Chinese Company Learns From The West: Builds Up Big Patent Portfolio, Uses It To Sue Apple In China

from the just-as-Techdirt-predicted dept

For many years now, Western governments have been complaining about China’s supposed lack of respect for intellectual monopolies, and constantly pushing the country’s politicians to tighten the legal framework protecting them. To anyone not blinded by an unquestioning belief in the virtues of copyright and patent maximalism, it was pretty clear where this strategy would end. Indeed, over five years ago, Mike warned where this was leading: towards China repeatedly punishing foreign companies to protect domestic Chinese firms — in other words, leveraging patents as a tool for protectionism. A post on the IAM blog about legal action taken by the Chinese company BYD, one of Apple’s suppliers, shows that Techdirt’s predictions are well on the way to being realized:

Apple says BYD filed a pair of patent infringement suits in the Shenzhen Intermediate People?s Court alleging that the antennae in the iPhone 6 plus and various other Apple products infringe BYD?s intellectual property.

Five other defendants working with Apple were also sued — four Chinese suppliers, and one Chinese distributor.

BYD asked the [Chinese] bench to require “all six defendants to both cease allegedly infringing conduct and destroy allegedly infringing products”.

In effect, this is a patent attack on Apple’s supply chain in China, and one that would be devastating for the US company if successful. The IAM post points out:

Of the seven final assembly facilities for iPhones, only one is outside of China (a Foxconn facility in Sao Paolo, Brazil). That means any company with valid Chinese patents that it thinks reads on Apple products potentially has a lot of leverage.

There are two crucial elements that make Apple so vulnerable here. First, the fact that its assembly facilities are concentrated in China, and secondly, because there’s a Chinese company with patents it thinks it can use against Apple in that country. A March 2014 press release from BYD boasted that it had already amassed more than 12,000 domestic patents and over 8,000 international ones; the figures today are doubtless much higher. Amongst those domestic patents there are probably many that could come in handy for future legal action against other Western companies that assemble their products in China.

Those in the West who pushed China to show more “respect” for patents must be feeling so proud of the progress that Chinese companies have made in this regard, and so pleased now to see Apple being sued in local courts using China’s patent laws.

Follow me @glynmoody on Twitter or, and +glynmoody on Google+

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Companies: apple, byd, foxconn

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Comments on “Chinese Company Learns From The West: Builds Up Big Patent Portfolio, Uses It To Sue Apple In China”

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Wendy Cockcroft says:

Re: Re: Well said

Please don’t tell me the rationale for this was the “Dumb foreigners” trope!

China invented many of the things we take for granted, including paper and fireworks. They were light years ahead of us for centuries until their civilisation began to implode from stagnation and corruption. I daresay the Opium Wars and aftermath didn’t help. To even imagine, then, that these people would fall for an “Emperor’s New Clothes” type scam is ridiculous in the extreme. I reckon that the minute they heard about “Intellectual property” they crept away to have a damn good laugh, then pretended to have fallen for it.

This is why exceptionalism is so damn pointless.

Anonymous Coward says:

if apple is a US company then why would they care about a patent troll in a foreign far tyranny??
Because apple is more chinese than “american”?
BY ANY scale?
if apple paid taxes in the US or had real employees (not only sales kids and “geniuses” then this could be a problem.
but apple is just a foreign stock with lots of stores in the us

JoeCool (profile) says:

Re: Re:

Because all but one assembly plant for Apple products are in China. If China wins their patent suit (in China against a foreign company), all those assembly plants have to quit making iPhones and destroy all stock not yet shipped. It’s a HUGE potential disaster for Apple. They won’t be able to ship enough iPhones to meet demands. My guess is the Chinese company holding the patent will force Apple to pay a big fee per phone to settle. They have Apple over a barrel.

JBDragon (profile) says:

Re: Re: Re: Re:

They are? Based on what? You not liking the prices? Apple can charge anything they want like any other company. Supply and Demand. Just because making Android phones makes you zero money when Apple is making over 90% of the Smartphone profits and everyone else raced to the bottom fighting it out and are now not making money is not Apple’s fault. Android is a Commodity now. My iPhone will hold it’s value far great and when I upgrade, get far more for it then any Android phone.

That One Guy (profile) says:

Re: Re: Re: Re:

Not a chance.

Those that insist that the patent system is all sunshine and roses, without any downsides, will either just ignore the issue, pretending it’s not happening, or find some way to claim that while this is an abuse of the patent system, when applied ‘properly'(that is used against small companies/inventors rather than large companies) the patent system is infallible, and nothing but good.

John Fenderson (profile) says:

Re: Re:

“apple is just a foreign stock with lots of stores in the us”

Apple outsources all its manufacturing offshore, but it does most product development in the US. Those are real engineering jobs, not retail.

Apple is pretty much a multinational now. It’s no more a Chinese company than it is a US company. It’s independent of nationality. This is how most large corporations are.

