Midea, Gree nearing negotiated settlement of court cases

Gree airconditioners are seen at a store in Yichang, Central China's Hubei Province on June 14, 2016. File photo: IC

Shares of Midea Group Co and Zhuhai Gree Electric Appliances Inc, two of China's leading appliance makers based in South China's Guangdong Province, outpaced the benchmark Shenzhen stock index on Monday following media reports of moves toward a negotiated settlement in a dozen lawsuits involving intellectual property rights (IPR).

The Beijing-based Securities Daily reported on Monday that Gree may have recently approached Midea to discuss an out-of-court settlement for 12 cases, which may be the reason why hearings in these cases have yet to open.

After Gree filed a lawsuit against Midea in June, demanding compensation of 50 million yuan ($7.54 million), Midea fought back with four lawsuits filed in multiple cities with a total value of 50 million yuan.

Altogether, there were suits with a gross value of "hundreds of millions of yuan," according to the report.

Neither company responded to the Global Times' request for comment as of press time on Monday.

Investors reacted favorably to the report, with shares of Midea up 4.03 percent to 52.69 yuan and those of Gree up 4.06 percent to 43.53 yuan. The Shenzhen Component Index, which measures the performance of the Shenzhen bourse where the companies are listed, rose 1.41 percent.

Both companies are industrial champions in the domestic home appliance sector.

According to the 2016 State of Innovation compiled by Thomson Reuters, Midea ranked No.1 among the top 10 Global Innovators in home appliances, with Gree at No.2.

Li Junhui, a professor at the China University of Political Science and Law, told the Global Times on Monday that the lawsuits come as the two giants square off over the air conditioning segment, which is increasingly dominated by innovation and high technology.

"Compensation for IPR violations in China has risen continually in recent years, providing a way for a company to get a return from protecting its IPR. Confrontation over IPR can also be seen as competition in another form," Li said.

However, patent lawsuits are unique in that many such cases can be settled out of court if the adversaries are equal in technological strength and opt to cooperate rather than compete by such means as cross-licensing, Li noted.

Liu Buchen, a senior home appliance industry analyst, said it's possible that Midea and Gree will reach a negotiated settlement because the number of patent violations they each claimed and the amount of compensation they each sought were relatively similar.

If such a deal is reached, Liu said it would mean that Midea is catching up quickly with Gree in terms of technological research and development.

"In the past, Gree often had the upper hand over Midea in patent disputes. But now, the fact that Gree is likely to settle shows that Midea's patent bank has grown fast recently," Liu said. By the end of 2020 at the latest, Midea should draw even with Gree in terms of business performance, Liu added.

Li said the case is important in the context of the Made in China 2025 strategy, which calls for innovation-driven growth. "If cross-licensing is achieved, the two companies together can better guard against risks from potential patent lawsuits in overseas markets," Li said.

According to Liu, if Midea and Gree settle their disputes, they will share the patents involved in the cases.

"I think patent lawsuits are not a bad thing for China's manufacturing industry. It shows that companies are attaching increasing importance to patents. Such suits also raise domestic companies' awareness of how important patents are for their business," he noted.