Xiaomi Ties Up with Microsoft, Buys Patents

Xiaomi Corp. bought nearly 1,500 technology patents from Microsoft Corp. in a deal that may smooth potential legal tangles over intellectual property as it pushes beyond China.

The patents cover a range of wireless communications, video, cloud and multimedia technologies, spokeswoman Kaylene Hong said. The acquisition came as part of a broader agreement announced Wednesday with the U.S. software giant, under which Microsoft Office and Skype will come pre-installed on the Chinese smartphone maker devices.

Xiaomi, which vies with Huawei Technologies Co. for the title of China’s biggest mobile brand, has begun selling phones in emerging markets, but its lack of a wide-ranging mobile patents portfolio has been perceived as a stumbling block to expansion into regions such as Europe or the U.S. The company’s push into India, currently its biggest overseas market, was met with a lawsuit from Ericsson AB.

Xiaomi had been one of China’s most exciting startup stories, earning a valuation of $45 billion by marketing cut-rate but reliable devices directly to consumers online and offering then-innovative social media and customization features. It now needs to sell into overseas markets with Chinese smartphone growth grinding to a halt.

Xiaomi sold more than 70 million smartphones last year, falling well short of its target and prompting founder Lei Jun to tell employees he was refocusing research efforts into “cool stuff” like robotics and virtual reality.

The deal also marks a rare sale of patents by Microsoft to a company in China, where it’s facing a government antitrust investigation while simultaneously trying to fight piracy. 

Microsoft moved into phone production almost two years ago when it bought Nokia’s handset division for $9.5 billion in a bid to make the company relevant in consumer computing beyond PCs. The company has since written down most of that purchase and in May agreed to sell its feature phone business to FIH Mobile Ltd. and HMD Global for $350 million.

Technology companies use their intellectual property, including patents and trademarks, to protect innovations and provide a type of currency when it comes to using that of others through cross-licensing deals. The 2014 Indian lawsuit, which focused on Ericsson inventions enabling wireless devices to connect to networks, resulted in a court banning some Xiaomi devices in India.

The agreement announced on Wednesday also covered cross-licensing, though neither side would provide specifics.