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China spells Double trouble for Apple
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posted Friday, 11 March 2005
For Apple, it appears that an ill wind is blowing from the east, as a pair of patent lawsuits with Chinese characteristic, both involving patent infringements, look set to interfere with its two of it flagship products in the near future.
Case 1: Whose patent is it anyway?
Recently, 日立製作所 (Hitachi manufacturing LTD) launched an action against a Chinese digital storage manufacturer, claiming that one of its prime export products was based on technology it had designed and designed and patented. The claim was dismissed by the Chinese manufacturers, who vocalized that the patent that 日立was claiming that they had infringed on was so broad and outmoded that it was the equivalent of a patent on a donkey drawn cart being used against an automobile manufacturer. The dispute has yet to be resolved.
While the lawsuit does not directly involve Apple, it still has implications for the company because the disputed product sits inside its one of flagship product; Apple’s ever popular iPod portable digital music player.
Though the vagaries of Chinese patent law, and general law enforcement, mean that a court ruling in Hitachi’s favour would do little, if anything, to halt the production of micro hard-drives using allegedly infringed patents, or to prevent Apple from buying them, public and industrial pressure outside of China would likely force Apple to look elsewhere for iPod components, and to find a manufacturer that uses legally held or accredited patents. This would almost most certainly usher in a higher price tag for iPod consumers and/or lower profits for Apple.
Case 2: What, no patent?
Unlike the first case, in which a Chinese company stands accused and Apple stands in the middle, the second dispute names Apple itself as an infringer accused of illegally tapping a patent held by a Chinese group.
The accusations against Apple revolve around a core DRM, or Digital Rights Management, process, used by its iTunes online music store, to authenticate the identity of an iTunes user before they can download a song.
Pat-Right, a Hong-Kong based interest, claims that it holds the patent to the process being used by Apple and is currently seeking a settlement of 12 percent of the profits gleamed from profits made from the sales of iPods and music sold through iTune. If Apple does not settle, and is found to have knowingly infringed on Pat-Rights patent, it could be forced to pay considerably more than the 12 percent of iPod-iTunes profits that Pat-Right is asking. If Apple is not found culpable, it could issue its own action against Pat-Right, the potential outcome of such an action is unknown.
It is unclear whether Pat-Right ever produced a working system to match their patent claim, or if they simply outlined and patented an idea. Legally, the extent to which any paper based work was followed up, with the production of a working product, could be key to determining whether the group have a case and, if so, how much of a claim they have against Apple’s bankers.
Pat-Right is currently in negotiations with Apple, and has set a deadline of 21 March 2005 to resolve the dispute, after which time the group’s legal council says a suit will be filed.
To technology and patent savvy observers, it seen as unusual that Apple did not attempt to patent this technology themselves, given that it is of central importance to iTunes, it however also seems reminiscent of several recent cases in which Chinese companies have tried to ‘shake down’ foreign companies over patent claims.
This case would neither be the first time that a smaller company had filed a nuisance suit against a large corporation with the aim of extracting a fiscal remuneration, nor the first time that a large company had knowingly infringed on the patent of another company in one of its flagship products.
Pat-Rights claim has potential implications for a number of other DRM systems, though none of the groups who may have infringed on Pat-Right’s patent claim are known to be as wealthy as Apple, and none are known to have been named in any form of anti infringement action by the groups or to have been involved in negotiations over a pre suit settlement.
Pat-Rights claim was filed in 2003, DRM systems that pre date this date are unlikely to be found culpable to a claim that they knowingly infringed on the patent, and the more unpatented systems that pre date 2003 in existence the better it is for Apple, who could claim that the process was effectively public domain. Though, given the low priority put on DRM in the past, the number of similar systems in existence is not likely to be high.
DRM?
DRM, is the name of the process by which a music or video seller is able to limit the number of times a user is able to download or copy a digital product, as well as the number and type of devices that it can be loaded on to. Breaking a DRM system, to allow a video or song to be used independently of the sellers wishes, is an offence in the US under the controversially Digital Millennium Copyright Act.
DRM is itself controversial, and is seen by many private collectors as being overt interference in the life of a purchaser because it, to all intensive purposes, removes ownership form the purchaser and turns a sales agreement into a permanent leasehold agreement under which the purchaser cannot do as they wish with their purchases..
Chinese Patent Laws?
Hitachi’s claim against the manufacturer of the micro hard-drive used by Apple is one of a growing number of complaints being made against Chinese manufacturers, in which Chinese companies are being accused of infringing upon, in effect stealing, ideas and innovations created and bankrolled by foreign companies, and of repackaging them inside their own, apparently legal, products.
Some have even accused the Chinese government of being complicit in patent infringements by deliberately leaving loopholes in Chinese patent laws that allow domestic companies to register patents in with the Chinese patent office, without first having to prove that the concepts and designs that they are filing have not already been patented by another company.
