Jack Ellis

Beijing-based robotics and transportation startup Ninebot has bought US competitor Segway – the manufacturer of the somewhat iconic, somewhat notorious, two-wheeled scooters known by the same name. Ninebot concurrently announced that a funding round had secured it $80 million from investors, including part-owner Xiaomi, Sequoia Capital, West Summit Capital and Shunwei Foundation (the latter being an investment vehicle affiliated with Xiaomi founder, chairman and CEO Lei Jun). Segway Inc – along with DEKA Products, the R&D company founded by the vehicle’s inventor Dean Kamen – had filed a complaint with the US International Trade Commission late last year accusing Ninebot and several other companies of infringing their patents relating to the personal transport.

While the Segway is perhaps primarily perceived in the public eye as the preferred mode of transport for city tour groups and real-life and fictional eccentrics – including Arrested Development’s GOB Bluth, among others – as well as for outfoxing former US president George W Bush (though not the Bush paterfamilias, it would seem), the technology that underpins it has a range of possible applications both within and beyond personal transportation.

Ninebot CEO Gao Lufeng said that his company would use Segway’s technology and expertise in electric transportation, mobile internet and human-machine interaction in its future projects, Bloomberg reports. The purchase will presumably cancel out the IP disputes launched by Segway and DEKA against Ninebot. According to Gao, the Chinese company will acquire all of Segway’s assets; his counterpart at the US outfit, Rod Keller, confirmed that these include over 400 patents, while licences to any relevant IP owned by DEKA are also likely included.

It is also safe to assume that Ninebot parent Xiaomi will also get access to any of these technologies, which could prove particularly valuable as it seeks to expand its offering into growth areas such as smart home, robotics and the Internet of Things.

Xiaomi’s patent problems are by now a common topic of discussion among IP industry players. The company has seen such rapid and massive growth since it was founded just five years ago, and it has been unable to build a solid foundation of IP rights in that short time to match its ambitions. Tech In Asia recently compared the Chinese patent holdings of a number of smartphone manufacturers. Despite being China’s biggest, and the world’s fourth biggest, smartphone vendor, Xiaomi’s patent portfolio in terms of Chinese assets and worldwide PCT filings is miniscule compared to incumbents Huawei, Samsung and ZTE.

Non-Chinese patents are also an issue for Xiaomi. Despite its runaway success in China, the company is hesitant to expand into North American and European markets, at least partly out of fear of being bombarded by infringement suits from competitors in those jurisdictions. It has even faced disputes in the emerging markets that it has initially targeted, having been sued by Ericsson in India for alleged infringement of standards-essential patents. All this considered, it is not a surprise that I have heard Xiaomi’s in-house IP department described by visitors as a “chaotic” place in terms of the pressure that the team is under.

But IP-driven acquisitions – either by Xiaomi, or by companies that it controls – like Ninebot’s buyout of Segway may be one key strategy for overcoming these difficulties. This route to operational freedom echoes a deal last year which saw Datang Telecom subsidiary Leadcore transfer 4G-related technology to Songguo Electronics – a joint venture controlled by Xiaomi – for Rmb103 million ($16.8 million). It was speculated that this was a move by Xiaomi to reduce its reliance on overseas chipmakers and large domestic players with significant patent holdings in the space. Xiaomi has also invested in IP consultancy firm Zhigu and the patent aggregation funds that it manages, along with other Chinese operating companies including Kingsoft and TCL, with the aim of amassing IP assets for freedom to operate, defence and licensing purposes.

It is a road that was also travelled by Google in the past, as it snapped up smaller companies – such as Nest Labs, to name but one example – in order to diversify its offerings and expand its technology and know-how assets.

But when it came to ensuring a powerful patent position, Google ultimately had to aim big and spend big – wholly acquiring Motorola Mobility and its 17,000 patent assets for US$12.5 billion after missing out on bankrupt Nortel’s portfolio. It is highly improbable that Xiaomi has anything like those funds on its hands at the moment. Since it remains privately held, accurate data on Xiaomi’s revenues and cash reserves is hard to come by. According to Reuters, the company made Rmb347.5 million ($56 million) in profit in 2013; but recorded revenues of Rmb26.6 billion and an extremely tight operating margin of just 1.8%.

Furthermore, it is questionable whether there are any realistic, large-scale acquisition targets available at the current time. Two that come to mind – insofar as they hold extensive telecoms and wireless-related patent portfolios – are bankrupt Pantech (though it would appear that Korea is doing what it can to keep the company’s assets out of foreign hands) and perhaps BlackBerry, which is now mentioned in takeover rumours with some regularity and has tentatively  explored partnership options with Xiaomi but surely remains way, way out of the Chinese company’s likely price range.

However, subsidiaries, joint ventures and portfolio companies – like Songguo Electronics, Zhigu, Ninebot and now Segway – may hold cash and other assets that are not recorded in the parent’s own financial reports. As such, they may hold the key for Xiaomi to acquire the IP it needs, in the short term at least.