with allies in pushing back on heavy-handed Chinese attempts to tilt the debates to their technologies. Support for the integrity of the decision-making processes at ISOs should be high on their list of concerns.

Another tactic deployed by Huawei and mentioned above is flooding the patent systems (which are nationally based) with low quality applications in key technology areas. The sheer quantity of patent applications and grants from Huawei and ZTE outweighs those of non-Chinese giants from the transatlantic areas and East Asia. In turn, the weight of numbers is used as a rationale for adoption of new standards by Chinese companies. However, numerous studies demonstrate that the quality of Huawei and ZTE patents, in terms of importance in solving key issues, being integrated in essential operating systems, demonstrating highly innovative features, or simply as being cited by other scientists and engineers, is far below what might be expected by simply counting patents. To give but one example of a comparison of patent quality, a Japanese research firm found that 44 percent of Qualcomm patents and 32 percent of Intel patents for 5G qualified as “highly innovative,” while only 21 percent of Huawei patents met this criteria. U.S. government officials (and private sector analysts from business and research institutions) should emphasize the vast differences in patent quality to undermine Chinese claims to technology leadership, which, after all, are being used in ISO deliberations as another reason to promote indigenous Chinese standards in these organizations.

U.S. export control policy is equally important in the battle to counter unfair Chinese competition in 5G technology. In a previous column I noted that since Huawei was put on the “entity list” of companies with which U.S. firms cannot do business or exchange information, U.S. engineers were essentially blocked from even participating in an ISO meeting in which Huawei was present. In June the Commerce Department issued a clarification reversing that prohibition. This was a major step forward but doesn’t totally solve the problem, since 60-70 other Chinese technology firms often frequent the same ISOs because they have some niche product or technology incorporated in 5G systems.

U.S. firms in these fields need to be able to argue their claims for standardization to ensure the protection of their key technologies and the interoperability of very complex systems with multiple suppliers. To remain in the position of global technology leadership and access to the scale of global markets required to maintain their rich budgets for research (often 20 percent of revenues), they require at a minimum the ability to make their case for prevailing in ISO deliberations. The underlying technologies of U.S. firms will in any case largely be known because of patent filings, so the benefit to adversaries from ISO discussions of patented technologies ready for standardization is reduced.

It is also worth noting that while U.S. firms are prohibited from selling to Huawei or other companies on the entity list, other high technology firms such as those in Taiwan, Japan or South Korea, which are highly competitive with U.S. chip and equipment makers, are not similarly restricted and stand to gain market share at the expense of U.S. companies. This suggests that, at a minimum, U.S. policy makers make stronger efforts to coordinate policy with these countries. Japan, Australia and sometimes European nations already largely support U.S. export control policies.

A related question is the frequent refusal of Chinese firms to honor patents incorporated into standards, called standard essential patents. They thus refuse to pay royalties to patent holders. Export control tools could be helpful in pushing back on these practices, which are employed not only by Huawei but other Chinese telecom operators and equipment makers such as Oppo, Vivo, Xiaomi, China Telecom, China Unicom and China Mobile. One proposal, filed by Senator Marsha Blackburn as an Amendment to the Fiscal Year 2021 Defense Authorization Act, is designed to combat this practice. It would require any telecommunications company selling products in the U.S. market to prove they have a license to use U.S.-patented products or software. If valid contracts for the patents or group of patents are not produced, then the offending firm would be placed on the entity list and consequently barred from selling in the United States. Hopefully other allied nations would follow the U.S. lead, since their technology firms face similar challenges with Chinese practices. Although this approach represents a change to the historical use of export controls, it deserves a serious look.

China is attempting to exploit America’s current coronavirus crisis to advance its narrative that its own expertise in technology and governance makes it a more effective and reliable partner than the United States. Such an argument is being made by Chinese diplomats and propagandists in debates over future technology developments in areas like 5G. It is frequently evoked to assert the advantages of working with the Middle Kingdom on standardization. It is vital for the United States to remain vigilant and push back against this narrative, using all the tools in its arsenal, including more obscure ones such as fair practices in standardization and judicious use of export controls.

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