Qualcomm to Test Strength of China Agreement With Patent Suit

  • U.S. company files suit against Meizu Technology in Beijing
  • First test after winning agreement to charge licensing fees

Qualcomm Inc., the largest mobile phone chipmaker, is filing a lawsuit in Beijing against a Chinese phone manufacturer, the first major test of a hard-won agreement with the government there to allow it to enforce its right to charge fees for the use of technology.

Meizu Technology Co. is refusing to pay the U.S. company licensing fees that 100 other Chinese companies have already accepted and has also avoided negotiating in good faith, Qualcomm said in a statement.

By taking legal action of this type in China for the first time, Qualcomm is hoping that authorities will enforce the terms of a settlement it reached to end an antitrust investigation and to allow it to charge for its intellectual property. The U.S. company gets the majority of its profit from technology licensing. China is the world’s biggest mobile phone market.

“We’re asking the court to assist us and get them in compliance,” said Don Rosenberg, Qualcomm’s general counsel in a telephone interview. “China is really making a concerted effort, including having the special IP courts, to enforce intellectual property rights and to value intellectual property rights. We’re putting our faith in the court system there and we wouldn’t do that if we didn’t think we were in capable hands.”

In February 2015 Qualcomm announced it had paid $975 million to settle a case brought by China’s National Development and Reform Commission accusing it of abusing its dominant position. The agreement also set the terms for licensing fees that many Chinese companies hadn’t been paying. That allowed Qualcomm, after what it described as often “tough” negotiations, to sign up most of China’s major phone makers.

In the first quarter, Meizu had 0.4 percent of the world’s smartphone market ranking it 28th, according to IDC. The company is among the top 10 Chinese phone makers, according to Qualcomm. Rosenberg said Qualcomm is taking legal action out of a sense of fairness to other companies that are paying what they owe.

The 2015 agreement put an end to an investigation that lasted more than a year and hurt Qualcomm’s ability to collect licensing revenue in China, where some handset makers delayed royalty payments or paid less than they owed. Qualcomm, whose chips run most of the world’s phones that can access the internet, gets the majority of its profit from patent-licensing fees related to its ownership of technology fundamental to cellular-phone systems.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE