Apple Hit With Another China Setback in Beijing Patent Ruling

(Bloomberg) -- Apple Inc. suffered another legal setback in China where officials in Beijing slapped the company with a patent violation on some iPhone models, ruling in favor of a small local rival.

Apple was quick to downplay the ruling, saying an appeal had already been lodged, allowing the phones to stay on the market in the Chinese capital pending the outcome.

Still, the decision is another sign that Chinese officials are scrutinizing the company more closely and comes as Apple, already grappling with slowing iPhone sales, prepares to roll out the next version of its iconic smartphone. China shut down Apple's book and movie service in April for violating foreign publishing regulations, and last month a Beijing court ruled that a little-known accessories maker could use the iPhone label for a range of wallets and purses. Billionaire Carl Icahn said in April he sold out of his position in Apple because of concerns about the company's relationship with China.

In the face of such obstacles, Apple has made efforts to remain on good terms with the Chinese government, including a visit by Chief Executive Officer Tim Cook in May during which he announced a $1 billion investment in China's car-sharing service Didi Chuxing Technology Co. In 2013, Cook apologized after state media accused Apple of shoddy customer service and inadequate warranties.

Beijing's Intellectual Property Office said the iPhone 6 and iPhone 6 Plus infringe on patent rights held by the company Shenzhen Baili because of similarities to its 100C phone, according to its ruling Friday. China's largest smartphone makers, by unit shipments, were Huawei Technologies Co., Oppo and Vivo in the first quarter, with Lenovo Group Ltd. and Xiaomi Corp. close behind, according to research firm International Data Corporation.

While the decision covers only Beijing, future lawsuits against Apple could take the case as a precedent, potentially influencing the outcomes of litigation elsewhere in China. Baili is one of scores of smartphone brands trying to cash in on the country's mobile boom. Xu Guoxiang, the inventor who holds the patent and listed as a Baili representative on yellow-pages site czvv.com, did not answer calls seeking comment.

"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 spokeswoman Kristin Huguet said in an e-mailed statement. "We appealed an administrative order from a regional patent tribunal in Beijing last month and as a result the order has been stayed pending review by the Beijing IP Court."

Tim Long, an analyst at BMO Capital Markets in New York, said he doesn't think the Chinese ruling is meaningful for Apple.

"We believe there have been several prior cases against U.S. companies ruled in favor of local companies by lower courts that were later overturned by higher courts," Long wrote in a note to clients. "We have seen dozens of court decisions banning different smartphone products over the years in many different countries. We are not aware of one ever that has resulted in an actual injunction."

Cupertino, California-based Apple shares fell 1.7 percent to $95.88 at 1:22 p.m. in New York Friday. They were down 7.3 percent this year through Thursday.

Even if Apple prevails in the patent ruling, the new iPhone 7 model is due to hit stores later this year and will rely heavily on sales in China to prop up growth. More than four years of uninterrupted growth came to an end in March when sales of iPhones fell for the first time, as fewer people upgraded to the latest model and Apple is predicting another decline in the current period. About a quarter of Apple's revenue came from the greater China area in the three months ended in March.

--With assistance from Adam Satariano To contact the reporter on this story: David Ramli in Hong Kong at dramli1@bloomberg.net. To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Molly Schuetz, Alistair Barr

©2016 Bloomberg L.P.

Source: Apple Hit With Another China Setback in Beijing Patent Ruling