Chinese court bans the sale of most iPhone models as trade war escalates

Posted at 11:32 AM, Dec 10, 2018

A Chinese court has banned the sale and import of most iPhone models in a stunning decision sure to escalate the nasty trade war between the United States and China.

The ban does not cover the new iPhone XS, iPhone XS Plus or iPhone XR, which were not yet available when Qualcomm filed its lawsuit. The phones covered by the ban make up about 10% to 15% of current iPhone sales in China, according to Daniel Ives, analyst at Wedbush Securities.

The court granted a pair of preliminary injunctions requested by Qualcomm, an American microchip maker. Qualcomm claims that Apple violates two of its patents in the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X. The patents allow people to edit and resize photos on a phone and to manage apps by using a touchscreen, according to Qualcomm.

The practical effect of the injunction is not yet clear. The ruling was announced publicly Monday but put into effect last week, but Apple said in a statement that all iPhone models remain available in China.

"If Apple is violating the orders, Qualcomm will seek enforcement of the orders through enforcement tribunals that are part of the Chinese court system," Don Rosenberg, general counsel for Qualcomm, said in a statement.

Apple accused Qualcomm of playing dirty tricks, including asserting a patent that had already been invalidated by international courts, and other patents that it had never before used. Apple said it will pursue a legal response in court.

"Qualcomm's effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world," Apple said.

Apple on Monday filed a request for the court to reconsider its decision. Qualcomm applauded the ruling, saying Apple owes it money for using its technology.

"We deeply value our relationships with customers, rarely resorting to the courts for assistance, but we also have an abiding belief in the need to protect intellectual property rights," Don Rosenberg, general counsel for Qualcomm, said in a statement. "Apple continues to benefit from our intellectual property while refusing to compensate us."

Investors were mostly unmoved. Apple's (AAPL) stock was about flat Monday afternoon. Qualcomm's (QCOM) stock rose 2%.


Shock ruling adds to threat of trade war escalation


The ruling was a surprise. Product injunctions are rarely granted, and China was widely expected to reject Qualcomm's request for a ban.

Although it's impossible to know whether politics played a part in the decision, China and the United States are embroiled in a tit-for-tat trade war that threatens to boil over.

Days after President Donald Trump and President Xi Jinping agreed on a 90-day trade truce, Canada announced that it is holding for extradition to the US the chief financial officer of Huawei, China's biggest telecommunications company. A bail hearing for the Huawei CFO, Meng Wanzhou, continues Monday.

If the countries can't come to terms on a lasting agreement by the end of the 90-day window, Trump has threatened to impose tariffs on essentially all Chinese exports to the United States that are not already subject to import taxes.


Global battle between tech giants


Apple and Qualcomm are suing one another in courts across the world. Billions of dollars are at stake, and each side has claimed some victories.

In 2017, Apple sued Qualcomm for $1 billion after the chipmaker stopped paying for the exclusive right to put its chips in iPhones. Qualcomm withheld its payments after the European Union began investigating them. The EU ultimately deemed the payments illegal, and In January 2018, the European Commission ordered Qualcomm to pay a $1.2 billion fine over the issue.

Apple and Qualcomm are also suing one another in several separate patent disputes. Qualcomm has asked a US federal judge to ban the sale of iPhones in one case. In June, a judge in the International Trade Commission found that Apple had violated one of Qualcomm's patents related to battery-saving technology.

In July, Qualcomm said Apple would no longer include its modems in iPhones. Qualcomm cut its profit forecast after the announcement.

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