Apple's China headache worsens as court bans iPhone sales

  • TECH
  • Wednesday, 12 Dec 2018


A Chinese court order instructing Apple to stop sales of its iPhones in China ups the ante on the US technology giant in one of its biggest markets, amid revenue pressures and declining smartphone growth globally.

A statement from Qualcomm said the Fuzhou Intermediate People’s Court had granted the US chip maker’s request for two preliminary injunctions against four subsidiaries of Apple, ordering them to immediately to stop selling models from the iPhone 6S to iPhone X.

If upheld, the court ruling could adversely impact Apple’s revenues as Greater China – which includes mainland China, Hong Kong, and Taiwan – is currently the US company’s third largest market, accounting for about a fifth of Apple’s revenues. In its latest financial year, Apple racked up over US$260bil (RM1tril) in global sales.

Apple’s most recent phone models, which include the iPhone XR and iPhone XS, are not included in the ruling, as these devices were not released when the suit was filed in 2017.

The timing of the court order comes amid the ongoing US-China trade war and rising nationalist sentiment among China’s consumers, with more turning to Chinese smartphone brands such as Huawei.

"The older iPhone models (included in the court order) still make up a big volume of iPhone sales in the China market and if a prolonged ban (is enforced), the supply chain in China will also be affected,” said Kiranjeet Kaur, a senior research manager with IDC’s Asia-Pacific client devices group.

Greater China firms such as Foxconn, Hong Kong-listed AAC Technologies, BYD and BOE Technology are just some of Apple’s Chinese suppliers, providing a range of services including assembling and supplying components and technology for its products.

In recent years, Apple’s market share in China has declined from 15% in the fourth quarter of 2017 to 9% in the third quarter of 2018, according to Counterpoint Research. The decline also comes as smartphone growth matures on the Chinese mainland.

The patent infringement suit involves Apple’s alleged violation of Qualcomm’s software patents related to resising photographs and app management on a touch screen, and concerns devices sold with Apple’s iOS 11, an older version of its operating system. Apple could work around the infringement accusations by upgrading all of its devices to a new operating system, according to a research note by China Merchants Securities in Shanghai.

Apple said in a statement on Monday that “all its iPhone models remain available” for customers in China, and has filed a request for reconsideration with the court as a first step to appealing the preliminary injunction.

It called Qualcomm’s effort a “desperate move by a company whose illegal practices are under investigation by regulators around the world”, adding that Qualcomm “is asserting three patents they had never raised before, including one which has already been invalidated”.

Qualcomm said in its statement that it has an “abiding belief in the need to protect property rights”.

“Apple continues to benefit from our intellectual property while refusing to compensate us,” said Dan Rosenberg, executive vice president and general counsel for Qualcomm.

However, some experts believe that this is just part of an ongoing legal dispute between the two technology giants and is unlikely to have a long-term impact on Apple.

“Qualcomm owns a suite of patents worldwide which it has accused Apple and others, including Huawei, of infringing,” said Paul Haswell, partner at law firm Pinsent Masons. “It’s not uncommon for a court to ban a sale of infringing products until the dispute is resolved, and then for this to be reversed until final judgment is delivered.”

While the court order to stop iPhone sales is enforceable, it “requires someone to enforce it”, Haswell said.

“Apple won’t stop selling devices until forced to do so,” he said.

Although the court order was issued in Fuzhou, it is effective nationwide. “However, many resellers and e-commerce platforms selling the affected iPhones have not received a formal notice to halt sales, so it is business as usual for them,” said IDC China’s Kitty Fok.

Zheng Wei, partner lawyer at Beijing-based law firm Anli Partners, said although the court injunctions are not publicly available, they were likely “pre-pleading restraining orders” which could mean the final verdict is months or years away.

“However, the injunctions don't mean the court is in favour of Qualcomm, and they won't affect other means both sides can pursue throughout the process, including settlement and litigation,” he said. – South China Morning Post

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