Apple iPhones Found to Have Violated Chinese Rival's Patent

Company May Have to Halt Sales in Beijing

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Credit: David Paul Morris/Bloomberg
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Apple violated the design patents of a Chinese device maker and may have to halt sales of its latest iPhones in Beijing, the city's intellectual property authority ruled, handing the U.S. company its latest setback in a pivotal market.

The iPhone 6 and iPhone 6 Plus infringe on Shenzhen Baili's patent rights because of similarities to its 100C phone, the Beijing Intellectual Property Office wrote in its decision. Apple, whose iconic gadgets helped define the modern smartphone industry, said it's appealing the ruling and is continuing to sell various iPhone 6 models during the process.

"IPhone 6 and iPhone 6 Plus as well as iPhone 6s, iPhone 6s Plus and iPhone SEmodels are all available for sale today in China," Apple spokeswoman Kristin Huguet said in an emailed statement. "We appealed an administrative order from a regional patent tribunal in Beijing last month and as a result the order has been stayed pending review by the Beijing IP Court."

Apple shares fell 2.1 percent to $95.46 at 11:04 a.m. in New York Friday. They were down 7.3% this year through Thursday.

While the decision covers only Beijing, future lawsuits against Apple could take the case as a precedent, potentially influencing the outcomes of litigation elsewhere in China. Baili is one of scores of smartphone brands trying to cash in on the country's mobile boom. Xu Guoxiang, the inventor who holds the patent and listed as a Baili representative on yellow-pages site czvv.com, did not answer calls seeking comment.

Tim Long, an analyst at BMO Capital Markets in New York, said he doesn't think the impact of the Chinese ruling is meaningful.

"We believe there have been several prior cases against U.S. companies ruled in favor of local companies by lower courts that were later overturned by higher courts," Mr. Long wrote in a note to clients. "We have seen dozens of court decisions banning different smartphone products over the years in many different countries. We are not aware of one ever that has resulted in an actual injunction."

The ruling by the agency -- which administers matters involving patents in Beijing -- is the latest in a series of setbacks for Apple in its largest market after the U.S. Its book and movie services were blocked in April for violating foreign publishing regulations. In 2013, state media accused the company of shoddy customer service and inadequate warranties, prompting an apology from Chief Executive Officer Tim Cook.

Last month, it lost its fight to keep the "iPhone" exclusive to its products after a Beijing court ruled that a little-known accessories maker can use the label for a range of wallets and purses. And in 2012, Apple paid $60 million to Proview International Holdings Ltd. to settle a dispute over the right to the iPad name in China.

Apple has relied on the world's second-largest economy to sustain its pace of growth, though it has begun to experience a slowdown. For the three months ended March 26, revenue in Greater China, which includes Hong Kong and Taiwan, fell 26 percent to $12.5 billion. Mr. Cook has pledged to continue investing despite an economic deceleration.

~~ Bloomberg News