ZTE sues rival

Chinese handset makers in patent skirmish

Peng Liyuan, the wife of China's President Xi Jinping, is pictured after a welcoming ceremony in Beijing

Her choice of handset matters

Last year ZTE’s Nubia smartphone received an unexpected celebrity endorsement. That occurred when China’s First Lady Peng Liyuan was spotted holding the phone while on a trip to Europe with her husband Xi Jinping.

The Shenzhen-based telecom equipment maker touted it as a victory against Apple, since the last time Peng travelled to the US she was pictured using an iPhone 5. Her new phone, meanwhile, drew applause from Chinese consumers who saw it as a demonstration of her support for domestic products. Nubia fans also gushed that they were thrilled the first lady shared their tastes.

Last week the Nubia smartphone was in the news again, albeit for a different reason. ZTE posted a letter on its official weibo account claiming that archrival Huawei’s Honor X2 and P8, which were launched in London in April, violated two of the patents in its “slow shutter and capture” camera technology in the Nubia range. “In the face of Huawei’s blatant copying, we think it is time we stand up and protect the industry’s orderly and competitive environment by taking legal action,” said ZTE.

It isn’t clear if ZTE has filed a formal lawsuit. Huawei, in response, denied the allegations, saying that it developed the technology that ZTE accuses it of stealing.

It’s not the first time the country’s leading handset makers have locked horns in a patent dispute. Huawei has challenged ZTE at least twice in the past for alleged patent infringements (see WiC107). Last December, both companies also threatened Xiaomi and Vivo with lawsuits over WCDMA technology, said 21CN Business Herald.

But industry observers say Qualcomm’s eyewatering settlement with Chinese antitrust regulators could now trigger a wave of patent wars (see WiC271). In the past, clients of Qualcomm like Xiaomi were granted free access to the US company’s patent portfolio, which kept them away from litigation. But Qualcomm’s settlement has dissolved the cross-licencing agreements. National Business Daily predicted that it would only be a matter of time before companies like Huawei and ZTE, two of the largest patent holders in the Chinese telecoms industry, started seeking royalties from their rivals as well.

In fact, Huawei has long been preparing for this scenario. “In the next five to eight years, a world war is going to erupt over patents,” Ren Zhengfei, Huawei’s founder and chairman, told Forbes China last year. Huxiu, a tech portal, said the telecoms equipment giant has also been bulking up its litigation team to protect its patents.

In the meantime, analysts concur that even if ZTE takes Huawei to court, the lawsuit will not be an easy one to win. “In recent years, the competition for the camera function on the smartphones has become very intense. Every company has achieved some sort of innovation. So when it comes to who violates whose patents, a lawsuit could take up to a few years,” suggested Sina Technology, another portal.

Doug Young, author of Young’s China Business Blog, also admits that the lawsuit may not yield a meaningful outcome. “China’s courts are notoriously slow and inexperienced in intellectual property law, and the Huawei phones at the centre of this new dispute will probably be obsolete by the time any court decision comes,” he warned in the blog.

Still, some industry observers reckon that the latest legal threat is probably no more than a publicity stunt for ZTE to drum up interest in its latest version of the smartphone, the Nubia Z9, which will go on sale early this month. ZTE needs the latest range to sell well: in the past three months, none of its handsets were ranked in the top 30 bestselling Android smartphones in China (Huawei, on the other hand, had three), said industry consultant Umeng Analytics.

The South China Morning Post also wonders whether a “bubble” is forming, with a growing number of Chinese firms seeking to become “the next Apple” in smartphones. It notes that Qihoo 360, a software firm, is set to launch its first smartphone, and will do so on the same day the new Nubia comes out…

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.