As Chinese smartphone manufacturer Xiaomi prepares for its initial public offering in Hong Kong, it is also facing patent infringement cases filed by one of its rivals, Coolpad Group.
The day after Xiaomi submitted its IPO prospectus on May 3, Coolpad announced that its subsidiary, Yulong Computer Telecommunication Scientific (Shenzhen), had filed a patent complaint against three Xiaomi business operations with a court in Shenzhen, Guangdong province.
In the same week, Coolpad made another public statement on May 10, claiming that Xiaomi infringed on its patents.
Buyers shop at a Xiaomi store in Hong Kong on May 3. Xiaomi is preparing for its initial public offering in Hong Kong. Li Peng / Xinhua
Coolpad has filed seven patent complaints against Xiaomi, six of them in Shenzhen and the other in Jiangsu province, Zhang Na, chief intellectual property officer of Coolpad, said at a news conference on May 11.
The patents in question are mostly related to multi-SIM card, multi-standby communications technologies, which involve fundamental cellphone functions including user interface, and thus can hardly be replaced, Zhang said.
In response, Xiaomi said it had never received any official notice of such litigation and that it doubted the stability of the patents' legal status, and thus had filed for invalidity requests with the Patent Re-examination Board of the State Intellectual Property Office, TechWeb reported.
As of the end of March, Xiaomi had more than 7,000 patents, approximately half of them granted abroad. Its total 16,000 patent filings are being processed, Chinese media reported.
It is quite common to find patent infringement claims in the telecommunications sector, Wang Weidong, a senior partner at law firm Dentons, told LanjingTMT, a tech news portal.
Once an infringement was constituted, it would affect a business' operations, especially in its IPO process, Wang said.
He Zhou, a partner of All-Bright Law Offices, told LianjingTMT that the legal procedures would be a drag on Xiaomi's IPO efforts, because patent disputes have an effect on a business' sustainable profitability.
Huang Lichong, a senior analyst at an assets management company, told China Securities Journal that the legal cases against Xiaomi will not necessarily affect its IPO, but will influence its evaluation, as the legal actions represent major risks to potential investors.
Xu Bo, a securities analyst, said the legal procedures are likely to postpone Xiaomi becoming listed. "The delay, if any, will be detrimental to its evaluation (on the stock market)," he said.
Data from International Data Corp showed that Xiaomi ranked fourth largest smartphone maker by shipments in China in the first quarter of this year, accounting for about 15 percent of the domestic market share and up 41.8 percent on shipments year-on-year.
The company generated roughly 114.6 billion yuan ($18 billion) in annual revenue last year, increasing 67.5 percent from 2016, according to its prospectus.
In contrast, Coolpad, which was among the largest cellphone manufacturers in China a few years ago, reported HK$7.97 billion ($1 billion) yearly revenue in 2017, a drop of 45.7 percent from a year earlier and announced a loss of HK$4.4 billion, according to its financial report.
For the struggling company, its patent portfolio is a key asset. Liu Mingzhuo, vice-president of Coolpad, said it would be a priority task for his company to operate its patents as capital, such as using them as investment, or as collateral for loans.
Coolpad has more than 10,000 patents in the cellphone industry, which are the achievements of tens of thousands of engineers involved in research and development over the past 25 years, according to its CEO Jiang Chao.