Bing Zhao

Appliance giants Gree Electric and Midea are contesting one of China’s biggest competitor suits this summer, as their fierce rivalry in the air conditioning space spills into the patent courts. In an exclusive interview with IAM, Midea’s new head of IP, Sun Mingyan, has stated that the company’s recent actions in that dispute mark a turning point in its IP strategy – and suggested that industry IP managers inside and outside China had better be ready for more of the same.

Gree initiated the latest patent battle, filing an infringement complaint in the Beijing IP court on 19th June. The two Guangdong-based companies have been involved in patent litigation in the past, and Midea has traditionally taken a defensive approach. Of the two, Gree has been more vocal about its IP rights, with CEO Ms Dong Mingzhu having been named as one of 2016’s top 10 IP personalities by China IP News. But this time, Midea reacted to the attack with a swift counterstrike, immediately filing three patent suits of its own against Gree in the Intermediate People’s Court of Suzhou and the Guangzhou IP Court, with a total claim of CNY 40 million ($5.8 million).

Before joining Midea to head its IP function in December 2016, Sun was head of IP at ThyssenKrupp China, having previously been with Lenovo’s IP licensing team. By hiring an executive with solid expertise in IP portfolio management, litigation and monetisation, Midea has sent a message about strengthening IP; and Sun ackowledged that Midea's response to the Gree suits does indicate a change of attitude. "In the past, the company regarded patents as a merely defensive tool to combat assertions launched by competitors," he said. "Now, we see patents as a powerful weapon to improve our competitive advantage in the marketplace. At some point, we might take the initiative to enforce our rights if that is beneficial for the business and its financial returns.”

Over recent years, Sun explained, Midea’s patent portfolio has grown through both R&D and third-party acquisitions, and he was hired to focus on utilising those assets to create value. The company’s purchase of Toshiba’s white goods business, reportedly added over 5,000 global patents to its stock. Sun confirmed that those Toshiba patents were a key element driving the M&A deal, and that they are now fully integrated into Midea’s own portfolio.

Gree and Midea are the top two air-conditioning makers in China. Some media coverage in China has portrayed the current court battle as an outgrowth of their tight commercial competition in the peak summer season. However, the large amount of damages claimed suggests that the litigation is more than a marketing tactic. Sun said that Midea is looking forward to the court having its say, suggesting his side plans to see the dispute to the end.

Apart from their own escalating rivalry, both Midea and Gree are confronted with mounting competition from smaller vendors at home and foreign rivals in overseas markets. It is not uncommon for smaller players to infringe patents owned by big players in China, but the latter usually do not enforce their rights. Will that spell be broken? Sun does not see it happening soon. He said local household electronics manufacturers are at an early stage of IP portfolio management and commercialisation. Looking at the landscape in other industries, as well as the practices of multinational companies, he sees companies with similar patent power eventually striking cross licence deals, while smaller ones will have to pay licence fees to secure freedom to operate. “Our industry is not there yet, and it takes time,” he observed.

Nevertheless, Sun believes the appliance space will see an increase in litigation as new players enter the field. He also expects that major foreign appliance makers will join the patent battles, and that the battleground will not be confined to China. As Chinese vendors’ ambitious overseas expansion plans start to erode the existing market shares of established players overseas, traditionally strong foreign appliance makers are bound to use patent ammunition to protect their businesses. The domestic battles going on now will help prepare the Chinese industry for that eventuality.