These loopholes affectively allow Chinese domestic companies to take any patented foreign innovation and to claim ownership of it in China, thus gaining the full legal protection of the Chinese courts, and allowing them to launch patent suits against foreign competitors operating in the country for the use of the technology that they actually created.
Though clauses in Chinese patent laws leave them open to abuse, they also it easier and cheaper for Chinese companies to file patents by lowering the burden of proof of originality.
Some Chinese authorities have offered to fund or sponsor patent claims made by companies that are located in their jurisdiction, in order to attract high technology groups, though they have also been accused of offering legal advice on how to cheat foreign companies and of turning a blind eye to infringers who bring increased wealth to their areas.
False Competitiveness?
Though much of China’s competitiveness in due to its low labor costs and the pitch of the Dollar against the Yuan, many industrial and financial observers also see a link between China’s growing manufacturing industry and it lax adhesion to the norms of patent and copyright laws, laying the claim that many Chinese companies would be fundamentally unsustainable if they had to pay the costs being paid by foreign rivals in order to innovate and create new product, or if they had to pay fees for the use of foreign patents in the same way US or European manufacturers have to do.
Despite the cost effectiveness of infringing on a patent rather than paying for its use, or creating a new product through innovation, constant patent infringements are widely seen as being damaging to China’s long term prospects as anything other than a manufacturing interest, with observers believing that if it remains easier to infringe on a foreign innovation than to innovate domestically, Chinese creative talent will be lost abroad where salaries are higher, and where innovation is profitable.
Other Ill Winds
In addition to its dispute with Pat-Right, Apple is also currently involved in a legal fracas with Advanced Audio Devices over iTunes, though this case revolves around a dispute over the ownership of the concept of an online jukebox, and is not related to the Pat-Right case.
Case 1: Whose patent is it anyway?
Recently, 日立製作所 (Hitachi manufacturing LTD) launched an action against a Chinese digital storage manufacturer, claiming that one of its prime export products was based on technology it had designed and designed and patented. The claim was dismissed by the Chinese manufacturers, who vocalized that the patent that 日立was claiming that they had infringed on was so broad and outmoded that it was the equivalent of a patent on a donkey drawn cart being used against an automobile manufacturer. The dispute has yet to be resolved.
While the lawsuit does not directly involve Apple, it still has implications for the company because the disputed product sits inside its one of flagship product; Apple’s ever popular iPod portable digital music player.
Though the vagaries of Chinese patent law, and general law enforcement, mean that a court ruling in Hitachi’s favour would do little, if anything, to halt the production of micro hard-drives using allegedly infringed patents, or to prevent Apple from buying them, public and industrial pressure outside of China would likely force Apple to look elsewhere for iPod components, and to find a manufacturer that uses legally held or accredited patents. This would almost most certainly usher in a higher price tag for iPod consumers and/or lower profits for Apple.
Case 2: What, no patent?
Unlike the first case, in which a Chinese company stands accused and Apple stands in the middle, the second dispute names Apple itself as an infringer accused of illegally tapping a patent held by a Chinese group.
The accusations against Apple revolve around a core DRM, or Digital Rights Management, process, used by its iTunes online music store, to authenticate the identity of an iTunes user before they can download a song.
|
|
"computer
registration involves a process of identity verification in which a user is
required to key into the computer the correct Apple ID and password he used
to purchase the song” |
|
Pat-Right, a Hong-Kong based interest, claims that it holds the patent to the process being used by Apple and is currently seeking a settlement of 12 percent of the profits gleamed from profits made from the sales of iPods and music sold through iTune. If Apple does not settle, and is found to have knowingly infringed on Pat-Rights patent, it could be forced to pay considerably more than the 12 percent of iPod-iTunes profits that Pat-Right is asking. If Apple is not found culpable, it could issue its own action against Pat-Right, the potential outcome of such an action is unknown.
It is unclear whether Pat-Right ever produced a working system to match their patent claim, or if they simply outlined and patented an idea. Legally, the extent to which any paper based work was followed up, with the production of a working product, could be key to determining whether the group have a case and, if so, how much of a claim they have against Apple’s bankers.
Pat-Right is currently in negotiations with Apple, and has set a deadline of 21 March 2005 to resolve the dispute, after which time the group’s legal council says a suit will be filed.
To technology and patent savvy observers, it seen as unusual that Apple did not attempt to patent this technology themselves, given that it is of central importance to iTunes, it however also seems reminiscent of several recent cases in which Chinese companies have tried to ‘shake down’ foreign companies over patent claims.
