The story of "if you can't beat them, sue them" has moved to China.
Chinese mainland smartphone maker Coolpad has taken technology behemoth Xiaomi to court over alleged patent infringement in a sign of its determination to time the litigation with a nation-wide intellectual property (IP) rights protection campaign.
The case comes as Xiaomi, which aims to take on global tech greats Apple and Samsung, began putting the finishing touches to its mega initial public offering in Hong Kong in what could be the world's largest flotation since Alibaba's $25-billion deal in 2014, and the biggest in the SAR since AIA's $16.6-billion IPO in 2010.
Beijing-based Xiaomi - the world's fourth-largest smartphone maker by shipments - is seeking to raise $6 billion in Hong Kong - down from an earlier estimate of up to $10 billion. The share sale opens in the SAR on June 25 and Xiaomi aims to start trading on July 9.
Having targeted a valuation of up to $100 billion, but with investors having trimmed it all the way down to between $60 billion and $70 billion, Xiaomi will have a roadshow late this month in its quest to persuade US and European institutional investors to value the company at no less than $70 billion.
Coolpad, formerly known as China Wireless Technologies, charted the course of safeguarding its interests back in 2014 when it began sending warning letters to Xiaomi, hoping to seek a settlement over the alleged infringement, but has so far got no response from Xiaomi, Coolpad chief intellectual property officer Zhang Na said in Hong Kong last month.
The plaintiff accuses Xiaomi of having infringed on four of its patents, including patented multi-simcard design and other technologies relating to user interface. Two patents, claimed to be "ahead of its time", were granted in 2006 two years before the Android system was released. One patent, in particular, had been awarded the Chinese Outstanding Patented Invention & Industrial Design by the State Intellectual Property Office (SIPO) and the World Intellectual Property Organization.
Coolpad subsidiary Yulong Computer Communications Technology (Shenzhen) took Xiaomi to court in Shenzhen in January this year. In May, it asked the Shenzhen court to ban the production and sale of eight of Xiaomi's devices on the Chinese mainland, including Mi 6, Mi Max 2, Mi Note 3 and Redmi Note 5, before upping the stakes by suing Xiaomi in Nanjing, Jiangsu province, for using its patent without authorization.
In the belief that "the law does not protect those who sleep on their rights", Zhang said Coolpad would spare no efforts in seeking justice before the courts. She refused to reveal the economic losses that Coolpad is estimated to have suffered from the alleged infringement, emphasizing that the court will have the final say on how much Xiaomi should be compensated for.
Founded 25 years ago and listed in Hong Kong in 2004, Coolpad was once the nation's flagship handset manufacturer, enjoying equal fame with Huawei, Lenovo and ZTE. It fell from grace in an intensely competitive domestic market currently dominated by key players like Huawei, Xiaomi, Oppo and Vivo.
Once controlled by debt-ridden LeEco, which sold off 18 percent of its 29-percent stake in Coolpad in January, the company suspended trading in its shares in March last year when it delayed revealing a loss of HK$4.38 billion for the 2016 year due to audit problems.
The Shenzhen-based enterprise was unable to report its 2017 annual financial results on time as losses from its struggling business continue to pile up and sees no sign of its shares resuming trading in the near future. "The hard fact is Coolpad could barely afford to wage a long and potentially costly legal battle. As far as I'm concerned, the cash-strapped company does not have even a penny in its pocket to pay for the court filing fees," a person familiar with the matter told China Daily. Such remarks were refuted by Coolpad, which reiterated the company does not have any funding problem in an email replied to China Daily.
Zhang said last month the potential legal costs proved to be "manageable" at the moment, and Coolpad has tried its best to minimize them.
Jiang Chao, CEO of the flagging smartphone manufacturer, said earlier the company has more than 10,000 mobile business-related patents, many of which are being infringed on by other smartphone brands. It just does not have enough money to take further legal action, at least for the time being.
