Xiaomi in smartphone patent dispute against rival Coolpad

The timing of the patent infringement case has come at a sensitive period for Xiaomi, which is now preparing for its public listing in Hong Kong 

PUBLISHED : Friday, 11 May, 2018, 9:11pm
UPDATED : Saturday, 12 May, 2018, 10:05am

Xiaomi, the Chinese technology start-up that has applied to list in Hong Kong, is seeking to void disputed patent rights at the heart of an intellectual property lawsuit filed against the company by rival smartphone maker Coolpad Group.

Beijing-based Xiaomi said on Friday that it has requested the Patent Re-examination Board, under China’s State Intellectual Property Office (SIPO), to invalidate three patent rights that Coolpad unit Yulong Computer Telecommunication Scientific had claimed were infringed by the world’s fourth-largest smartphone supplier.

Hong Kong-listed Coolpad announced in a regulatory filing late on Thursday that its Yulong unit had initiated a patent infringement case against Xiaomi with the Jiangsu Province Nanjing Intermediate People’s Court.

The complaint alleged that Xiaomi had used the patents without any license from Yulong. Coolpad claims that the patent infringement relates to app icon management, notifications and system user interface on certain Xiaomi products that Coolpad said it had originally developed. 

Xiaomi, on cusp of world’s biggest IPO since 2014, sets sights on global markets

It requested the court to order Xiaomi to stop the sale and production of three smartphone models covered by the patent dispute – the Mi Mix 2, Redmi Note 5 and Redmi 5 Plus.

The court was also requested to order Xiaomi to pay “for the economic loss suffered” by Yulong and all litigation expenses.

Xiaomi said it was made aware of the Yulong lawsuit after Coolpad filed a motion before the Shenzhen Intermediate People’s Court regarding the alleged patent infringements, according to the company’s statement released to media on Friday.

“However, Xiaomi understands that the filing has yet to be accepted by the court,” the company said.

Calls and an email inquiry to Coolpad on Friday were not answered. 

A Xiaomi spokeswoman did not provide additional information outside the company’s statement. 

The timing of the lawsuit has come at a particularly sensitive period for Xiaomi, which is widely speculated to be on the cusp of the world’s biggest initial public offering since 2014.

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While its application in Hong Kong omitted financial terms, bankers familiar with the plan said Xiaomi was looking to raise US$10 billion, in a sale that values the eight-year-old company at US$100 billion. 

That would catapult Xiaomi, founded in 2010 by serial entrepreneur Lei Jun, past Baidu and to become the third-biggest Chinese technology company by value, after Tencent Holdings and Alibaba Group Holding, parent company of the South China Morning Post

At US$10 billion, Xiaomi’s IPO would also be the 15th biggest of all time, or the fourth-largest in Hong Kong.

The company passed a resolution last month to limit the margin it makes on hardware products to 5 per cent, and to distribute any excessive amount to its users.

“The timing [of the lawsuit amid Xiaomi’s IPO preparations in Hong Kong] is just right to heat up the issue, as Coolpad puts pressure on Xiaomi and draws market attention,” said James Yan, an analyst at Counterpoint Research.

Once a major smartphone brand in China, Coolpad has lagged behind other domestic suppliers in terms of updated technical specifications and range of models available in the market, according to research firm IDC.

Coolpad was outside the top 10 smartphone suppliers in China in the first quarter of this year. The 10th-ranked vendor, Xiaolajia, sold just 1.3 million handsets during that quarter, according to Sino-Market Research.

Huawei Technologies, Oppo, Vivo and Xiaomi have controlled 73 per cent of the domestic market, while other brands – including Apple – made up the remaining 27 per cent, according to research firm Canalys in a report last month.

China’s cutthroat smartphone market is coming down to a handful of major brands

Those larger, deep-pocketed Chinese smartphone suppliers have won a big chunk of the market through aggressive marketing, more attractive handset designs and features, and by offering a wider array of models available in a range of prices to entice both younger and affluent buyers.

That has left an estimated 200 Chinese smartphone companies to fight for the scraps. Just two years ago, there were as many as 300 of these firms offering inexpensive, knock-off handsets.

Xiaomi said it was “committed to protecting and respecting intellectual property rights”, based on its patent deals with global hi-tech firms such as Qualcomm, Microsoft and Nokia.

The timing [of the lawsuit] is just right to heat up the issue, as Coolpad puts pressure on Xiaomi and draws market attention
James Yan, Counterpoint analyst

In its statement, Xiaomi said it had more than 3,600 patents registered with SIPO and more than 10,900 pending patent applications on the mainland.

“Globally, we had over 3,500 patents registered and over 5,800 pending patent applications in various overseas countries and jurisdictions, which were primarily filed in the United States, Europe, India, Japan and Russia,” the company said.

Coolpad, in contrast, has seen better days. Cash-strapped LeEco, which used to hold a 28.90 per cent stake in Coolpad, sold 17.83 per cent of its interest in Coolpad in January.

“The economic compensation [if Coolpad succeeds in getting a settlement from Xiaomi] will be quite helpful to Coolpad’s operations, but it will hardly be able to help revive the company,” Counterpoint’s Yan said.