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Apple iPhones violated Chinese firm's patents, Beijing bureau rules

Apple iPhones violated Chinese firm's patents, Beijing bureau rules
Customers look at mobile phones in an Apple Store in Beijing. Apple Inc. has been ordered by Beijing's intellectual property regulator to stop sales of the iPhone 6 and iPhone 6 Plus models in the city. (How Hwee Young / European Pressphoto Agency)

China is providing Apple with one of its most lucrative markets. It's also giving the tech giant no shortage of headaches.

In another hiccup with regulators, Beijing's patent office has ordered Apple to stop selling its iPhone 6 and iPhone 6 Plus in the city because its design too closely resembles that of a Chinese phone.

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Apple is appealing the ruling, which marks the latest challenge to the Cupertino, Calif.company in its second-largest market after the Americas.

The two iPhone models violated design patents held by Chinese device maker Shenzhen Baili because of similarities in external design with the company's 100C phone, the Beijing Intellectual Property Office wrote in a statement on its website.

Apple said in a statement it will continue to sell those iPhone models in Beijing as it appeals the decision.

Because the ruling applies only to  sales within the city of Beijing, analysts doubt the ruling will affect Apple's bottom line.

"We do not think the case will have any negative impact on Apple's revenue and margin in China," Amit Daryanani and Shawn Yuan, of RBC Capital Markets, wrote in a research report.

Analyst Gene Munster of Piper Jaffray said the spat illustrates the ongoing "friction between Apple and the Chinese government."

"Even if they do get banned, they'll come out with new phones and they'll be selling those phones, Munster said. "It's a little bit of a carnival going on between Apple and China."

Apple shares closed at $95.33, down $2.22, or 2.3%. Angelo Zino, equity analyst at S&P Global Market Intelligence, said the market's reaction shows investors aren't greatly concerned about the patent issue itself.

"Does it impact anything on the fundamentals today? No. Could it alarm investors of other issues that could potentially happen in the future?" he asked. "I think that's why maybe you see the stock trading where it is."

Apple had to shut down its iBooks and iTunes Movies services in China in April because of violations of foreign publishing regulations.

In May, Apple lost the right to maintain exclusivity of the "iPhone" name, as a Beijing court ruled that an accessories maker could use it on a line of luxury leather goods.

While Apple jousts with the Chinese government, Chinese consumers have delighted in the company's products. Sales in Greater China — including mainland China, Hong Kong and Taiwan — amounted to 25% of Apple's revenue in the second fiscal quarter.

Apple, which makes around two-thirds of its revenue from iPhone sales, has cashed in on the mobile phone boom in China, the world's largest smartphone market. There, its iPhones have been seen as a status symbol.

But the Chinese market has become increasingly competitive, with local rivals offering similar products at much lower prices. In March, Apple responded to that pressure by unveiling a smaller, 4-inch version of the iPhone, called the iPhone SE, which will retail at $399. The iPhone 6 retails for $549, and the iPhone 6 Plus for $649.

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helen.zhao@latimes.com

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UPDATES:

3:06 p.m.: This article was updated with additional context.

10:38 a.m.: This article was updated to include additional comment from analysts and information about Apple's stock price.

This article was originally published at 8:11 a.m.

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