Smartphone ‘Cold War’ brewing in Asia

WASHINGTON – A new front is opening in what has been dubbed the smartphone wars: This one involves countries, not companies.

South Korea and China are adopting anti-trust policies that may require companies such as United States’ Apple to license inventions to rivals more easily and cheaply, potentially giving Asian smartphone makers a leg up against foreign competitors. Brazil and India are considering similar paths.

The clampdown on patents has the potential to alter the balance of power in the global mobile phone industry, which generated US$412 billion (S$556 billion) last year, according to industry research firm International Data Corporation. These new rules may weaken the ability of Apple, Microsoft and Qualcomm — typically among the top 15 US patent recipients each year — to compete in China, the world’s largest mobile phone market, and other countries that follow.

“We are going back to the Cold War and the domino theory,” said Mr Bradley Lui, an anti-trust lawyer with Morrison & Foerster in Washington. “The authorities in China see the potential use of patents that might affect companies in China, including state-owned enterprises. It might be an impetus for drawing rules more broadly than we would in the US.”

Asian regulators were spurred by the smartphone wars, in which tech giants battled over billions of dollars on four continents for more than four years. South Korea and China have been looking more closely at their patent policies, emboldened by debates in Washington over whether patents hinder rather than spur innovation.

“The domestic debate that is supposed to be specific to our country is being latched on to by foreign governments. It’s giving them justification to take action,” said Mr Sean Murphy, international government affairs counsel at US chip maker Qualcomm.

South Korea’s restrictions on patents went into effect in December. It is home to Samsung, which battled Apple for years over claims it copied the iPhone’s “look and feel”. China’s rules are expected by Aug 1.

Brazil and India are only beginning to develop policies, a US National Academies report said. The Korea Fair Trade Commission said in a Dec 24 statement that “domestic companies are expected to be protected from the abuse of patents, as the amendment will provide a basis for effectively regulating global companies’ abuse of monopoly with patents”.

China’s proposals, like South Korea’s rules, have two main components. One involves patent values for technology included in industry standards, such as Wi-Fi. The other may require unique features — like Apple’s slide-to-unlock feature, or Microsoft software that synchronises calendars — to be licensed by others if considered “dominant” or “essential”.

The arguments are different on patents for unique features that command higher rates or are not licensed.

Companies that came up with ideas on their own, without standards-setting boards, should be able to control who can use that propriety technology, Apple has said in US court filings in its dispute with Samsung.

In the US, a judge said Apple could not force Samsung to remove features from its phones but Apple may seek additional damages. In China and South Korea, it would be the government making the decision that Apple must license the patented feature to any handset manufacturer. The Chinese and South Korean officials are just formalising what 100 years of legal precedent has done in the US and Europe, and a lot will depend on how the governments implement the rules, anti-trust lawyers said. BLOOMBERG