Lei Jun: patent war “Xiaomi’s rite to adulthood”

“Patent wars are Xiaomi’s rite to adulthood.” Lei Jun, co-founder of China’s largest smartphone maker, has said.

“Patent wars are part of the process in winning the champion title of the mobile phone industry. If you look at Apple and Samsung, both of them have been sued for patent infringement many times and they sued each other too. The fact that we were sued indicates that we have grown into a business of a considerable scale.”

He added that ever since Xiaomi began to make mobile phones, it had expected any patent war to come some day. “Xiaomi has been in the handset business for only three years. It takes time to build up its own patent bank.”

Xiaomi is expecting to apply for 1,300 patents in 2015, 300 of which will be international patents. “Xiaomi is poised in the face of patent issues. But such conflicts could continue for five to ten years,” said Lei Jun.

Xiaomi can benefit from the cross-licensing patents owned by Qualcomm, which is one of its investors. Currently Xiaomi is allowed to sell its Redmi 1S, which contains Qualcomm’s microchips, in India. In early December, it was sued by Ericsson for patent infringement in India.

Xiaomi has also revealed for the first time its records of patent applications and promised it would use its patents only for defensive purposes.

Speaking at Huxiu’s F&M Festival on December 21, Lin Bin, co-founder and director of Xiaomi, said that Xiaomi had been paying close attention to patent application from its beginning.

According to the chart shown in his presentation, Xiaomi applied for 35 patents in 2010 and 2011, 257 in 2012, 643 in 2013, and 1,150 by the end of November this year.

“We think this is remarkable for a four- or five-year-old startup. We are taking the lead in this regard. If you look at companies that have been founded for four or five years, not many have applied for over 2,000 patents, excluding those bought from others.”

Xiaomi’s privacy issues

What worries Lei Jun more is privacy. In his opinion, the greater challenge Xiaomi is facing is users’ privacy. It has raised concerns about the way it collects and store users’ data in Hong Kong, Taiwan as well as Singapore.

“If the privacy issue could not be dealt with well, Xiaomi would not only get stuck in localisation but also be not trustworthy.”

Xiaomi is migrating overseas user data from Beijing to servers hosted by Amazon in Singapore and America. It is also going to publish a white book on privacy security.

No IPO in five years

In the coming year, Xiaomi has got prepared for not being in profit.

Lei Jun stressed that Xiaomi does not have any profit goal and it will not consider any IPO within the next five years for now, but he “could not guarantee”.

Lei Jun is now the controller and major shareholder of four listed companies. He said his experiences had told him that there are many short-term investors on listed companies. If the scale and stability of a firm is not big enough, going public would lay much pressure on it and twist long-term goals.

In his opinion, the things Xiaomi has been doing in the past three years can be summarised as “learning from Tongrentang, Haidilao, Wal-Mart and Costco”.

“To make quality, value-for-money products in good faith like Tongrentang; to deliver services that win you reputation far beyond your anticipation like Haidilao; to work efficiently like Wal-Mart and Costco.”

Xiaomi operates with low gross profit and high efficiency. “High margin is not always a good thing, is it?” asked Lei Jun.

He summarised Xiaomi’s success in three keys: selling directly to customers via e-commerce, social marketing which saves a lot of costs and ultra-high operating efficiency.