A lobby group including Apple Inc. and other tech giants operating in India has called out authorities in the country for misunderstanding how patent fees work, following a dispute between local officials and Xiaomi Corp. .
In a letter to government departments, the India Cellular and Electronics Association urged the federal government to intervene and accused law enforcement agencies nationwide of a “lack of understanding” of royalty payments in the tech industry. .
India’s anti-money laundering agency accuses Xiaomi of moving money out of the country by falsely claiming it was for payment of patent rights. The agency seized more than $700 million from a local unit of the Chinese smartphone maker in April, a move that has since been put on hold pending a final court ruling.
Although the lobby group’s letter did not name the Xiaomi case specifically, it warned that accusing the companies of illegal royalty payments could have a “chilling effect” on business in the country. The risk for other companies is that Indian authorities also apply a similar interpretation of royalty payments to other technology companies. Xiaomi is a member of ICEA, as are rivals including China’s Oppo and local company Lava, as well as Apple and its suppliers Foxconn Technology Group and Wistron Corp.
Xiaomi has challenged the seizure of India’s assets, arguing that its patent royalty payments are justified and its statements to financial institutions are accurate. Indian authorities said Xiaomi’s local unit handed over money to three overseas-based entities with ties to Xiaomi, disguising them as royalty payments.
Law enforcement authorities have taken “a position that the levy is an easy way to get money out of India,” the lobby group said in its May 30 letter, addressed to federal ministers of finance, trade and technology, and seen by Bloomberg News. “We understand that it is the duty of agencies to identify malpractice in India, but in this case they are not well informed. one side, and facing and fearing enforcement action on the other.
India’s finance, trade and technology ministries and anti-money laundering agency did not immediately respond to requests for comment.
Xiaomi has argued that he is being targeted because he is Chinese, insisting the overseas payments were royalty rebates for using patented technology. Companies around the world pay billions of dollars in such fees each year for the use of other people’s intellectual property.
Tax raids on Xiaomi and money laundering allegations have tarnished the company’s brand image in the country where it is the top seller of smartphones. But the dispute over what counts as royalties could have implications for other smartphone and electronics companies operating in India.
India’s crackdown on Xiaomi is part of a wider scrutiny of Chinese companies after a Himalayan border clash between the two nuclear-armed neighbors in 2020. New Delhi has since banned more than 200 mobile apps from vendors Chinese, including purchase services from Alibaba Group Holding Ltd. and the popular TikTok video app from ByteDance Ltd.
India is also investigating the local units of Chinese companies ZTE Corp. and Vivo Mobile Communications Co. for alleged financial irregularities, Bloomberg News reported this week.
“The Chinese government is following the case closely,” Chinese Foreign Ministry spokesman Zhao Lijian said at a regular press briefing in Beijing on Tuesday. “The Chinese government always requires Chinese companies to operate in accordance with the law. At the same time, we firmly support Chinese enterprises in defending their own legitimate rights and interests. The Indian side should act in accordance with laws and regulations and provide a fair, just and non-discriminatory business environment for Chinese companies. »