Wed, May 27, 2015 - Page 14 News List

Smartphone ‘cold war’ is seen in patent moves

ASIAN ANTITRUST POLICIES:South Korea and China are adopting policies that may require firms to license patents to their rivals more easily, altering the balance of power

Bloomberg

A new front is opening in what has been dubbed the smartphone wars: This one involves countries, not companies.

South Korea and China are adopting antitrust policies that may require companies such as Apple Inc and Qualcomm Inc to license inventions to rivals more easily and cheaply, potentially giving Asian companies a leg up against foreign competitors. Brazil and India are considering similar paths.

The clampdown on patents has the potential to alter the balance of power in the global mobile-phone industry, which generated US$412 billion last year, according to IDC.

These new rules may weaken the ability of Apple, Microsoft Corp and Qualcomm — typically among the top 15 US patent recipients each year — to compete in China, the world’s largest mobile-phone market, and other countries that follow.

“We’re going back to the Cold War and the domino theory,” said Bradley Lui, an antitrust lawyer with Morrison & Foerster in Washington. “The authorities in China see the potential use of patents that might affect companies in China, including state-owned enterprises. It might be an impetus for drawing rules more broadly than we would in the US.”

Asian regulators were spurred by the smartphone wars, in which tech giants battled over billions of dollars on four continents for more than four years. Foreign governments including South Korea and China have been looking more closely at their patent policies, emboldened by debates in Washington over whether patents hinder rather than spur innovation.

“The domestic debate that is supposed to be specific to our country is being latched on to by foreign governments,” Qualcomm international government affairs counsel Sean Murphy said. “It’s giving them justification to take action.”

South Korea’s restrictions on patents went into effect in December last year. It is home to Samsung, which battled Apple for years over claims it copied the iPhone’s “look and feel.” China’s rules are expected by Aug. 1.

Brazil and India are only beginning to develop policies, a National Academies report said.

The Chinese and Korean officials are just formalizing what 100 years of legal precedent has done in the US and Europe, and a lot will depend on how the governments implement the rules, antitrust lawyers said.

“They’re new to this area and they take it very seriously,” said Jim O’Connell, of Covington & Burling in Washington. “When you do too much, you end up ultimately hurting yourself because you diminish incentives to innovate. That’s a balance that can be tricky to strike. The Chinese agencies are wrestling with it, too.”

In the US and Europe, regulators say that “they’re not there to fine tune commercial disputes, they’re there to make sure competition is preserved,” Lui said. “The governments in Korea and China may take a different view based on their own economic interest.”

Regulators have not yet tried out the new guidelines, so companies have no idea how they will work or how stringently they will be applied.

“There’s going to be a lot of uncertainty,” Lui said. “People will be watching very closely on how the regulators actually put these into effect. Everybody’s doing to have to closely monitor these.”

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