HUAWEI, ZTE THREATEN XIAOMI OVER PATENTS

Bottom line: Xiaomi is likely to settle a series of patent disputes launched by domestic rivals Huawei and ZTE, but will face more similar actions as its profile rises in its global expansion.
Huawei, ZTE point finger at Xiaomi
Xiaomi’s rapid rise comes on the back of a smart marketing campaign that has positioned its smartphones as a trendy and affordable alternative to high-performance Apple and Samsung models that often cost much more. The Chinese brand has become quite skilled at capturing headlines, even as far wealthier rivals like ZTE and Huawei struggle for attention with their own similar products that provide similar performance at comparable prices.New reports about a series of patent violation claims against smartphone sensation Xiaomi are casting a spotlight on the kinds of battles this fast-rising Chinese firm may face in its aggressive global expansion. Just 3 years after launching its first models, Xiaomi has come from nowhere to become the world’s third largest smartphone brand, behind only much older global rivalsSamsung (Seoul: 005930) and Apple (Nasdaq: AAPL). That rapid rise has caught the attention of older domestic smartphone rivals like Huawei and ZTE (HKEx: 763; Shenzhen: 000063), which are reportedly now threatening to sue Xiaomi for violating their patents.
At the same time, Huawei and ZTE have both spent aggressively on technology development, as evidenced by their status as 2 of China’s biggest filers for new patents each year. I’ve previously said that many of those patents are probably worthless, and the big number of applications by the 2 companies is designed to please Beijing officials who want Chinese firms to innovate more.
But that said, at least some of the patents are probably valuable, and both ZTE and Huawei spend hundreds of millions of dollars on R&D each year. Xioami also probably spends heavily on product development, though its youth and more limited resources mean it probably spends far less than Huawei or ZTE. Perhaps that’s part of the reason behind the latest reports that both Huawei and ZTE have sent letters to Xiaomi accusing it of using their patented technology without permission.
Xiaomi has denied receiving any such letters, which were also reportedly sent to other domestic smartphone makers including Oppo and the parent of the Coolpad brand.  But based on my past experience and the high level of detail in these latest reports, I would say the threatening letters were probably sent out and both Huawei and ZTE will push forward with their cases. The source of the reports is 21st Century Business Herald, which is also one of China’s most credible business publications.
There’s not much detail on the actual claims, expect to say that some involve WCDMA, the world’s most commonly used 3G wireless technology. Neither Huawei or ZTE would comment directly on the matter, though both said they are very serious about protecting their intellectual property. Each has been sued numerous times in the past by global rivals, most often outside of China. But the pair have been far less aggressive about filing their own similar lawsuits.
This latest clash, if it’s really happening, would come just weeks after Xiaomi took another media bashing following negative remarks from a high-level Apple executive. In that case, Apple’s chief designer Jonathan Ive essentially called Xiaomi a copycat that stole ideas from true innovators like Apple.  Xiaomi has attempted to defend itself since then, mostly by saying it’s a young company in an early stage of development.
The reality is that Xiaomi is indeed a copycat to some extent, at least in terms of product design. But many smartphones look very similar these days, mostly because all have big rectangular screens and use operating systems (OSs) based on Google’s(Nasdaq: GOOG) free Android product. In this particular instance it’s hard to say whether Xiaomi is really violating Huawei and ZTE’s patents, and I do expect the companies will ultimately settle the matter. But this latest clash does reflect the kind of negative attention that Xiaomi is likely to attract more and more of in its rapid rise onto the global stage.
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