Xiaomi’s India sales ban exposes firm’s patent vulnerability

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 only the start of a string of patent challenges.

Xiaomi Technology started selling in India only in July, but 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.

Mr Hugo Barra, the former Google executive now leading its international operations, told Reuters last month 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 added.

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 Feb 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 its strategy of expanding in India and South-east Asia, the sources said.

Xiaomi said in a statement that “it isn’t easy” to build up a patent portfolio as a start-up company, but it aims to have filed 8,000 applications by 2016.

On its home turf, it has already been dogged by IP controversies with other Chinese firms, mostly over content rights for its streaming TV service.

However, as its smartphone business, which is already No 1 in China, continues to grow, industry analysts expect greater pressure at home, particularly since two of its fiercest handset rivals, Huawei and ZTE Corp, are among the top telecom patent holders.

Until the ban in India is lifted, it will be particularly hard on growth prospects. In a country where only one in 10 people use smartphones, the potential is vast. The market grew 82 per cent in the third quarter, while China expanded at a relatively modest 10.8 per cent, said research firm IDC.

Mr Barra posted a message on the company’s website on Friday apologising 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. Unlike Apple, which introduces a new iPhone 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 new launches.

In India, Xiaomi initially imported 10,000 devices a week, but soon had to ramp that up to 60,000 to 100,000 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. Bloomberg