Ericsson confirmed in an emailed statement that it’s being investigated by China’s State Administration for Market Regulation (SAMR) because of complaints about its intellectual property licensing practices.
The company said it’s cooperating with the probe, adding that it licensed its patents under fair, reasonable, and non-discriminatory (FRAND) principles. It declined to comment further on the matter.
On April 12, about 20 SAMR investigators raided Ericsson’s Beijing’s office as part of the probe, The Wall Street Journal reported.
According to Jiwei Web, a Chinese website covering the tech industry, authorities began the investigation after several Chinese smartphone manufacturers lodged complaints with SAMR about Ericsson’s 3G and 4G patent-licensing practices.
Ericsson has the leading patent portfolio in the telecom industry, with 49,000 approved patents, CEO Borje Ekholm said in March.
The Swedish company is one of Huawei’s chief competitors in the global telecommunications equipment market, which includes products for setting up the emerging generation of 5G wireless technology. In telecom equipment, Ericsson has a market share of 13 percent, while Huawei leads the pack with 29 percent, according to an analysis by research firm Dell’Oro Group.
Huawei has been effectively locked out of the U.S. 5G network because of strong concerns raised by officials and lawmakers that the company’s products could be used by the Chinese regime for spying, given Chinese firms’ lack of autonomy under China’s authoritarian system. Australia and New Zealand have also banned the company from developing their 5G infrastructure, while the United States has urged other allies to do likewise.
The Chinese investigation could be a ploy to thwart Ericsson in the context of the broader competition to win the 5G race, said Claude Barfield, resident scholar at the Washington-based think tank American Enterprise Institute.
The Chinese regime has “been perfectly willing to manipulate their legal system” to advance its interests in 5G and other strategic areas, he said—such as when it denied a merger deal between U.S. chipmaker Qualcomm and Dutch chipmaker NXP in 2018 amid an escalating trade war between the United States and China.
Barfield added the move could also be a ploy to kick-start negotiations to get cheaper licensing deals for Chinese smartphone makers.
Ericsson, which currently derives about 7 percent of its revenue from China, is trying to boost its market share there, Ekholm said in November 2018, according to Reuters.
The current probe is reminiscent of a 2015 Chinese antitrust investigation into Qualcomm, which found that the company’s patent licensing fees were too high. Qualcomm paid a record $975 million fine to settle that dispute.
Meanwhile, U.S. President Donald Trump, in a tweet on April 14, called out Huawei for hiring an Obama-era White House cybersecurity official as a lobbyist for the company.
Samir Jain, formerly the senior director for cybersecurity policy at the White House National Security Council, registered with Congress to lobby for Huawei in late March.
“This is not good or acceptable!” Trump wrote.
Jain worked at the Obama White House from 2016 to 2017, and before that, he was an associate deputy attorney general at the U.S. Department of Justice (DOJ) from 2014 to 2015, where he worked on cybercrime issues.
While at the DOJ, he was also involved in negotiations leading to the 2015 U.S.-China cybersecurity agreement, in which both sides pledged not to engage in cyber theft of intellectual property for commercial gain, according to a biography published on the website of Jones Day, a Washington-based law firm where Jain is now a partner.
Huawei also hired Jones Day to represent the company in its lawsuit against the U.S. government filed in March.
The suit challenges Section 889 of the National Defense Authorization Act, passed in 2018 to ban federal agencies and their contractors from purchasing Huawei equipment. Huawei is arguing that the provision unlawfully targeted the company.