IP Thief Xiaomi Proves Crime Pays

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December 22, 2014 by ...

According to Ericcsson Xiaomi has been infringing on its Patent since Xiaomi started selling phones. They also claim to have warned the Chinese firm about this for as many years too. For their part, Lei Jun’s firm has been non- compliant. Up until the past six months they only sold in China and benefitted from pro-China policies. Beijing is notorious for sporadic enforcement of its laws. This is especially true when dealing with local firms. Lei Jun is a member of communist China’s lawmaking body, which probably ensures non-compliance is ignored

China is red and the party protects its own
China is keen on promoting local innovation and national champions. Due to the nature of communist countries and governance, innovation rarely happens. The book Why Great Nations Fail covers this in detail. It explains that those in control in non-inclusive countries extract wealth from the have nots. This creates a vicous cycle where the lower class believes they cannot achieve on merit alone and essentially give up. They cease innovating as their chances of reaping rewards of their efforts are slim. The result is stagnation.

The former Soviet Union was like this. After its collapse the world saw must how little they had accomplished. China of today is pretty similar. They produce a lot of patents’ but innovate? Hardly. Quick, name a Chinese company that is on the vanguard of anything.

China, not known to innovate
Odds are you cannot do so. This fact is even more telling when one considers that China has over 1700 new R and D centers. They also have over 20% of the world’s population and hoards of scientists and engineers. And what do they have to show for it? Piracy.

Instead of being on the vanguard, Chinese firms are happy to mimic their way to success. There is no better proof of this fact than Xiaomi. After their further round of funding Xiaomi is worth more than Sony. How absurd is that?

Sony a multi-media enterprise which has been on the cutting edge of technology for decades is worth less than a company which has only been selling over sews for less than six months. That company also derives 92% of its revenue from a phone which is so ‘cutting edge’ that it has a grand total of 8 innovation patents granted in China. Xiaomi is the same firm which has acknowledged that IP suits are their biggest problem.

China’s Xiaomi, monetizing IP theft

Aside from the fact that its product line up is a who’s who of pilfered product design:
All phones, Digital content devices and tablet have been swiped from Apple

The same is true for their operating software

New phone design

Mi Band sports gear

Cribbed Pressy from Kickstarter

Air purifier from Japan

Components from Ericsson

In what parallel reality does such a firm command a price premium over Sony? Well, that is the world we live in today because it is true.

For Chinese Firms, Crime Pays
Based on the media attention and cash valuation, Xiaomi is proof positive that crime pays. Rather than man up and follow the rules of international trade, Xiaomi takes a truly ‘connected to the party’ Chinese approach. They seek every underhanded manner possible to skirt laws which they believe are beneath them. In Xiaomi’s case, they decided it is better to switch to Qualcomm kit and avoid paying back royalties.

Their actions prove that Xiaomi has yet to figure out how to play the international game. They still use guanxi and exclusive practices to use the law when it suits them and discard it at will. It has worked for them in their home market and they are using it overseas too.

Based on recent valuations, there is no need to chsnge. By commanding a higher than Sony premium, Xiaomi just needs to stay the course and laugh all the way to the bank.

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