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Court orders China sales ban on older Apple iPhones in Qualcomm case

Stock MarketsDec 11, 2018 03:21
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© Reuters. FILE PHOTO: The logo of Qualcomm is seen during the Mobile World Congress in Barcelona

By Stephen Nellis

SAN FRANCISCO (Reuters) - A Chinese court has ordered a ban on the sale of several older Apple Inc (O:AAPL) iPhone models in China for violating two patents of chipmaker Qualcomm Inc (O:QCOM), although Apple said all of its phone models remained on sale in the mainland.

The case, brought by Qualcomm, is part of a global patents dispute between the two U.S. companies that includes dozens of lawsuits. It creates uncertainty over Apple's business in one of its biggest markets at a time when its falling share prices reflect concerns over waning demand for new iPhones.

Apple said on Monday it had filed a request for reconsideration with the court, the first step in appealing the ban.

Qualcomm said the Fuzhou Intermediate People’s Court in China found Apple infringed two patents held by the chipmaker and ordered an immediate ban on sales of older iPhone models, from the 6S through the X.

Apple said all iPhone models remained on sale in China and the trio of new models released in September were not part of the case.

China, Hong Kong and Taiwan are Apple's third-largest market, accounting for about one-fifth of Apple's $265.6 billion (208.7 billion pounds) in sales in its most recent fiscal year.

Qualcomm, the biggest supplier of chips for mobile phones, filed its case in China in late 2017, arguing that Apple infringed patents on features related to resizing photographs and managing apps on a touch screen.

Apple responded by saying that "Qualcomm’s effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world."

COURT BATTLE OVER DETAILS

In July, the same court banned the import of some microchips by Micron Technology Inc (O:MU) into China, citing violation of patents held by Taiwan's United Microelectronics Corp (UMC) (TW:2303).

In the provincial Chinese court, which is separate from China's specialized intellectual property courts in Beijing, one party can request a ban on an opponent's product without the opponent getting a chance to present a defense.

To enforce the ban, Qualcomm separately will have to file complaints in what is known as an enforcement tribunal, where Apple will also have a chance to appeal.

Apple shares rose less than 1 percent to $169.60, recovering from an early drop when it became clear phones were still on sale, and Qualcomm stock rose $2.2 percent to $57.24.

The ruling comes as Beijing and Washington are locked in a tense trade dispute. The two sides have agreed to trade negotiations that must be concluded by March 1.

Yiqiang Li, a patent lawyer at Faegre Baker Daniels who is not involved in the case, said the Chinese injunction could put pressure on Apple to reach a global settlement with Qualcomm.

The specific iPhone models affected by the preliminary ruling in China are the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X.

Erick Robinson, a patent lawyer in Beijing and former Qualcomm lawyer, said that while Chinese courts had become fairer in recent years, nationalism could sometimes be a factor in rulings.

Qualcomm is a key technology vendor to China’s rising smart phone brands such as Xiaomi Corp (HK:1810), Oppo, Vivo and OnePlus, while Apple competes directly against Huawei Technologies Co Ltd [HWT.UL], China’s top homegrown maker of premium-priced smartphones.

Huawei's Chief Financial Officer Meng Wanzhou, the daughter of its founder, was arrested on Dec. 1 in Canada at the behest of the United States for allegedly violating U.S. sanctions. A Canadian court is weighing whether to grant bail to Meng, who is facing possible extradition to the United States. Beijing has demanded her immediate release and threatened "consequences" for Canada.

“There is probably a political play here. Apple is a direct competitor to the biggest companies in China, whereas Qualcomm is a supplier,” Robinson said.

Qualcomm officials said tensions between the two nations had no bearing on the ruling. The company has had its share of troubles in China, from an unfavorable 2014 antitrust ruling to regulatory limbo that doomed its $44 billion bid for Dutch chipmaker NXP Semiconductors (O:NXPI).

Court orders China sales ban on older Apple iPhones in Qualcomm case
 

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