Tue, Dec 16, 2014 - Page 14 News List

Xiaomi ban exposes patent risks

Reuters, MUMBAI and BEIJING

The court order that banned Chinese mobile maker Xiaomi Corp (小米) from selling its phones in India has halted Xiaomi’s breakneck expansion into the world’s fastest-growing major smartphone market and could be just the start of a string of patent challenges.

Xiaomi only started selling in India in July and quickly became the nation’s fastest-growing smartphone brand. With minimal marketing, it is already outselling even low-cost smartphones running Google Inc’s Android One.

Hugo Barra, the former Google executive who now leads Xiaomi’s international operations, told reporters last month how rapidly the nation had taken to his brand.

All it took was a single Facebook post to draw dozens of fans to a California Pizza Kitchen in Mumbai to meet him, he said.

“It was far more than we expected. The community has really, really embraced us,” he said.

Then came a court order on Wednesday last week to stop selling, after a patent infringement case was filed by telecom equipment maker Ericsson AB. The ban is scheduled to last until at least Feb. 5, when the Delhi court hears the case again.

However, that is unlikely to be the end of the young company’s battle over intellectual property (IP) rights.

Sources close to Xiaomi say its leadership has privately acknowledged for years its vulnerability to patent entanglements. The higher risks of IP litigation in Western markets even played a role in shaping Xiaomi’s strategy of expanding to India and Southeast Asia, the sources said.

Xiaomi said in a statement that “it isn’t easy” to build up a patent portfolio as a start-up company, but it aims to have filed 8,000 applications by 2016.

On its home turf, Xiaomi has already been dogged by IP controversies with other Chinese firms, mostly over content rights for its streaming TV service.

As its smartphone business, already No. 1 in China, continues to grow, industry analysts expect greater pressure at home, particularly since two of its fiercest handset rivals, Huawei Technologies Co (華為) and ZTE Corp (中興), are among the top telecom patent holders in China.

Until it is lifted, the ban in India will be particularly hard on growth prospects. In a nation where just one in 10 people use smartphones, the potential is vast. The market grew 82 percent in the third quarter, while China expanded at a relatively modest 10.8 percent, according to research firm International Data Corp.

Barra posted a message on the company’s Web site on Friday last week apologizing to fans.

“Rest assured that we’re doing all we can to revert the situation,” he wrote. “Stay tuned for more information.”

In China, Xiaomi already outsells Apple Inc and Samsung Electronics Co in smartphones, and it became the world’s third-largest vendor as of October, though it is little known outside Asia.

Unlike Apple, which introduces a new iPhone just once a year, Xiaomi rolls out updated models frequently, usually in small batches that sell out in seconds. It sells only online, and with minimal advertising, relying on word of mouth to build anticipation for each new launch.

In India, Xiaomi initially imported 10,000 devices a week, but soon had to ramp that up to 60,000 to 100,000 to meet demand, Xiaomi Head of India Operations Manu Jain told reporters before the sales ban. It has chartered flights four times to rush in fresh supplies.

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