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Apple pushes out software update to avoid China iPhone ban

Move comes in response to court injunction from Qualcomm's patent-infringement suit

Apple has avoided a sales disruption of its iPhones in China so far.   © Reuters

SAN FRANCISCO/BEIJING (Dow Jones) -- Apple Inc. sought this week to avoid a ban on the sale of older iPhones in China by releasing a software update that some intellectual property lawyers said could enable the company to keep selling those products in the world's largest smartphone market.

The move by Apple came in response to a preliminary injunction from a Chinese court that ordered the company to stop selling iPhones while it studies Apple's suspected infringement of two software patents held by chip maker Qualcomm Inc. The two American giants in the smartphone industry are locked in a bruising legal battle over technology licensing.

Despite the late November injunction, Apple continued to sell older iPhones, saying it was in compliance without elaborating further. It then filed a motion asking the court to reconsider its decision. The sales ban is a provisional measure while the court considers a final verdict on Qualcomm's patent-infringement suit.

Many lawyers who studied the court's decision believe Apple initially defied the ban, challenging China's judicial authority. The lawyers warned that could hurt the company's business standing and brand reputation in a market that accounts for a fifth of Apple's total sales. Qualcomm, meanwhile, said Apple was playing down the preliminary injunction and flouting the legal system. It has asked the court to force Apple to comply with the ban.

Apple says its Monday software update addressed the patents in question. The new version of iOS 12 changes how an app disappears from an iPhone display when a user swipes the screen upward--one of the features contested by the two companies. Apple mentioned the new feature in notes explaining the update on phones using a Chinese-language setting, though not in an English-language setting.

The changes could bring the company into compliance with the court and ease pressure on the company, some lawyers said. Douglas Clark, an attorney based in Hong Kong, said such software updates are commonly used in instances of high-tech patent infringements. It could be effective in this case because the preliminary injunction only blocks Apple from selling phones that violate the patents--not all iPhones, he said.

Qualcomm plans to test the new software and challenge it in court if it believes the patents are still being infringed upon, a company official said. The company is also seeking an order covering the newest iPhone models, the XS, XS Max and XR.

If Apple has "not properly patched the phones, they would be playing with fire" and could face fines or other penalties for being in contempt of court, said Mr. Clark, who has served as outside counsel for Qualcomm before but isn't presently doing so. "That's where the risk is," he said.

So far, Apple has avoided a sales disruption in China and hasn't faced a major backlash from the public or media. Local media reports have been measured in tone, focusing on the developments of the case and introducing views from legal experts.

Though Apple doesn't break down sales by models, RBC Capital Markets estimates the older models affected by the ruling account for about 40% of sales in China, equaling about $12 billion in revenue. The order applied to iPhone X, 8, 7, 6 and 6s models.

The court's review of Apple's request for reconsideration of the preliminary injunction could be completed in the coming weeks, legal experts said. The judge could take about three to six months to reach a final decision in the case, said Dragon Wang, a Beijing-based intellectual property lawyer at Dunlap Bennett & Ludwig.

The court in Fujian province overseeing the Apple-Qualcomm case previously issued preliminary injunctions against two American companies in favor of Chinese plaintiffs over the past year. Micron Technology Inc., a chip company, and Veeco Instruments Inc., a tool maker, lost cases brought by Chinese firms.

Both of those American companies stopped selling their products in China, said Mark Cohen of the UC Berkeley School of Law, a former senior counsel in China for the U.S. Patent and Trade Office. A "political narrative is not beyond the realm of possibility," he said.

The U.S. and China remain engaged in a battle over trade and technology, with both countries imposing tariffs on the other. Apple is considered one of the most vulnerable U.S. companies to the rising tensions because of its sizable China business and dependency on the market for the assembly of iPhones, iPads and Macs.

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