Jack Ellis

Xiaomi has abandoned the strategy of only selling its products via its own online channels and has signed a distribution deal with e-commerce platform Jindong, Want China Times reports. The change in direction comes as Xiaomi’s dominance of China’s increasingly saturated mobile devices market faces serious challenges.

According to data released last month by market research firm IDC, China’s smartphone market actually contracted for the first time in six years during quarter one of 2015, shrinking by 4.3% compared to last year. Xiaomi is facing much fiercer competition from both parts of the market, with a proliferation of low-end, local manufacturers becoming increasingly popular and more aggressive strategies at the higher end from both Chinese and foreign companies.

While Xiaomi has hovered around the fifth and sixth spot in the list of the world's leading smartphone vendors over the past year, its Chinese rival Vivo is not too far behind, taking 10th place for 2014 and shifting 9.3 million units over the course of the year. Not far behind comes Oppo, which shipped 8 million units during 2014. Meanwhile, at the top end of the market, Apple overtook Xiaomi to become the most popular device vendor in China during 2015’s first quarter, commanding 14.7% of the market compared to the Chinese company’s 13.7%. Huawei is hot on the heels of both, having enjoyed year-on-year growth of 39.7%.

With so many players in the mix – all contending for a share of this extremely large, but nonetheless limited, market – and such a high level of technological convergence, it is surely only a matter of time before intellectual property becomes a major bone of contention. As the marketplace approaches saturation point and opportunities to compete on product offerings alone become scarcer and scarcer, companies will look to their patents as a way of excluding rivals, safeguarding their own position and, perhaps, generating additional revenue.

Indeed, China’s already extremely crowded smartphone space is beginning to look like a microcosm of the global mobile devices market a few years ago in terms of the rivalries and battle lines that are emerging. As Chinese consumers’ demand for smartphones explodes, the patent-rich incumbents – in this case, the likes of Huawei, Lenovo, Samsung and ZTE – are going to begin leaning more and more on their intellectual property in order to preserve their margins.

The upstarts – among them Xiaomi, Coolpad, Meizu, Oppo and perhaps others from India, Indonesia and elsewhere – hold far fewer patents and face an assertion threat not just from the incumbents mentioned above, but also from each other, as they scramble for what share of the market they can.

And that’s before you consider that other set of players – such as Ericsson, Nokia, AT&T and a few others – that no longer offer significant competition at the product level but own many of the industry’s most fundamental technologies. They, also, will want to ensure that they get their piece of the pie.

The likelihood of China becoming a major theatre in global patent litigation has been speculated upon for quite some time now. Uncertainties about the quality of Chinese patent assets and the efficacy of its IP rights enforcement mechanisms; the lack of availability of substantial damages awards; a disenchanted judiciary; and the ever-present suspicion of protectionism and corruption have all served to reinforce the view that the country's time as a leading patent dispute venue is yet to come.

But the sheer size of the Chinese market – not just in terms of consumers, but also the number of different companies in competition with one another – means that it will almost certainly become a key battleground sometime in the very near future (albeit a potentially very messy one, considering the points made above). The hamstringing of Qualcomm by Chinese antitrust watchdog, the National Development and Reform Commission, has also upped the ante since it brought to a halt the US company's practice of requiring its Chinese licensees to effectively cross-license one another, so ending the delicate Pax Romana that had previously prevailed.

The warning shots have already been fired. Following several flurries of rumour suggesting that Huawei and ZTE were shaping up to take each other on in their home country’s courtrooms, the latter recently announced that it had written to its main competitor claiming infringement of patents – though it is not clear how that complaint has progressed and if it has yet resulted in any legal action. But even if this one doesn't end up in court, all the signs seem to suggest that China's first headline patent dispute in the smartphone space is just around the corner.