Xiaomi: Purchasing Patent Security
Xiaomi is one of China’s rising stars in the smartphone industry and beyond and it has been drawing global attention as it grows. However, as it has tried to build on its successes in China and take its products global, Xiaomi has started to hit barriers due to its limited IP portfolio. The same rapid growth that has characterized Xiaomi's success is now working against it, as it has not had time to develop a strong foundation of intellectual assets in the same way as its more established competitors have.
In the long term Xiaomi hopes to take on the industry giants such as Apple and Samsung, but to begin with it needs to compete with other Chinese companies, both at home and moving abroad. Looking at the WIPO and Chinese patent portfolios of Xiaomi and two of its major Chinese competitors Huawei and ZTE, Xiaomi comes up short.
This stark contrast speaks clearly to why Xiaomi has been slow to press its advantage and move to North American and European markets. They are rightfully concerned about heavy litigation in the world’s most developed markets. However, rather than being wholly deterred by lawsuits faced during its initial expansion into the Indian market, Xiaomi seems to be pursuing a few interesting avenues to bolster its own nascent patent portfolio. Directly and through subsidiaries or other companies it owns or invests in Xiaomi has begun to buy up the patents it hasn’t had time to develop in house.
For example Xiaomi is a part owner of the robotics Ninebot, a company that produces what it calls “personal transportation robots.” Ninebot found itself on the wrong side of an ITC 337 investigation launched by Segway into the infringement of a number of its patents. Segway and the associated R&D company DEKA Research & Development hold a combination of over 400 patents relevant both to the fields of robotics and transportation, but also much more broadly. Rather than fight the infringement, Ninebot raised 80 million dollars from investors including Xiaomi, Sequoia Capital, West Summit Capital and Shunwei Foundation (an investment vehicle associated with lei Jun, the CEO and founder of Xiaomi). Then Ninebot bought Segway and all of its patents outright.
The benefit of these patents goes beyond just taking the ITC investigation off the table. Many of the technologies at stake could be beneficial to Xiaomi’s broader goals expanding past smartphones to produce products in areas including IoT, smart home, and robotics. The Ninebot deal is also not unique in terms of Xiaomi’s strategy. There are marked similarities to a deal concluded in late 2014, where a joint venture under the control of Xiaomi called Songguo Electronics acquired a portfolio of 4G technologies from Leadcore, a subsidiary of Datang Telecom for 103 million RMB.
However, analysts have pointed out one potential hitch in Xiaomi’s acquisition plan. The relatively small purchases it has made so far are certainly valuable, but perhaps not on the scale needed to really develop into global prominence and success. However, the type of large-scale IP purchase Xiaomi really needs to make would be difficult, both in terms of cost and available assets. Both Motorola Mobility and the Rockstar patent portfolio are off the market, and probably would have been too expensive for Xiaomi anyway. Intellectual Asset Management suggested a few possibilities. The first would be to buy the Korean Pantech portfolio, following its bankruptcy. The other would be to go after BlackBerry, which has been surrounded by a few different rumors of takeover, and previously flirted with a partnership with Xiaomi. However, unless some type of partnership is brokered, it seems likely that an outright purchase of BlackBerry’s assets is out of Xiaomi’s league.
Beyond purchasing the IP it has not had time to develop itself, Xiaomi has also taken other steps to augment its IP holdings where possible. It is a principal investor in Zhigu, an IP services and consulting firm which controls the Ruichuan IPR Funds, a patent aggregator with both government and private ownership. Ruichuan has already begun purchasing IP assets for the use and protection of its investors.
Xiaomi is clearly taking its intellectual asset issue seriously and pursuing a variety of channels as it tries to shore up its position prior to going global. Xiaomi is definitely a company to keep an eye on going forward as it matures and develops a more sophisticated IP strategy.