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Why China's sales ban of Apple iPhones isn't as bad as it sounds

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Residents pass by an advertisement for the iPhone X in Beijing, China.(AP Photo/Ng Han Guan, File)
Residents pass by an advertisement for the iPhone X in Beijing, China.(AP Photo/Ng Han Guan, File)

After an ugly week, Apple (AAPL) shares had a rough start Monday. Qualcomm, (QCOM) Apple’s longtime opponent in court, announced it had won two preliminary injunctions against Apple. Apple was ordered to stop the sale and marketing of seven major iPhone models, from the 6S to iPhone X.

A ban in Apple’s second largest market which contributed to about one-fifth of its revenue could be devastating to the company. Apple shares dropped 2% in pre-market trading Monday. But the ban isn’t as bad as it sounds.

Apple was informed of the injunctions granted by Fuzhou Intermediate People’s Court in China last week, Yahoo Finance learned. And since then Apple sales in China has remained normal. One authorized Apple seller in China told Yahoo Finance that his store has been running like usual, and he hasn’t received any communication or order from Apple about the ban.

Apple claims the injunctions have limited impact on its Chinese business because it only affects iPhones that operate on older versions of iOS, which could potentially violate the patents Qualcomm has through China’s patent office. In a statement, Qualcomm said its patents enable consumers to adjust and reformat the size and appearance of photographs, and to manage applications using a touch screen when viewing, navigating and closing applications on their phones.

Apple argues iPhones currently found in stores in China have been running iOS 12, which does not violate Qualcomm patents. iOS 12 changes the way users resize photos and manage applications on their screens that allows Apple to get around the Qualcomm patents.

Enforcing the ban won’t easy

Qualcomm insists the upgrade of the system doesn’t rescue Apple from the ban, which the company claims is indeed in effect. “The orders aren’t specific to the operating system installed on the phones,” said Don Rosenberg, general counsel and executive vice president of Qualcomm, in a statement to Yahoo Finance. “If Apple is violating the orders, Qualcomm will seek enforcement of the orders through Enforcement Tribunals that are part of the Chinese court system.”

It’s uncommon for Chinese judges to grant injunctions. One of the reasons is that the country’s lack of agencies like the U.S. Marshals Service to push implementation, according to Matthew Dresden, an international intellectual property attorney at Harris Bricken, a Seattle-based law firm.

“In order for this injunction to be effective, China’s Customs and Administration for Industry and Commerce (at least) will have to be on board,” Dresden told Yahoo Finance about the ban on Apple, “This may be one of those situations where there’s a big announcement that (apparently) affects stock prices because traders assume that China implements injunctions the same way as in the U.S.”

Meanwhile, Apple has taken steps to fight back. It has filed a request for reconsiderations with the Chinese local court in an effort to appeal the injunctions on Monday.

Apple stock rebounded late Monday, shares closed up 0.6%.

Krystal Hu covers technology and trade for Yahoo Finance. Follow her on Twitter.

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