Chinese Apple In Trouble – What to look forward?

Xiaomi, an aspirant to top the Smartphone market through its disruptive entry into the maturing mobile phone market with its high quality Smartphones at rock bottom prices is getting roadblocks in its second largest market, India. It surreptitiously entered into today’s top mobile phone market in its home ground, China and in just ~3 years it’s already #3 in worldwide mobile market. See Paul’s blog – Xiaomi Already #3 in Smartphones Behind Samsung and Apple

It’s natural, roadblocks start with such growth stories when they start challenging for the top reserved slots. I was expecting a backlash from established players against new cheap Smartphone providers, but that time has not arrived yet. Instead, a pre-curser, it’s the backlash of patent infringement from Ericsson. Delhi high court has issued ‘ex parte’ injunctionagainst Xiaomiand suspended it and its E-Commerce partner Flipkartfrom importing, assembling, manufacturing or selling its devices temporarily until 5[SUP]th[/SUP] Feb 2015, the date for next hearing. The injunction is based on legal action taken by Ericsson on refusal from Xiaomi to sign-up licensing for using their IP, Standard Essential Patents (SEP). The court order is harsh in the sense that it has asked Xiaomi and Flipkart to provide details of the devices sold so far in India that are compliant with 3G, EDGE and AMR technologies and the revenue earned from these devices. Although, I’m not a patent law expert, let’s try to look at some technical grounds of this case.

The injunction is ‘ex parte’ (i.e. commanding in urgency after hearing only one party) which does not seem to be fair when similar cases of Ericsson against Micromax(an Indian company), Gioneeand Intexare sub-judice. Micromax being an Indian company has been forced to deposit ~4 Billion INR in court in spite of its challenge to validity of the patent. While the patent applies only to a chip-set, Ericsson charges royalty on the complete Smartphone from product makers and that too on un-even basis at very high rate, >1% of total value of the product. The CCI (Competition Commission of India), a regulatory body has already reported investigations involving SEPs against Ericsson for violating FRAND (Fair, Reasonable and Non-discriminatory) commitments by imposing discriminatory and excessive royalty rates under NDAs (Non-Disclosure Agreements).

Looking from another angle, a layman’s approach, a standard should promote the usage of such technology and the patent (SEP in this case) on the standard should be looked at in that perspective rather than injunction by court. The court in this case, unlike other technology patents, could have expedited in determining the right royalty rate rather than granting injunction and discouraging use of SEP. Anyway, that’s typical of courts in India, and there is no surety a conclusion can come out of court on 5[SUP]th[/SUP] Feb 2015. That’s a loss on Xiaomi from multiple sides – loss of sales, delay in its goal to reach the top, business sentiments…

Having discussed about the court of laws, I am hopeful of an out of court settlement between Xiaomi and Ericsson. Another typical of Indian businesses is that they seldom confirm official receipt of court orders. 🙁 Same is the case with both Xiaomi and Flipkart in India. However, both Xiaomi and Ericsson are desirous of resolving the issue amicably. Naturally, Xiaomi would not like to derail its journey and Ericsson would not like to put its revenue source of patents into hurdle. Xiaomi has kept its options open including fighting out Delhi high court suspension order for resuming the India operations at the earliest. Let’s wait for further news on settlements after court settles its scores with them now!

By the way, the India story of Xiaomi is going great. In its <6 months India operation, it has built large group of fans. It sells to the tune of 40000 Smartphones in couple of seconds through flash-sales. In fact Xiaomi fans are considering joining together to file PIL (Public Interest Litigation) in India’s Supreme Court against problematicex parte patent injunctions. India being second largest market for Smartphones today, Xiaomi will definitely not like to lose it. Comments welcome!

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