How Might Apple React to Qualcomm’s China Lawsuit?
Impact on Apple
Qualcomm (QCOM) filed a patent lawsuit in China (MCHI) seeking a ban on the sale and manufacture of Apple’s (AAPL) iPhone models using Qualcomm technology. This isn’t the first time Qualcomm has sought an injunction on iPhones. It filed complaints in the United States and Germany as well seeking an injunction on iPhones. Apple wasn’t much affected by these complaints.
But China’s lawsuit is more impactful, as Apple manufactures the majority of its iPhones in China. Moreover, it earned 22.5% of its revenue from China in the June 2017 quarter. Qualcomm’s director of patent litigation for Beijing East IP (Intellectual Property), Erick Robinson, stated that an injunction against iPhone models in China could result in a worldwide injunction of iPhones.
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This lawsuit comes as Apple launched its iPhone 8 and announced its iPhone X model, which is due to ship by the end of 2017. Chinese suppliers and assemblers are operating at peak capacity to bring as many new iPhones as possible to the market before the holiday season. Apple’s stock has increased dramatically over the anticipation of the iPhone 8 and iPhone X. If the ban is imposed, it could prove very costly for Apple.
Possibility of injunction in China
However, there’s little chance of a Chinese court banning iPhones at Qualcomm’s request, as the ban would result in huge layoffs by Apple’s suppliers like Hon Hai Precision Industry. Canaccord Genuity analyst Mike Walkley stated that if the court bans iPhones, the move might help Chinese handset makers like Guangdong Oppo Electronics gain market share against Apple. He stated that the lawsuit is just a threat to bring Apple “to the negotiating table.”
How can Apple tackle the China lawsuit?
However, Apple’s stock price wasn’t impacted by Qualcomm’s China lawsuit, as investors believe the company wouldn’t let iPhone supplies be disrupted over a lawsuit, according to Canaccord Genuity analyst Mike Walkley. He stated that if the Chinese court rules against Apple, it would immediately compromise by paying a licensing fee to Qualcomm in the short term.
However, lawyers believe Apple could play the same game as Qualcomm. Apple could file anti-trust lawsuits against Qualcomm in Chinese courts or try to get the patents under questions invalidated by the Chinese patent office. While the invalidation is in progress, Apple could hold up the patent cases in the Beijing court. This move would lengthen the court’s ruling time and save Apple from any disruption in iPhone 8 and X supplies.
History shows that injunction requests have been ineffective in patent lawsuits because, by the time a court ruling results, patents have become outdated.
Next, we’ll look at Apple’s lawsuit against Qualcomm.