A movie-production unit of the State Administration of Press, Publication, Radio, Film and Television (SARFT), a government agency supervising content production in the country, is suing the California-based smartphone maker for infringing the exclusive online broadcast right of an anti-Japanese film it aired in 1994, according to a post on the website of the People’s Court in Haidian on Thursday.
The case represents the latest legal setback for Apple in China, which accounts for more than 25% of the company’s sales. The Beijing Intellectual Property Office ordered Apple to halt the sales of its iconic iPhone 6 and iPhone 6 Plus smartphones after ruling in May that the company infringed the design patent of Shenzhen-based device maker Baili. Apple, which has filed an appeal against the order in the Beijing Intellectual Property Court, is still entitled to sell the two models before receiving a court judgment.
The SARFT case in itself is unlikely to impact the running of the app store in China, according to Cong Lixian, a professor of law at Beijing Foreign Studies University. Whether Apple will be held responsible depends partly on whether the company has signed revenue-sharing agreements with Youku, which is also being sued for streaming the film, before showing the Youku app online.
“The whole thing is strange,” says Jeffrey Towson, a professor of investment at Peking University’s Guanghua School of Management. “It is about a 20-year-old movie no one has really heard of and the financial request is under $10,000,” he says. “Maybe the recent rulings against Apple haven given people confidence to go after the company?"
Chinese authorities have found Apple guilty in a similar case. In 2011, the company was ordered to pay 520,000 yuan($78,023) in total damages to the Encyclopedia of China Publishing House after a Beijing court ruled that apps in its online store infringed the copyright of the publishing house’s books.
The company’s China woes don’t stop here. The Higher People’s Court of Beijing ruled in May that leather-goods maker Xintong Tiandi Technology can keep using the name IPHONE for its wallets, handbags and smartphone cases, after Apple tried for years to stop the company from doing so. In April, Chinese authorities abruptly shut down the company’s iBooks Store and iTunes Movie just six months after they started in the country. Authorities haven’t explained the ban.
These setbacks come as Apple is grappling with slowing sales in the country. The cooling market in the Greater China area, which includes Hong Kong and Taiwan, was the primary reason behind Apple’s first decline in quarterly revenues earlier this year. Revenue from Greater China fell $4.3 billion to $12.49 billion in the second quarter, when overall sales dropped 13% to $50.55 billion. Billionaire investor Carl Icahn has sold his entire stake in Apple in April, citing China’s influence on the company.
Apple’s bigger problem in China is the lack of services, according to Towson. The absence of iBooks and iTunes services has led China to associate the company with a mere hardware brand as opposed to in the U.S. where consumers visit its online content offerings frequently, he says.
But Apple is unlikely to go further as Chinese authorities move to tighten their control over the internet. In March, the country enforced stricter online publishing rules, which ban companies with foreign ownership of any kind from publishing online. The companies, however, are allowed to cooperate with Chinese partners on individual projects.
“Most of the Chinese online consumer experience is offered through Chinese companies,” Towson says. “For a foreign company like Apple to control what large numbers of Chinese consumers are doing on their phones, there is a bit of a political limitation to that."
