Jacob Schindler

Qualcomm on Saturday announced that it has expanded its assertion campaign against Meizu, the largest Chinese smartphone maker yet to conclude a licence agreement with the US chipmaker since its 2015 settlement with Chinese regulators. The move should definitively put to rest rumours that had swirled in Chinese-language media suggesting that the two sides had reached a settlement that would soon be made public. In a public response, Meizu took the opportunity to portray itself as defending the entire Chinese mobile industry against a looming “crisis” for its business model, an indication that the court of public opinion in China will also be an important venue in this dispute.

The San Diego company said in a press release that it has filed a patent infringement case in Germany’s Mannheim Regional Court, as well as an “infringement-seizure action” in France that could lead to the collection of evidence for a possible future lawsuit there. Meizu remains largely China-oriented, but Europe represents its biggest current effort to expand into developed markets. According to the company’s website, it has twelve distribution partners for online sales in France, with others in Italy, Russia, Spain and the UK. An additional complaint to the US International Trade Commision comes despite the fact the Meizu is not directly selling handsets into the US market yet, though executives have talked it up as the next step after entering Europe.

Qualcomm first took Meizu to court in June, claiming that the company had “refused to engage in good faith negotiations […] choosing instead to engage only in delay tactics”. Qualcomm first asked the Beijing IP court to rule that the licensing terms on offer were consistent with China’s Anti-Monopoly Law, and subsequently filed 17 different infringement actions around the country. The case is the first in China to test how the country’s courts, including new specialist IP benches in both Beijing and Shanghai, will interpret the latest rulings made by Chinese regulators on key SEP and FRAND issues affecting the entire industry.

Speaking to this blog in June, Qualcomm’s former Asia patents director predicted that Meizu would settle the case, if not before trial then before the appellate stage. Last month there was a round of speculation in Chinese-language media suggesting that the two companies might be preparing to announce a settlement in early October. A Meizu rep told IAM at the time that there was no truth to the rumours, and the latest round of lawsuits seems to confirm that there remains a significant distance between the sides if negotiations are going on at all.

Meizu released a Chinese-language statement in response to the fresh suits, re-iterating that it is willing to pay a licence fee to Qualcomm, but that it doesn’t view the offers put forth as reasonable. The company also sought to cast the dispute as one in which it is representing the interest of the entire industry in China, saying: “If Qualcomm has its way […] China’s entire mobile phone industry will be faced with crisis.” The Chinese company warned that billions of dollars in patent costs would be transferred to consumers if Qualcomm’s model goes unchallenged, and the development of China’s “national enterprises” would unfairly take a hit.

It goes without saying that Qualcomm does not want its dispute with Meizu cast as one that pits it against the whole Chinese mobile industry and other “national enterprises”. But given that Meizu appears to be the lone holdout among major Chinese phone makers, it may be difficult for it to make that case stick – especially if other local companies take the view that Meizu is the one gaining an advantage by not paying, for the time being, a cost that the rest of the industry is.

Another point of interest in the Meizu statement is that it cites the 2014 study by WilmerHale and Intel estimating the royalty stack on the average smartphone could account for up to one third of each phone’s cost. Meizu specifically pointed to the authors’ estimate that on an average $400 phone, the cost of patent licences could be up to $120. But as this blog recently reported, a paper released this year calculated the annual licensing return from mobile devices at just $14 billion – around 3% of the market’s total value. Whichever dataset is closer to the truth, it’s a reminder that the ongoing debate around patent reform has effects far beyond the US. The court proceedings in this case will be important, but so too will the efforts of both sides to shape public opinion in China, which are no doubt just getting started.