A Patent Cold Shower

Is India the Tip of the IPR Litigation Iceberg for Xiaomi?

XiaomiAn Indian court has issued an injunction against Xiaomi based on complaints of intellectual property rights (IPR) infringement of Ericsson’s radio technologies. The order requires Xiaomi to stop selling, importing and advertising its smartphones in India.

The company began smartphone sales in India this past summer, with great fanfare and success together with its local channel partner, Flipkart. If Xiaomi fails to quickly reach an agreement with Ericsson, the injunction could become a significant setback for Xiaomi’s momentum in India as well as other markets outside of China. India has become the company’s second-largest market and is now arguably the world’s most important smartphone market given its low penetration rates and fast growth.

CCS Insight predicted earlier this year that Xiaomi would encounter difficulties expanding outside of China, likely to face problems with IPR (see Instant Insight: Lenovo Completes Acquisition of Motorola Mobility). We believe that the case in India is just the beginning of further IPR litigation against Xiaomi as it grows across Asia and into Latin America and European markets. Patent infringements could lead to cost increases and possible product alterations.

Litigation will be a hindrance to Xiaomi’s aggressive expansion plans. CCS Insight believes that Ericsson and other patent holders are already prepared to bring suit if Xiaomi enters key Western markets. A grey market exists for its products in the US and some European markets, but Xiaomi will face difficulties establishing itself until its IPR house is in order.

Patent portfolios have become one of the more important assets among handset makers and have been a key driving factor in a series of recent corporate acquisitions. Google’s purchase of Motorola Mobility and the subsequent acquisition by Lenovo, for example, were moves strongly motivated by a need to assemble wireless IPR (See Google Buys Motorola Mobility in a Patently Sensible Move).

IPR litigation is a market reality that Xiaomi is likely to work its way through. However, the learning curve can be expensive as these developments will have an immediate and long-term effect for the company and the industry. Xiaomi has ties to Google and Qualcomm, but it will need to come to terms with other key players at a time when wireless patents are being relied upon as dividend-paying assets.