Trade wars may be behind Chinese court’s injunction against iPhones

The litigious rows between Qualcomm and Apple have already struck at the former’s Achilles’ heel – the risk of any fundamental change to its licensing model. Now Apple’s most sensitive spot, iPhone sales, has also been targeted, with a Chinese court issuing two injunctions against sales of several models of the handset, which it said violate two Qualcomm patents.

The companies were, predictably, offering different takes on the seriousness of the ban. Apple said it applied only to models running the legacy operating system, iOS 11, and that all its current devices remain on sale in China. But the patents at issue relate to technologies to enable users to adjust and reformat the size and appearance of photographs, and to manage applications using a touchscreen – neither apparently have anything to do with iOS versions.

Dan Rosenberg, Qualcomm’s general counsel, said: “The orders aren’t specific to the operating system installed on the phones. Apple made similar arguments in the trial on the merits, and the court went forward and issued these orders. If Apple is violating the orders, Qualcomm will seek enforcement of the orders through enforcement tribunals that are part of the Chinese court system.”

If the ban is enforced, analysts estimate it would affect 15m to 20m iPhones, and in China, injunctions usually remain in force during any appeal process. Qualcomm says the decision covers the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X.

The ruling was handed down by the Fuzhou Intermediate People’s Court, the latest twist in a two-year saga of tit-for-tat lawsuits focused on Qualcomm’s licensing rules, and the decision by Apple (and some of its manufacturing partners) to withhold royalties. The row has hit Qualcomm’s other business, in chip sales, also, since Apple has switched to Intel as its modem supplier for the latest iPhone XS and XS Max models.

In September, a US International Trade Commission (ITC) judge found that iPhones violate a Qualcomm patent in an interim judgement – any potential injunction would only follow with a final ruling, by the full ITC panel, expected early next year.

The importance of the Chinese ruling, like many individual decisions in a multi-country legal battle like this one, will be to put pressure on Apple to negotiate, rather than to end iPhone sales in a key market. This is one of the first court cases to come to judgement, and others are to follow in Germany, the USA and other Chinese courts. So far, Apple has suffered setbacks in the first ITC, and the first Chinese, cases, so it might be considering a more conciliatory approach. That would, however, be a change of behavior – Apple showed intransigence, even when faced with reversals, in its long-running legal battles with Samsung and other Android handset makers early in the decade.

Any decisions involving US companies and China, right now, have to be seen through the prism of the ongoing trade wars between the two companies, and particularly the USA’s sanctions against Huawei and ZTE (see separate item). The latest development came last week when Huawei’s CFO was arrested in Canada, to face extradition to the USA. There is speculation that the granting of injunction – very rare in China – may be retaliation for the arrest, against the USA’s most valuable company.

“China is set to decide on more than 20 patent disputes [between Apple and Qualcomm], and we don’t see why the rulings would be in favor of Apple,” Shah wrote in a client note.

In a statement, Apple said that Qualcomm’s efforts to ban iPhone sales in China was “another desperate move by a company whose illegal practices are under investigation by regulators around the world”. It claimed that the chip giant was asserting three patents it had never raised before, “including one which has already been invalidated”, and insisted it would pursue all legal options through the Chinese courts.