Coolpad has placed its hopes on a $300-million funding in January to help take it back to a growth trajectory. The new investment is led by Chinese property mogul Chen Hua, founder and head of KingKey Group, through family trust Power Sun Ventures.
Liu Mingzhuo, vice-president of Coolpad, said the company plans to launch four smartphones this year and beef up its presence in the US. It's also seeking a comeback in the Chinese mainland market.
In a move that appears to play down the copyright infringement lawsuit, Xiaomi said it has filed a request to declare Coolpad's patents invalid, adding that its business remains well run and its products are well sold. "Apparently, Xiaomi is stalling for time to make the dispute a long drawn-out court battle, which should be the last thing that Coolpad wants to see," said Qu Sanqiang, professor and dean of the Law School at the Beijing Institute of Technology.
By filing a request to declare Coolpad's patents invalid, Xiaomi essentially kicks the can down the road to the SIPO's Patent Reexamination Board, which has the final say in the request for patent reexamination and invalidation, said Qu, who is also executive vice-president of the Beijing Intellectual Property Law Society.
Such a process may take quite a time before the baton is eventually passed to the court to determine whether the patents are infringed on or not.
"The patent dispute between Coolpad and Xiaomi just sheds some light on the lengthy and rough road patent owners have to take to protect their rights," Qu observed. "Normally, such a bumpy ride will take three to five years and even up to 11 years to reach a conclusion."
Despite twists and turns ahead, a court battle may pay off. For Coolpad, the lawsuit offers a beacon of hope of plowing some much-needed cash into the money-losing company.
Riding high on the undertakings to clamp down on IP infringement, economic compensation for patent litigation on the mainland, though varying from case to case, has been on a tear today, said Li Yang, professor of Law School at Sun Yat-sen University. A case in point includes Samsung, which was ordered by a Chinese court last year to pay 80 million yuan ($12.5 million) to Huawei arising from a patents row.
Dismissing the idea that Coolpad aims to squeeze some hush money from Xiaomi on the eve of its blockbuster Hong Kong listing, Zhang said the litigation just fits in well with a growing focus that mainland policymakers have placed on IP rights protection and enforcement.
The lawsuit itself may not steal the thunder from or cast a long shadow over Xiaomi's Hong Kong listing. But, it does bear the imprint of a big trend that Xiaomi should sit up and take note of both at home and abroad.
For years, Xiaomi has built up its business selling innovative products at dirt cheap prices on the mainland, and didn't bother to worry too much about patents. It was once the country's largest vendor in 2014 and 2015 before domestic sales stagnated over the next two years amid cut-throat competition and global expansion appeared to be the way out.
As the company extends its bets on new markets, including India, Brazil, Russia and Mexico, it has become a real issue to stack up relevant patents and dig into the global intellectual property pool.
By the end of March this year, Xiaomi had more than 7,000 patents to its name and 49 percent of them are trademarked outside the Chinese mainland. The company also had over 16,000 pending applications, according to its prospectus.
Besides the patent dispute with Coolpad, Xiaomi is also caught up in a major on-going litigation with Swedish telecommunications giant Ericsson in India - a dispute that has lasted more than three years to date.
To be sure, the company has bankrolled a big effort in building up its IP portfolio. As the prospectus showed, it posted a value increase of $32 million for "trademarks, patents and domain names", mainly due to its acquisition of certain patents, in the 2016 calendar year.
Xiaomi had executed patent assignments with Casio and Intel for 59 and 332 patents, respectively, in the US in 2016.
In the realm of mobile business, the smartphone maker has a cluster of major license agreements in place with Qualcomm, Microsoft and Nokia.
All in all, the trade hurdle between Xiaomi and Coolpad comes as a vivid footnote for a national IP protection campaign across the world's second-largest economy at a time when the country is under fire over lack of IP protection amid its trade row with the US.
As China steps up its presence on the world stage and in the global business arena, the issue of IP protection will come into greater focus. Likewise, for Xiaomi, such disputes may become common episodes in its path to run a sprawling business empire with more patents.
By Luo Weiteng
Source: China Daily HK edition