This case would neither be the first time that a smaller company had filed a nuisance suit against a large corporation with the aim of extracting a fiscal remuneration, nor the first time that a large company had knowingly infringed on the patent of another company in one of its flagship products.
Pat-Rights claim has potential implications for a number of other DRM systems, though none of the groups who may have infringed on Pat-Right’s patent claim are known to be as wealthy as Apple, and none are known to have been named in any form of anti infringement action by the groups or to have been involved in negotiations over a pre suit settlement.
Pat-Rights claim was filed in 2003, DRM systems that pre date this date are unlikely to be found culpable to a claim that they knowingly infringed on the patent, and the more unpatented systems that pre date 2003 in existence the better it is for Apple, who could claim that the process was effectively public domain. Though, given the low priority put on DRM in the past, the number of similar systems in existence is not likely to be high.
DRM?
DRM, is the name of the process by which a music or video seller is able to limit the number of times a user is able to download or copy a digital product, as well as the number and type of devices that it can be loaded on to. Breaking a DRM system, to allow a video or song to be used independently of the sellers wishes, is an offence in the US under the controversially Digital Millennium Copyright Act.
DRM is itself controversial, and is seen by many private collectors as being overt interference in the life of a purchaser because it, to all intensive purposes, removes ownership form the purchaser and turns a sales agreement into a permanent leasehold agreement under which the purchaser cannot do as they wish with their purchases..
Chinese Patent Laws?
Hitachi’s claim against the manufacturer of the micro hard-drive used by Apple is one of a growing number of complaints being made against Chinese manufacturers, in which Chinese companies are being accused of infringing upon, in effect stealing, ideas and innovations created and bankrolled by foreign companies, and of repackaging them inside their own, apparently legal, products.
Some have even accused the Chinese government of being complicit in patent infringements by deliberately leaving loopholes in Chinese patent laws that allow domestic companies to register patents in with the Chinese patent office, without first having to prove that the concepts and designs that they are filing have not already been patented by another company.
These loopholes affectively allow Chinese domestic companies to take any patented foreign innovation and to claim ownership of it in China, thus gaining the full legal protection of the Chinese courts, and allowing them to launch patent suits against foreign competitors operating in the country for the use of the technology that they actually created.
|
|
"We have a client in the power business who found that one of his key employees had quit and joined a competitor, revealing confidential information to him straight away, and filing patents of these materials which were literal copies of the original technology," he said. "When our client warned he would sue over patent infringement, the Chinese company said it was also planning to sue. 'And by the way,' they asked, 'what patent are you talking about? This is our patent now.' " Xiang Wang, intellectual property Laywer, White &
Case, |
|
Though clauses in Chinese patent laws leave them open to abuse, they also it easier and cheaper for Chinese companies to file patents by lowering the burden of proof of originality.
Some Chinese authorities have offered to fund or sponsor patent claims made by companies that are located in their jurisdiction, in order to attract high technology groups, though they have also been accused of offering legal advice on how to cheat foreign companies and of turning a blind eye to infringers who bring increased wealth to their areas.
False Competitiveness?
Though much of China’s competitiveness in due to its low labor costs and the pitch of the Dollar against the Yuan, many industrial and financial observers also see a link between China’s growing manufacturing industry and it lax adhesion to the norms of patent and copyright laws, laying the claim that many Chinese companies would be fundamentally unsustainable if they had to pay the costs being paid by foreign rivals in order to innovate and create new product, or if they had to pay fees for the use of foreign patents in the same way US or European manufacturers have to do.
|
|
"With the extreme fragmentation of industry [in |
|
Despite the cost effectiveness of infringing on a patent rather than paying for its use, or creating a new product through innovation, constant patent infringements are widely seen as being damaging to China’s long term prospects as anything other than a manufacturing interest, with observers believing that if it remains easier to infringe on a foreign innovation than to innovate domestically, Chinese creative talent will be lost abroad where salaries are higher, and where innovation is profitable.
Other Ill Winds
In addition to its dispute with Pat-Right, Apple is also currently involved in a legal fracas with Advanced Audio Devices over iTunes, though this case revolves around a dispute over the ownership of the concept of an online jukebox, and is not related to the Pat-Right case.
View Comments/Add a Comment (2)
1. a reader left...
Friday, 11 March 2005 6:54 pm
Hi!
I am confirming the Nonimation of Freedom Blog award ist genuine. PLS
check the Announcement
here:
http://www.rsf.org/article.php3?id_article=12326
If you want to be nominated, PLS send me a confirmation as soon as possible and tell us your nationality and your real name( If you want). We need your e-mail to contact with you.
thanks a lot.
Dragonlady [yuelei.hu@dw-world.de]
2. Sarah Smith left...
Saturday, 12 March 2005 12:12 am
I love that word "Nonimation"--it feels right. Kind of like
something isn't e-animated.
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