Recently, Xiaomi TechnologyCo., Ltd. (referred to as Xiaomi) bought 332 U.S. patents from Intel Corporation (referred to as Intel). What’s the consideration behind this acquisition? We will find out it through analyzing Xiaomi's patent applications and acquisitions in the US and its behavior at overseas in recent years.
Xiaomi phones have achieved great success in China with a variety of business marketing. Its founder Lei Jun cited data from International Data Corporation (IDC) that, nearly 65 million Xiaomi phones were sold in China in 2015, but compared to 2014, its sales growth has slowed down considerably. Faced with an increasingly saturated mobile phone market in China, Xiaomi began to try to "go out" in 2013, but not so successful.
In 2014，after less than 6 months entering in Indian market, hot sales of Xiaomi phone suffered setback since patent infringement, resulting in market share declined. Faced with the warning in Indian market, Xiaomi becomes more cautious for entering the United States market. In 2015, Xiaomi began selling mobile phone accessories in the United States but has not yet sold its main products like mobile phone or tablet; one of the important reasons is Xiaomi lacks of patent protection in the United States.
Although Xiaomi had also submitted a number of patent applications, but not begin the layout of the patent in the United States until 2013. From 2013 to 2015, Xiaomi submitted 41, 114 and 74 patent applications respectively in the United States. Searched results also confirmed that, as of February 26, 2016, Xiaomi only obtained 9 patents in the United States. So few patent reserves lead to that, Xiaomi became vulnerable when it faced frequent US NPE patent lawsuits.
Therefore, Xiaomi accelerated the pace of patent acquisitions. On October 23, 2015, Xiaomi bought 31 patents from Broadcom. And a few days later, its product "Red Rice 2Pro" was certificated by the US Federal Communications Commission (FCC) seeming to be the preparation for entry into the US market.
However, the road to US market seems be tough for becoming the NPE targets because of its few patent reserves, even though with good sales and huge market. In November 2015,one of the leading American Blue Spike NPE sued Xiaomi for patent infringement. A month later, Xiaomi and Qualcomm quickly reached a patent license agreement with purpose for solutions for patent litigation. But compared with the patent acquisitions, Xiaomi is urgent to create its own intellectual property rights to get rid of the kinds of dilemma. In this situation, Xiaomi's decision on acquisition of patents is not hard to understand.
According to Patentics database, Xiaomi had acquired a total of 365 US patents involving content storage management, control logic, coding sequences, covering communications, electronics and software technologies. The number of patent family members (see Chart 1) aimed patent layout at the US market, seemingly low but just their needs. The 332 patents seems the drop in the bucket to Intel, which has tens of thousands of patents, and Intel could further optimize their patent assets. The citations frequency of Intel’s patent (see Chart 1) is higher than that sold to Xiaomi, reflecting to some extent that, Intel is still retained in the sale of high-quality patents. Moreover, for the patent protection period (see Chart 2), the majority patents Xiaomi purchased from Intel were filed from 2000 to 2002, if these patents are invention patents, the term of protection remains average 5.9 years, not so long enough.
Smartphone is a typical patent-intensive industy, and highly mature European markets know well the use of intellectual property strategy. Xiaomi CEO Lei Jun said,"Patents are rulesof the game of mobile phone industry." Whether Chinese companies like Xiaomi can successfully "go out", how to accelerate the development of the core technology is the key, and also, how to use the intellectual property to protect enterprises interest is a question for Xiaomi.
(by Luo Qian)
(Source: China IP News)
