Xiaomi's India ban exposes wider patent risks

MUMBAI/BEIJING: The court order that banned Chinese
mobile maker Xiaomi from selling its phones in India
has halted its breakneck expansion into the world's
fastest growing major smartphone market and could
be just the start of a string of patent challenges.
Xiaomi Technology only started selling in India in July
and quickly became the country's fastest growing
smartphone brand; with minimal marketing, it is already
outselling even low-cost smartphones running Google's
Android One.
Hugo Barra, the former Google executive now leading
Xiaomi's international operations, told Reuters in
November how rapidly the country had taken to his
brand.
All it took was a single Facebook post to draw dozens
of superfans to a California Pizza Kitchen in Mumbai to
meet him, he said.
"It was far more than we expected. The community has
really, really embraced us," he said.
And then came Wednesday's court order to stop
selling, after a patent infringement case was filed by
telecom equipment maker Ericsson. The ban will last
until at least February 5, when the Delhi court hears
the case again.
But that is unlikely to be the end of the young
company's battle over intellectual property (IP) rights.
Sources close to Xiaomi say its leadership has privately
acknowledged for years its vulnerability to patent
entanglements. The higher risks of IP litigation in
Western markets even played a role in shaping Xiaomi's
strategy of expanding in India and Southeast Asia, the
sources said.
Xiaomi said in a statement that "it isn't easy" to build
up a patent portfolio as a startup, but it aims to have
filed 8,000 applications by 2016.
On its home turf, Xiaomi has already been dogged by
IP controversies with other Chinese firms, mostly over
content rights for its streaming TV service.
As its smartphone business, already number one in
China, continues to grow, however, industry analysts
expect greater pressure at home, particularly since two
of its fiercest handset rivals, Huawei and ZTE, are
among the top telecom patent holders in China.
Growth setback
Until it is lifted, the ban in India will be particularly hard
on Xiaomi's growth prospects. In a country where just
one in 10 people use smartphones, the potential is
vast. The market grew 82% in the third quarter, while
China expanded at a relatively modest 10.8%, according
to research firm IDC.
Barra posted a message on the company's website on
Friday apologizing to fans.
"Rest assured that we're doing all we can to revert the
situation," he wrote. "Stay tuned for more information."
In China, Xiaomi already outsells Apple and Samsung
Electronics in smartphones, and it became the world's
third-largest vendor as of October, though it is little
known outside Asia.
Unlike Apple, which introduces a new iPhone just once
a year, Xiaomi rolls out updated models frequently,
usually in small batches that sell out in seconds. It sells
only online, and with minimal advertising, relying on
word of mouth to build anticipation for each new
launch.
In India, Xiaomi initially imported 10,000 devices a week
but soon had to ramp that up to 60,000 to 1,00,000 to
meet demand, India business chief Manu Jain told
Reuters before the sales ban. It has chartered flights
four times to rush in fresh supplies.
Jain did not respond to a request for comment on the
business impact after the order.
Rushabh Doshi, an analyst at technology research firm
Canalys in Singapore, said the ban would "leave a gap
in the market, to be quickly filled by local or
international vendors looking to increase market share."
The court case will also make phone vendors wary
about their current patent portfolio and require them to
step up their spending on research and development,
he added.