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BEIJING—When a Beijing regulator recently ruled against Apple Inc. in a patent dispute, it handed a victory to a Chinese company that barely exists.

Phone calls to the company, Shenzhen Baili Marketing Services Co., ring unanswered. Its websites have been deleted. Visits to its three registered addresses found no company offices.

Baili and its parent, Digione, are part of a rapid boom and bust in China's new wave of smartphone makers. When Baili took on Apple in December 2014, telling Chinese regulators that the Cupertino, Calif., company's new models infringed on its smartphone design patents, it had bold aspirations, a big-name investor in Chinese internet giant Baidu Inc. and a team of experienced executives.

By the time regulators reached a decision this year, Digione had collapsed, brought down by buggy products, mismanagement and fierce competition, according to former employees and investors. Digione has been absent from China's mobile-phone market for at least a year and Baidu has accused it of squandering its investment.

Baili, its unit that registered the phone patents, will continue to battle Apple in court, said Digione lawyer Andy Yang, of Beijing Wis & Weals. "Shenzhen Baili is still operational in its necessary functions," he said. Mr. Yang declined to comment on queries on Digione's relationship with Baidu.

Digione, whose formal name is Shenzhen City 100/100 Digital Technology Co., and Baili are both insolvent, their debt exceeding their total assets, according to the companies' annual financial reports.

The Beijing Intellectual Property Office last month granted Baili a sales injunction in the city on the iPhone 6 and iPhone 6 Plus. The order has been stayed as Apple appeals the decision. "IPhone 6 and iPhone 6 Plus products do not infringe upon the design patents" held by Shenzhen Baili, Apple's lawyers wrote in their appeal.

An appeal of a decision by the regulatory body must go to the courts, and Beijing's Intellectual Property Court is expected to hear the case in a few months.

The case comes as Chinese companies become more adept at taking advantage of a maturing patent system and represents a further complication for Apple, which is already facing challenges in the country with slower sales and the suspension in April of its iTunes Movies and iBooks services.

Baili may consider expanding its suit to the iPhone 6S and iPhone 6S Plus, said Mr. Yang. "The issue here is not whether Digione makes phones anymore, but whether the iPhone 6 infringes on this patent," he said.

With an expected long appeals process, the ruling isn't expected to have an immediate sales impact on Apple.

"iPhone 6 and iPhone 6 Plus as well as iPhone 6s, iPhone 6S Plus and iPhone SE models are all available for sale today in China," Apple said in a statement to The Wall Street Journal Wednesday.

Patent-infringement suits are common in the high-tech industry. Apple and Samsung Electronics have held a series of private negotiations about their smartphone patent disputes since 2011.

As the smartphone market matures, devices from different brands look increasingly similar, in China and other markets. A number of the features described in Baili's design are common in many earlier smartphones, and some industry lawyers said an appeals court could decide the features aren't specific enough to warrant a patent for Baili.

Baidu made a major investment in Digione in 2013, according to people familiar with the matter. The investment came as Baidu tried to grab a share of the mobile market without developing its own smartphone.

Dozens of Chinese startups piled into the smartphone sector after the success of $46 billion smartphone startup Xiaomi Corp., which Lei Jun, its founder, attributed to timing: "Even a pig can fly in a whirlwind."

Many have since gone bankrupt. China's smartphone market growth, in double digits for several years, slowed to 2.5% in 2015 and is expected to be flat this year, according to market research firm IDC.

Digione was founded in 2006 by Xu Guoxiang, former consumer-product marketing director of Huawei Technologies Co. Mr. Xu -- a soft-spoken former physics student with a goatee and penchant for art and fine tea -- built Digione to sell other brands' smartphones through mom-and-pop shops in smaller cities. Later the company shifted to making its own phones.

Baidu had expected Digione to use its investment to develop a mobile-operating system to compete against rival systems from Alibaba Group Holding Ltd. and others, but Mr. Xu instead spent it on smartphones and other ventures, according to people familiar with the company.

Baidu discovered in 2014 that Digione hadn't used the money as it had expected, and initiated an arbitration case against Digione, according to one person. Baidu won the private arbitration case last year, but has yet to recoup its money, this person said. It has since abandoned the operating-system ambitions, the person said.

Mr. Xu didn't reply to emails or calls. His brother, Xu Shunxiang, who also worked at Digione, declined to comment.

In March 2014, Baili was granted a patent from Chinese regulators for a smartphone design that had curved edges and a rear camera in the left-hand corner. Leaked images of Apple's upcoming iPhone 6 floating online at the time showed a similar design -- curved edges instead of the straight ones of previous iPhone models. There were also some similarities in button placement.

Just months after the launch of the iPhone 6 in September 2014, Digione went to the Intellectual Property Office and accused Apple of patent infringement.

On Chinese social media, some people suggested at the time that it was Digione copying Apple, which the company disputed.

"I am not Newton. I don't need Apple to give me inspiration," a purported Digione employee posted on Chinese social network Weibo on Nov. 18, 2014. Both Digione's official Weibo account and Mr. Xu's own account reposted the comment.

Digione likely hoped the controversy would boost sales, but the company had already developed a reputation for poor-quality devices, said Emen Zheng, a consultant who had been hired by Digione to set up its e-commerce platform.

"Digione cut too many costs on production and naturally there were quality problems," he said. "The smartphones would overheat. They had all kinds of issues."

Former employees and associates said Digione had a high attrition rate due to disappointing products and Mr. Xu's failure to carry through with promises.

"He had this habit when employees talked to him of leaning back his head, closing his eyes and stroking his goatee," said Mr. Zheng. "It made people feel like he wasn't listening to them."

Mr. Zheng and other former employees said the lawsuit with Apple was always more a marketing ploy than a serious court case, and that given the inherent limitations of smartphone design, many devices now share similar physical features.

"In truth, there are other smartphones that look more like the iPhone 6," said Mr. Zheng.

Yang Jie, Juro Osawa and Jenny W. Hsu contributed to this article.

Write to Eva Dou at eva.dou@wsj.com and Alyssa Abkowitz at alyssa.abkowitz@wsj.com

(END) Dow Jones Newswires

June 22, 2016 08:45 ET (12:45 GMT)

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