By Juro Osawa
HONG KONG -- China's smartphone makers increasingly are turning
to patents as ammunition as they try to reel in global leaders
Apple Inc. and Samsung Electronics Co.
Chinese technology giants from Huawei Technologies Co. to ZTE
Corp. and Lenovo Group Ltd. are acquiring patents through licensing
deals, acquisitions and hefty spending on research and development
-- moves that could signal more legal challenges for Apple and
Samsung not just in China, but overseas as well.
Huawei, which has an ambitious goal of becoming the world's top
smartphone maker in five years, sued Samsung in the U.S. last
month, claiming the South Korean company violated 11 of its mobile
patents. Samsung has said it would defend itself in the lawsuit.
The suit marked the first major legal challenge by a Chinese
smartphone maker against a market leader, turning on its head the
idea of Chinese manufacturers being on the receiving end of patent
disputes.
Last year, Huawei, the world's third-largest smartphone maker
and the leader in the telecommunications-equipment market, was the
largest filer of international patent applications under the Patent
Cooperation Treaty, which makes it easier for companies to file
patents in multiple countries, according to the Geneva-based World
Intellectual Property Organization. Huawei was followed by U.S.
chip maker Qualcomm Inc. and China's ZTE.
Patents are also playing a role in the harsher mobile landscape
Apple and Samsung are navigating in China, where regulators
increasingly insist that foreign companies play by Beijing's rules.
Shenzhen Baili, a little-known Chinese startup, won a surprise
injunction against sales of Apple's iPhone 6 and iPhone 6 Plus in
Beijing, based on a design-related patent it claims to own in
China.
Apple contests the claims, which analysts and legal experts say
are an indication of the country's political climate. But, at the
same time, major Chinese competitors such as Huawei are mounting
serious efforts to build patent rights and take on the industry's
big two. Three of the world's top five smartphone makers by sales
were Chinese in the first quarter, including Huawei, according to
research firm Gartner.
"We are going to see a lot more Chinese companies filing patents
outside China, and more deals and lawsuits involving patents and
technologies," said Benjamin Bai, a partner at Allen & Overy
LLP in Shanghai who advises Chinese companies on international
intellectual-property strategies.
A single smartphone can involve thousands of patents. The issues
are so complex and thorny that Apple and Samsung have been locked
in patent litigation around the world since 2011 as they battle for
market dominance.
Huawei has increased its patent portfolio mainly from its
extensive research-and-development investment. Over the past five
years, Huawei has spent nearly $30 billion on R&D. Last year,
its R&D spending rose 46% to $9.2 billion, beating the $8.1
billion Apple spent in its most recent fiscal year. Huawei now has
16 R&D centers around the world, including in the U.S. and
Europe.
In a sign that Huawei is making progress in building its
intellectual-property portfolio, earlier this year Apple and Huawei
struck a licensing deal whereby the Cupertino, Calif., company is
paying royalties for the Chinese company's patents, according to a
person familiar with the matter.
Richard Yu, head of Huawei's consumer business, told about 100
engineers at its Beijing research center in a speech in January
that the company would pour more money into R&D. He added that
engineers' bonuses would increase as the business grows.
"We can be as big as Apple," Mr. Yu told the engineers,
according to people who heard his speech.
Other Chinese smartphone makers such as Xiaomi Corp., are buying
patents from Western rivals to catch up. Last month, Xiaomi agreed
to purchase about 1,500 patents from Microsoft Corp. as it seeks to
one day sell its devices beyond developing markets such as India
and Brazil.
"We must systematically negotiate licenses to international
patents and build a strong IP portfolio for defensive purposes, by
both filing and acquiring patents," Xiaomi Vice President Hugo
Barra said. Mr. Barra said Xiaomi is looking toward Western markets
such as the U.S. and Europe.
Analysts said Xiaomi's intellectual property isn't strong enough
to expand in developed markets such as the U.S. Xiaomi said it
filed 3,738 patents in China and overseas last year, up from 2,045
in 2014.
To be sure, success in the smartphone market also requires more
than just investing in patents and R&D, analysts say.
When Lenovo bought Motorola Mobility in a $2.91 billion deal in
2014, the Chinese personal-computer maker cited Motorola's patents
as a reason for acquiring the company. Even with Motorola's
patents, the company has struggled in the global smartphone
market.
ZTE, which has expanded its patent portfolio, R&D and
marketing, has become the fourth-largest smartphone maker in the
U.S., according to research firm Canalys. But it ran into trade
issues with the U.S. government earlier this year, which it is
trying to resolve.
Still Huawei is hopeful that it can take on rivals with hefty
R&D spending. At Huawei, a smartphone antenna-design team in
Beijing has expanded 10-fold over the past five years to about 50
engineers. The team -- one of several mobile antenna-design teams
at Huawei -- files four or five new patents every year, according
to an employee.
When Apple released the iPhone 6S and iPhone 6S Plus last year,
the team disassembled the phones and tested their antennas inside
insulated rooms to compare them with Huawei's own antennas.
"We are still behind Apple, but we think the gap is narrowing,"
the Huawei employee said.
Write to Juro Osawa at juro.osawa@wsj.com
(END) Dow Jones Newswires
June 21, 2016 02:50 ET (06:50 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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