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Qualcomm, Apple And The China IPhone Ban

By Elizabeth Chien-Hale

Chinese court in the southeastern city of Fuzhou, China, has ordered Apple to stop
selling several different iPhone models: iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7
Plus, iPhone 8, iPhone 8 Plus and iPhone X. These interim orders are ostensibly the
result of patent infringement suits filed by Qualcomm Inc. against Apple Inc. in 2017,
shortly after the IP Tribunal was established there. The newly established IP Tribunal, a
specialized body within the Fuzhou Intermediate Court, ruled on Nov. 30 in favor of the
preliminary injunction requests made by Qualcomm based on the two patents
purchased by Qualcomm.


In addition to assembling iPhones, China has grown to be an important market for
iPhones; therefore, a sales ban of iPhones in China, if carried out, could deal a major
economic blow to Apple.


The Fuzhou Intermediate Court
While the Fuzhou Intermediate Court has a long history, the IP Tribunal of the Fuzhou Intermediate Court is
new. It became operational in September 2017 as one of 10 new IP tribunals added in various locations
around China in 2017. When combined with the existing specialized IP courts in Beijing, Shanghai and
Guangzhou, this collection of 13 is the Chinese government’s latest effort to enhance judicial protection of
intellectual property rights.[1]


Incidentally, this tribunal is also the one that issued a preliminary injunction against Micron Technology Inc. in
July 2018. While it is too early to predict its long-term character, this new tribunal has so far demonstrated a
very pro-patentee attitude and can be seen as the Chinese version of the U.S. Eastern District of Texas.
Perhaps the Chinese government established this tribunal in order to appease the demands of Western
countries for stronger patent protection; ironically, however, this tribunal is hurting Western companies such
as Apple and Micron at this beginning stage.


The Asserted Patents
According to information available in the public domain, the two asserted patents, ZL200480042119.X and
ZL201310491586.1, allow the user to adjust the size and position of pictures, and to manipulate apps on the
phone as “cards” using a touch screen, respectively. Neither of these two patents were home-grown;
Qualcomm purchased them from other companies. Both patents have passed invalidation challenges by Apple
with all claims intact, which no doubt added to the court’s confidence in issuing the injunctions. According to
Chinese patent practice, the invalidation decisions, which are administrative in nature, can be appealed to the
judicial system, which are steps Apple may have already taken.


The Injunctions
The Fuzhou Intermediate Court issued preliminary injunction orders on Nov. 30 that Apple will not be able to
sell the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X in China.
Under Chinese law, the preliminary injunctions cannot be appealed to a higher court, but Apple is permitted to
ask for “reconsideration” by the same issuing court, an action which Apple has already taken.
Apple’s Response

1. According to Chinese reports, three of the four Apple subsidiaries have not accepted the mail that
contains the injunction orders from the Fuzhou Intermediate Court.

2. Apple has also filed for reconsideration, making arguments based on public interest, especially noting
the economic contribution of Apple and its contract manufacturers. In addition, in the reconsideration
Qualcomm, Apple And The China IPhone Ban - Law360 https://www.law360.com/articles/1113310/print?section=corporate petition Apple also attempted to provide a counter-security bond to overturn the sales ban.

According to a Reuters report [2], Qualcomm has posted a 300 million RMB (about $43.5 million USD) bond to cover
any potential damages to Apple. Apple countered by offering a "counter security” of twice that amount
to lift the ban and to continue sales as normal. It is worth noting that under Article 8 of The
Interpretation of the Supreme People's Court on the Application of Law for Stopping Pre-Suit
Infringement upon Patent Rights [3], posting of a counter bond is not sufficient to lift an injunction.
However, there are also arguments that this article should not be interpreted literally.

3. Upgrading the Operating System: Apple issued a software update this week, which claims to have
resolved the patent infringement issue of the iOS 11. Apple is reported to have stated that it is certain
that iOS 12 is non-infringing, and that the newly released fix of the week of Dec. 17 would make that
fact obvious.

4. There are some reports in the Chinese press that third-party sellers are beginning to lower the prices
of the iPhones in China.

5. Apple is also rumored to have begun negations to shift production orders to other contract
manufacturers. According to publicly available versions of the injunctions, phones manufactured by
Pegatron Corp. were excluded from the ban in both injunctions, and phones manufactured by Compal
Electronics Inc. were excluded from the ban in one of the two injunctions.

Qualcomm’s Response
1. Qualcomm has publicly rejected Apple’s claim that the software updates would bring iPhone models
mentioned in the injunction orders into compliance. According to the publicly available copies of the
injunction orders, no reference was made to the operating systems.

2. Qualcomm is also reported to have filed more lawsuits in other courts in China to impose sales bans
on the newest models of the iPhones, including iPhone XS、iPhone X and iPhone XS Max.

3. Qualcomm also claims to have taken steps to seek compulsory enforcement of the issued injunctions.

What’s Next
At the time of this writing, the Fuzhou Intermediate Court has not announced its decision on Apple’s
reconsideration petition. The legal arguments may go either way. On the one hand, the “irreparable harm”
argument which Qualcomm relied on to win the preliminary injunctions can be challenged. Since Qualcomm is
not a cellphone manufacturer, it is difficult to understand why any harm done to Qualcomm cannot be
measured by monetary damages. On the other hand, Apple’s continuing sales of the banned iPhones, with its
unilateral declaration that the software patch would bring the banned iPhones out of the protection scope of
the asserted patents, can be viewed as defying the Chinese judicial authority. Ultimately, it may be politics
that will rule the day. It is also possible that Qualcomm and Apple will reach a settlement quickly.
Elizabeth Chien-Hale is an attorney with CKR Law LLP. She previously served as Apple's Inc.'s senior
counsel/China coordinator for all IPR issues in China, Hong Kong and Taiwan.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its
clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information
purposes and is not intended to be and should not be taken as legal advice.

[1] http://fjfy.chinacourt.org/article/detail/2017/09/id/3009021.shtml
[2] https://www.reuters.com/article/us-apple-qualcomm-china/apple-to-push-software-update-in-china-asqualcomm-
case-threatens-sales-ban-idUSKBN1OD0B1
[3] http://www.sipo.gov.cn/zcfg/zcfgflfg/flfgzl/zlsfjs/1020169.htm

 

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