Apple’s latest patent problem in China underlines a big trade secrets risk to the company 23 Jun 16
There are plenty of interesting dimensions to the media frenzy caused late last week as a Chinese patent dispute between Apple and a company called Shenzhen Baili came to light, and it was revealed that sales of the iPhone 6 and 6S had briefly been banned in Beijing. On this blog, Richard Lloyd discussed its potential impact on the US patent debate, while over at World Trademark Review Jack Ellis analysed the strategic importance of design patents in China. But this latest annoyance for Apple also shows a potential risk posed by the company's struggle to keep confidential designs under wraps as they work their way through the supply chain.
Shenzhen Baili is a relatively obscure device maker with little in the way of a Web presence. On 13th January 2014, it filed a design patent covering a smartphone that has subsequently been marketed as both the 100+ and 100C in China. In comparing that device’s look and feel with that of the iPhone 6, released later that year, the Beijing IP Office said: “The differences are too tiny to be noticeable by average consumers, and thus it should be deemed that there is no apparent difference between the two phone models.” The injunction, which applied only in Beijing, has been stayed while the specialist Beijing IP court considers Apple’s appeal.
The iPhone 6 officially launched in September 2014; Chinese consumers, though, had to wait nearly a month, until 17th October until it went on sale there. There was speculation in China that the delay was due to Apple’s frustration with leaked photos and specifications that had emerged from its supply chain in the country before and during production. The dispute between Baili and Apple first came into the open when a demand letter addressed to Apple was leaked on Chinese social media that December. At the time, at least one commentator made the connection, asking whether the leaked images of the new iPhone could have prompted the filing of the design patent that has proved so troublesome to Apple.
It is hard to draw any firm conclusions on this question, and Baili itself firmly denies any Apple inspiration on its design. The patent application was made on 13th January 2014, and according to analysis after the fact, the first “accurate” leaked photos of the iPhone’s exterior did not come out until May. The earliest leaked photos I could find that purported to show an iPhone 6 were in a Weibo post on 8th January; but I have no way of knowing whether they were the real deal, while internet chatter suggested they may have shown the iPhone 5C. Of course, these are only the leaks that went viral.
But pilfered images that find their way into the public domain aren’t actually the biggest problem, because anything that’s made public could be cited as prior art during a later invalidation proceeding. Designs and other trade secrets that are leaked but not publicised would pose a bigger issue. And showing that a company obtained a design illegally through trade secret misappropriation can be very difficult in China given the absence of US-style discovery rules.
The point is, it’s easy to see how the trade secret leaks that seem to plague Apple during every production cycle could pose a threat. The Baili case demonstrates how a small player with an unexamined design right can get a cheap and quick injunction in an administrative proceeding. Apple may well swat away this threat easily with its superior resources, but the short-term confusion caused by the news of a fresh China setback sent its share price down 2% in after-hours trading and made headliens around the world. No doubt the company would like to avoid that type of nuisance in the future. And, it's worth stating, not every company has Apple's resources or ability to hit back immediately in the courts when faced with the threat of an injunction as the result of an administrative proceeding.
Of course, a key question is whether Apple filed design patents of its own in China covering the new product. These may have prevented the injunction from issuing in the first place if the Beijing IP Office conducted a prior art search as part of its investigation (it’s not required to do this, but sometimes does, according to practitioners). Not having done so would be pretty difficult to explain for a company as experienced in China as Apple. Coincidentally, Jaguar Land Rover now finds itself in a similar situation, with the Wall Street Journal on Wednesday reporting that the Chinese design patent covering its Evoque model has been revoked because it wasn’t filed until a year after the vehicle made its debut.
How the Baili/Apple dispute plays out will be closely watched. We’ve already seen the havoc caused by squatters inside and outside the OEM industry on the trademark side. This case demonstrates that if you have a design right that an iPhone infringes, you can cause the US company a real headache (not to mention make some headlines). Unless Apple can improve the security of its supply chain, this might not be the last pesky little design patent case it faces.
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