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  HOME | Business & Economy (Click here for more)

Apple Hit with iPhone Sales Ban in China, Qualcomm Says

BANGKOK – A Chinese court ordered Apple Inc. to stop selling older iPhone models after finding the company infringed on two patents held by Qualcomm Inc., the chip maker said, casting uncertainty over Apple’s business in a critical market amid thorny trade relations between the U.S. and China.

The Nov. 30 decision by a Chinese court, which doesn’t apply to new iPhone models launched this year, is the first in the world’s largest smartphone market that seeks to curtail iPhone sales in the country.

Apple said its full portfolio of iPhones in China remain on sale, and that it plans to appeal the court’s decision. The company filed a request to the court to reconsider its decision on Monday.

Qualcomm said the Fuzhou Intermediate People’s Court in China found Apple had infringed on two patents: one related to photo editing and another to swiping on a touch-screen device.

The court order barring import and sales covers the iPhone X, 8, 7 and 6 models. It didn’t include Apple’s newest devices – the XS, XS Max and XR – because those models weren’t on the market when the patent case was filed.

It wasn’t immediately clear when any such ban might take effect. Apple already has phased out selling some iPhone models globally, including the 6s, 6s Plus and X. As of Monday, Apple’s China website was still selling the iPhone 7 and 8 family of phones, as well as the newest releases.

When Micron Technology Inc. received a similar injunction in July from the same Chinese court in a patent case, Micron complied with the decision by ending sales of some memory products in China while requesting the court reconsider its ruling. The injunction ruling came in patent infringement cases brought by United Microelectronics Corp. and Fujian Jinhua Integrated Circuit Co., a Taiwanese chip company and a Chinese chip company that Micron sued in the U.S. for intellectual-property theft.

The preliminary injunction is the latest turn in a long-running legal dispute between Apple and Qualcomm. The San Diego chip company has brought more than a dozen cases against Apple over patent infringement in China over the past two years.

Apple has built a sizable business in China, relying on the country for about a fifth of its annual revenue. The iPhone maker doesn’t break down sales by models, and analysts’ estimates vary. RBC Capital Markets on Monday estimated older models account for about 40% of sales in China, and that the ban could have an impact on about $12 billion in sales.

The ruling comes as China and the U.S. have been locked in a monthslong trade battle. The U.S. has imposed tariffs on more than $200 billion in Chinese goods, alleging unfair trade practices and intellectual-property theft. China has retaliated with tariffs of its own on U.S. goods.

A new rift between the countries opened this month after Huawei Technologies Co.’s finance chief was arrested in Canada on behalf of U.S. authorities. She is accused of lying to banks about Huawei’s ties to a company that did business in Iran, in violation of U.S. sanctions.

The companies both said they were informed of the Chinese court’s decision last week. Qualcomm said the decision was dated Nov. 30, which would be a day before the arrest of the Huawei executive.

Timothy Arcuri, an analyst with the investment bank UBS, said the timing of the decision raises the possibility that it is related to the broader U.S.-China trade dispute. He said Qualcomm has been in the process of validating some 23 patents in China for about a year, but this is the first court decision in Qualcomm’s favor on those patents.

“The timing seems suspect to say the least,” Arcuri said. “This was a very convenient way to bring Apple into the fray in the same way the U.S. government did with Huawei.”

Apple and Qualcomm have been engaged in a wide-ranging legal battle for nearly two years. The dispute began in January 2017, when Apple filed a lawsuit over Qualcomm’s practice of collecting royalties on the entire sales price of an iPhone up to $400.

Qualcomm says it charges a percentage of an entire device because its patents, essential to implementing cellular-communication standards, relate to cellular devices as a whole, not just its chips.

During the dispute, Apple has withheld billions in royalty payments from Qualcomm. The chip maker has responded by suing Apple for infringing on Qualcomm patents in the U.S., China and Germany. It is seeking an injunction on iPhone sales in those markets, which analysts say is a part of a strategy to pressure Apple to negotiate a resolution to the licensing dispute.

Qualcomm Chief Executive Steve Mollenkopf said during an appearance on CNBC in November that the companies are “on the doorstep” of a resolution. However, Apple’s attorneys have said in court proceedings in San Diego that the parties aren’t engaged in settlement discussions.

 

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