Picture by Or Cohen

Summary: Chinese firms that are struggling resort to patent litigation, in effect repeating the same misguided trajectories which became so notorious in Western nations because they act as a form of taxation, discouraging actual innovation

LAST week we wrote about how Coolpad had resorted to litigation using patents. Months prior we took note of this strategy, which basically revolved around the idea of leveraging patents rather than products. IAM, the patent trolls' lobby, says about Coolpad that "its patent portfolio is largely unproven" (not to mention small compared to that of companies it takes on ). To quote:

Earlier this year, Coolpad filed a number of Chinese patent infringement complaints against Xiaomi. IAM reported these stories largely based on local media accounts. But last week Coolpad sought to ramp up the pressure by ensuring that the story, and key details about the accused Xiaomi products, reached the global financial press in the run-up to Xiaomi’s potential $10 billion Hong Kong IPO. On 10th May, one week after Xiaomi announced its flotation plans, Coolpad held a press conference in Hong Kong to update the media on its dispute with Xiaomi.

If Coolpad is attempting to build a business on top of litigation, then it won't go very far. The company is already in the red and it seems to be struggling, unlike Xiaomi.

"If Coolpad is attempting to build a business on top of litigation, then it won't go very far. The company is already in the red and it seems to be struggling, unlike Xiaomi."There are similar companies in the West. After Microsoft entryism, for example, Nokia is like a patent troll using or merely exploiting standards bodies as Trojan horses. No doubt Nokia used to make stuff. Now it's mostly "licensing" (the brand, patents etc.) and IAM quotes Soininen of Nokia as saying: "The reason for me to put the results of my R&D into a standard is because I have a patent and I know that I can get a fair and reasonable return on it..."

That's just misuse of those "FRAND" euphemisms, "fair" and "reasonable" (more like SEP). IAM later wrote this article about these "fair" and "reasonable" patents:

An exclusive new study commissioned by IAM has revealed that Nokia’s merger with Alcatel-Lucent means it is now one of the leading players in the Internet of Things (IoT) domain. However, Samsung has the dominant position in the field, with second-place Qualcomm a long way behind. Last year, IP analytics platform Relecura produced research examining the IoT landscape from a patent perspective. Using an IAM-commissioned updated report and additional data from IP platform ktMINE, we inspect the current state of the IoT sector.

A lot of these 'IoT' patents (not all) are reducible to software and would thus be invalid in Western courts. Not so in China, which officially permits software patents. But according to Jacob Schindler from IAM, those relying on the possibility of dragging Chinese companies into US courts and in for a surprise:

There are a host of challenges when it comes to trying to assert US patents against a Chinese legal entity. A recent court filing by Dutch telecom KPN, which is suing Oppo, Vivo and OnePlus in the District of Delaware, underlines what looks to be a new normal: it may be two years before a defendant domiciled in China can even be served process.

There is only one way to serve process to an entity in China: the Hague Service Convention’s Article 5 procedure. That means going through a national central authority, which in the case of China is the Ministry of Justice. China formally objects to the service of process by private individuals as well as service of process by mail – so there is no getting around the central government.

[...]

KPN launched 11 patent assertions in January 2017, including the one against Oppo, Vivo and OnePlus. Another of those cases targetted Shenzhen-based TCL. But importantly, TCL has US subsidiaries which KPN was able to name in that complaint.

The TCL case proceeded fairly quickly. On 22nd March 2018, Judge Stark knocked out the sole patent-in-suit, US 6,212,662 (“Method and devices for the transmission of data with transmission error checking”), on Section 101 grounds. The ‘662 patent is also the only patent asserted against Oppo, Vivo and OnePlus. KPN has appealed to the circuit court.

Notice the use of Section 101 -- a subject we shall tackle separately later today. Much/many of these lawsuits are fool's errand; many of today's granted patents are dubious at best. ⬆