Sent from my… GooPhone?
Samsung may not be the only company Apple has to worry about in the smartphone patent wars. Earlier this month, GooPhone, a Hong Kong-based smartphone manufacturer notorious for creating iPhone clones, vowed to sue Apple in China upon release of the iPhone 5. The iPhone hit stores on September 21st, though as of yet, no suit has been filed. The GooPhone I5 was made available for purchase in August and runs on a Google Android 4.1 Jellybean operating system configured to resemble Apple’s iOS6.
GooPhone claims to have filed for a patent for the design of its GooPhone I5, which bears a striking resemblance to Apple’s iPhone 5, and GooPhone allegedly seeks to block sales of the iPhone 5 in China. Under China’s first-to-file patent law system, where more than one applicant files for a patent, the patent right is granted to the person who applied first, and once a patent is granted, no entity of individual may, without the authorization of the patentee, make, use or sell the patented product. Even if GooPhone did file first, however, a claim against Apple may not be a slam-dunk. Chinese patent law contains a novelty requirement that GooPhone may not be able to overcome given the widespread publicity enjoyed by the iPhone 5 for the past several months.
To many, GooPhone’s threats come as no surprise. Intellectual property “squatting” has become increasingly commonplace in China, and some of Apple’s recent legal battles in China have made the tech giant a more attractive target. In July, Apple agreed to pay Taiwan-based computer screen manufacturer Proview $60 million to settle a dispute over the use of the name “iPad” in China, even when Proview was facing a possible court-ordered liquidation in Chinese bankruptcy proceedings. In recent months, Apple has also been the target of a suit by a Chinese chemical company that alleged trademark infringement in Apple’s use of the phrase “Snow Leopard” and a Shanghai-based voice technology developer that alleged patent infringement stemming from Apple’s voice assistant, Siri.
With Apple shares trading above $700 and analysts projecting that the price will swell beyond $800, Tim Cook is surely unfazed by GooPhone’s apparent grandstanding (Not to mention, Apple appears to have bigger fish to fry in its billion dollar string of patent lawsuits). Nonetheless, courtroom battles in China are only part of the picture. GooPhone’s remarks garnered considerable media attention in early September prior to the release of the iPhone 5 and no doubt helped sales of the I5. While those sales may represent only a drop in the bucket compared with projected iPhone 5 sales in China, GooPhone’s tactic is a clear indication that imitation may become a growing concern.
China has already overtaken the U.S. as the world’s largest smartphone market by volume and is on a steady course of significant growth in the sector, and the Chinese market is extremely significant for Apple’s revenue growth. In the July quarter of this year, Apple’s revenues from the Chinese market grew 48% year-over-year and accounted for more than 16% of Apple’s overall revenues. These figures are extremely impressive, particularly because regulatory restrictions lead to delays in the release of Apple products in mainland China – The iPhone 5 may not appear there until the end of December. Such delays, however, leave few choices for consumers who want the iPhone 5 now. Because the smartphone was made available for purchase directly from Apple in Hong Kong on September 21, one option is to go through gray market resellers who import small quantities of the iPhone 5 to mainland China before the phone’s wide release. Unfortunately for consumers, gray market prices can be astronomical. On the first day the iPhone 4S was released for sale in Hong Kong, the device was selling for over $1,300 in U.S. dollars on the gray market (The official retail price for the iPhone 5 in Hong Kong is currently $721), and demand for the iPhone 5 appears to be higher than that of its predecessor. To help reduce gray market sales, Apple now requires iPhone 5 purchasers to produce a government-issued ID, but with incredibly high demand for the iPhone 5, resellers have been paying surrogate buyers to acquire phones for them.
GooPhone and others like it are hoping to capitalize on this demand by offering a smartphone with Android functionality in a body that is virtually indistinguishable from the iPhone 5. Plus, the GooPhone offers similar performance to the iPhone, at a price point of $299.99. GooPhone’s strategy fills a hole in the market, delivering the appearance of owning an iPhone to price-conscious consumers. That hole is not to be underestimated, as iPhone ownership is a status symbol in China. In fact, the iPhone has become such a status symbol that some subscribers to the Chinese social network QQ pay about $1.25 each month just to have the status messages on their Android phones appear with a fake “Sent from my iPhone” tagline. It is precisely this user base that GooPhone and others like it hope to exploit, and they appear to be doing a good job – The I5 already appears to be sold out from online retailers.
As the news of GooPhone’s preemptive iPhone copy made its way to America, many were left asking, “How can that be permissible?” In the U.S., the knock-offs would be unlikely to withstand domestic intellectual property law, but in China, government enforcement of intellectual property rights is notoriously lax. In September, the International Anti-Piracy Caucus released its 2012 Country Watch List, with China, a repeat offender, topping the list. The caucus estimates that piracy rates of software in the country are approximately 77%, and counterfeit goods are rampant. Although Chinese authorities have increased efforts to reduce intellectual property violations and resultant stigma, the problem persists, and the iPhone has not been the only casualty. Last year, twenty-two fake Apples stores were discovered in one Chinese city alone (They have all been found to have unlawfully used Apple’s intellectual property). Though perhaps more surprising is just how convincing these counterfeit stores can be – in one store, even the employees believed they were working in a real Apple Store. Sources also indicate that although Chinese officials sanctioned twenty-two fake stores, only two of those stores were immediately shut down for trading without a license. Moreover, those two stores were doing business in a country of 1.3 billion people – Speculation as to how much infringing activity occurs beyond the purview of Chinese authorities is only natural.
Unlike fake Apple stores, GooPhone has taken the unusual step of drawing attention to itself. Whether or not the smartphone manufacturer’s operations or publicity are significant enough for Apple to take real notice remains to be seen, but as long as a gap remains in the market, low-cost imitators are sure to persist.
