Jacob Schindler

On Friday, I wrote about how the IP team at Foxconn is getting value out of the massive Sharp patent portfolio through spin-offs and patent sales. But investing in certain technologies and divesting others is only one aspect of chairman Terry Gou’s grand scheme for the Japanese display giant that his company brought into the fold for $3.8 billion last year. It’s also part of an effort to transition Foxconn (also known as the Hon Hai Group) from a top supplier to a top brand in its own right. That strategy now has Sharp battling China’s Hisense in court over the use of its brand name.

Sharp granted Qingdao-based Hisense a five-year licence to produce and sell Sharp-brand televisions in the Americas (Brazil excepted) back in 2015, before its acquisition by Foxconn. Now, according to a lawsuit reported today in The Wall Street Journal, it is seeking to wrest back control of its brand with a lawsuit for unfair competition in the San Francisco County Superior Court. The complaint accuses Hisense of "unlawful, unfair and fraudulent conduct", and asks the court to intervene order to “prevent [Sharp’s] trademarks from losing value”.

Sharp accuses Hisense of damaging its brand in the following ways:

  • Noncompliance with Federal Communications Commission (FCC) rules on electromagnetic interference emissions
  • Violation of Federal Trade Commission (FTC) rules on picture size labeling
  • Falsely advertising brightness levels
  • False advertising regarding 4K resolution
  • Safety violations and noncompliance with UL standards

Hisense denies the allegations and says it sells high-quality televisions under the Sharp brand.

The new lawsuit is an indication that negotiations over terminating the trademark and brand licence, which this blog reported on back in September, have broken down. Foxconn had announced intentions to bring worldwide control of Sharp’s brands back in-house as soon as it took over the struggling panel maker, with new CEO Tai Jeng-Wu calling it a key pillar of the turnaround strategy. “We want to polish Sharp’s brand value by ourselves and make it shine globally,” he said. But as recently as January, Hisense’s CEO insisted that the company had no intention of giving up its rights to the Sharp name just one year into the deal, saying: “We will follow the contract to the dot.”

Hon Hai is keen to move beyond the OEM business to market and sell its own electronics products. Last year it acquired Microsoft’s feature phone business in a deal that also gave it access to the Nokia name through a partnership with Finnish entity HMD Global, which has an exclusive 10-year licence to the Nokia brand for mobile devices. Sharp, on the other hand, gives it a chance to fully own a well recognised global brand. That brand will be especially important in markets like the United States, where the Foxconn name is closely associated with the company’s iPhone assembly facilities and years of media scrutiny of labour practices there. So if Foxconn believes the Sharp brand is being damaged by Hisense, it has plenty of incentive to take aggressive action to reclaim it.

But the action is not without risks either. The headline in the Wall Street Journal says it all – “Sharp to Americans: You Don’t Want to Buy a Sharp-Brand TV”. Sharp has publicly described products bearing its own name as inferior goods made by a Chinese company that’s flouting safety rules. It will be hoping to quickly regain control of the name, but even if it does, it may have some damage control to do. On the other hand, if Hisense hangs on, it could be looking at big problems in the US market – that’s not good for the Sharp bottom line either.

We will see whether the gamble pays off. Foxconn and its various affiliates are well known for having one of the best IP teams around. And though they have built the company into a top patent owner, they are just as shrewd when it comes to protecting the company’s non-patent intangibles. Sharp will be glad to have them on side.