|
 ZTE's efforts to collect patent royalties - months ahead of Qualcomm
Inc's China antitrust settlement this week, according to people with
knowledge of the matter - shows how that deal has already changed
the way China's booming smartphone industry does business.
As anticipated by ZTE, a key term in the settlement dissolved
Qualcomm's cross-licensing agreements in China that had given
smaller Qualcomm customers free access to the patent portfolios of
more established Qualcomm customers.
The settlement has allowed wireless patent holders like ZTE and
Huawei Technologies to seek royalties, while introducing a new risk
of litigation to China's younger handset industry at a time when
domestic patent law is gaining traction.
"For the first time, the settlement is forcing domestic
manufacturers to recognize the value of IP (intellectual property)
and consider how to use it strategically, which companies do in the
West," said Wang Yanhui, secretary general of the Mobile China
Alliance, an industry consortium. "That's the real significance of
the (Qualcomm) settlement."
The competitive dynamics are particularly complex in China, the
world's biggest smartphone manufacturer and consumer, as large
Chinese telecom equipment makers that hold many essential patents
for wireless technology also compete in the phone market against
younger, nimbler manufacturers.
The settlement could prove tricky for companies like Xiaomi Inc, a
4-year-old Beijing-based smartphone maker whose weak patent position
has proved a major vulnerability. In December, a court in India
temporarily halted its shipments there after Swedish telecom firm
Ericsson complained Xiaomi had not been paying its royalties.
Although Xiaomi has been reported by Chinese media to be one of the
handset makers now targeted by ZTE's lawyers, both companies
declined to discuss the issue.
But in response to questions from Reuters, Bin Lin, Xiaomi's
president, said he expects Xiaomi to only attract more patent
threats and litigation from rivals in the future, as does any young
firm that enjoys explosive growth.
"This is true of any company, not just Chinese companies," Bin said,
adding Xiaomi filed 2,000 patents last year and hopes to apply for
double that number this year. "We've been focusing on building up
our own IP. It's going to take some time."
PATENT BONANZA
ZTE declined to discuss its patent negotiations with other firms,
but said in a statement, echoed separately by Huawei, that the
Qualcomm settlement "is positive for the development and protection
of intellectual property rights in China, and will help promote fair
competition for technology innovators."
Between 2007-13, ZTE and Huawei filed for nearly 34,000 patents
each, Thomson Reuters data show. The two Shenzhen-based companies
have applied for more international patents than the rest of the
top-10 Chinese companies combined, and their filing activity dwarfs
that of leading Internet firms Tencent Holdings and Alibaba Group
Holding Ltd.
[to top of second column] |
Seeing big gains through enforcing its patent rights, ZTE executives
recently directed a major U.S. shareholder to consult industry
analysts about the positive financial impact of chasing royalties,
said an individual with knowledge of the matter.
"They're taking this extremely seriously," said the person, who
requested anonymity to speak about a private issue.
Other observers said legal jostling will intensify, but there will
not likely be an immediate eruption of high-profile court battles.
"It would be extremely costly and messy for ZTE to take Xiaomi to
court, especially as a Beijing company with ties to power," said
Wang, the industry group head.
NO MORE LICENSING "FREE DINNER"
The increase in smartphone industry patent tussles comes as the
intellectual property legal system steadily matures in China, where
the government has sought to shed a copycat reputation and push
cutting-edge innovation.
In 2008, the State Council, China's cabinet, issued guidelines
prioritizing stronger IP protection and passed a major revision of
patent law the following year. A Thomson Reuters analysis shows the
number of patent infringement cases has more than tripled since
2006. At the end of last year, the government established a
specialized court in Beijing, Shanghai and Guangzhou to hear
intellectual property cases.
The result, says Georgia Chiu, a lawyer at Hogan Lovells that
specializes in technology patent law, is that "companies are
starting to build up more confidence that the government is creating
a better environment."
Meph Jia Gui, a lawyer at Global Law Office, said removing
Qualcomm's "umbrella" could drive many smaller mobile firms out of
the market as they will face rising costs of litigation, buying
patents and basic research.
"In the long run, the removal of such a 'free licensing dinner' will
force them to invest more in patent research," Gui said.
(Additional reporting by Edwin Chan in SAN FRANCISCO, Li Shangjing
in BEIJING and Jeremy Wagstaff in SINGAPORE; Editing by Ian
Geoghegan)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