Annonimus says:

The global bubble is starting to pop

The Chinese are doing this because there is no longer enough money to go around for both Apple and the Chinese manufacturers, so the manufacturers will take their production of Apple products and export it cheaper than Apple does.

I’m really curious if Apple will adapt or if it will crash and burn, but either way cheap Chinese corporations are going to become competition to the USian corporations instead of what the partners they were so far.

Keroberos (profile) says:

Re: Short term effects

Apple is powerful enough to quickly set up factories elsewhere.

Nope, setting up new tech factories is not something that can be done quickly or cheaply. Apple would be looking at about 5 years just to get all the paperwork,picking a site with a large population of tech savvy workforce , getting infrastructure built, plant design, permits, and all the other stuff they need to do before they could even break ground and start building (which could add another 5 or more years to the project depending on any delays). So about 10 years to bring their manufacturing in-house. And none of this addresses the fact that their products could be (or are) infringing on someone’s patents in China, which is very quickly becoming a market you need to cater to.

Andrew D. Todd (user link) says:

The Parallel Area of Movies.

The same process is happening in Hollywood. You might look at this:
Willy Shih and Henry McGee, Hollywood on the Yellow Sea: Wang Jianlin, one of China’s richest men, is creating a rival to the American dream factory, from scratch.

A Chinese zillionaire, more or less government-backed, is instituting a takeover and outsourcing of Hollywood. All the Chinese really want from the United States are the movie stars. They are building a special “cinema city” for the movie stars to live in. Movies which are very expensive to make are generally suited to children, or to naive third-world audiences. Ingmar Bergman, the archetypal grown-up film-maker, never spent very much money, because he didn’t blow things up. The American movie theater market is effectively stalled at about four tickets and thirty dollars per person per year, not even a dollar a week. What this reflects is that most Americans are comfortable at home, and don’t see any reason to go out to a movie house. Chinese are not as rich as Americans, but they are much more likely to go to movies. Someone who lives in _barracks_ conditions, like many Chinese workers, finds a movie house more comfortable than his barracks. Someone who has a comfortable home also has room for all kinds of _stuff_. He can own various kinds of tools, and amuse himself by making things. Someone who lives in a barracks must, perforce, keep all his belongings in a satchel and/or a locker. This implies a preference for simple and passive entertainments. Thus, the Chinese are becoming the main market for movies. And they have no intention of paying significant foreign exchange for them.

Something roughly similar tends to operate for a tablet computer. There is no very compelling case to use a tablet computer at home. Video games are best played when sitting down (and not while driving– emphatically not while driving). Beyond a certain threshold, there is no compelling case for a more powerful tablet computer. The kind of people who will eventually push the performance on tablet computers will be those who do not have a place to sit down of their own, for example, someone who spends hours a day, riding in a crowded bus. You can play with a tablet computer under those circumstances, but you cannot do either gardening or carpentry.

It has been estimated that “Chinese-manufactured” electronics are only about five percent Chinese by value-added, and if we take valued-added-by-manufacturing, as distinct from risk assumption, the figure would be more like one percent. Most of the money goes for buying chips and other “clean room” components imported from outside China, and then for software and marketing in the country where the machine is eventually sold. In the field of mechanical watches, there is the notion of a “movement,” that is, a dial, and hands, and the gears to make them turn, manufactured as a single unit which fits into an artistically designed case. What I think may happen is that chip-makers, such as Intel, may begin to sell “tablet movements,” assembled by machines with essentially zero human labor. A “tablet movement” would include a screen, and processor, memory, etc., bonded to the back of the screen, but it wouldn’t have any externally visible label, and it would fit into a standard-sized case which would have a label. The automated factories which produce “tablet movements” would be proximate to chip fabs, which are mostly not in China. Chip fabs do not require cheap labor, you see. Indeed, chip fabs cannot tolerate cheap labor. People have to breathe, and their breath inevitably contaminates the chip-making process. A lot of the small components which China has learned to produce, things like cheap small capacitors and resistors, will be rendered irrelevant by the consolidation of systems into fewer and fewer chips, the so-called “System on a Chip” concept Probably, Intel would be able to obtain funding to set up the necessary factories from the United States Government, on National Security grounds.

China has not been very successful in off-shoring American chip fabs. That is political in the highest degree, and is likely to provoke government intervention. The are a lot of chip fabs in the United States, and a lot in Europe (especially Germany), and a lot in Japan and South Korea, and a lot in Taiwan, and a lot in Singapore. All of them, even the ones in Taiwan, are effectively out of China’s military reach. China will continue to struggle towards the point where it does not have to import chips, but it will be a slow process.

Of course, Apple is now more like Universal Studios than it is like Intel. It is not really indispensable to a government which wants to control the thoughts of the users. The Chinese government will see Apple primarily in terns of the App Store, a system of censorship which they want to convert to their own uses.

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