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Beijing's Apple ban isn't likely to stick, expert says

A Chinese man answers the phone with his new iPhone 6 Plus inside an Apple store in Beijing, China.
Feng Li | Getty Images
A Chinese man answers the phone with his new iPhone 6 Plus inside an Apple store in Beijing, China.

Investors may be wary of Apple's recent patent dispute in China, but the Beijing's move likely won't work, a legal expert told CNBC.

"Apple can flip around and shut this whole thing down," said Dan Harris, lawyer at Harris Moure and author of the China Law Blog. "I'm predicting this, in the end, is going to have zero impact on Apple in China other than the fact that this is a messed up situation in the short term."

Apple shares held lower Friday morning as investors received head-scratching news that sales of iPhone 6 and 6 Plus devices were banned in Beijing.

Intellectual property regulators ruled those iPhones were too similar to an existing Chinese phone, and production would soon be halted, sending shares almost 2 percent lower in pre-market trading. But Apple told CNBC that all iPhone models 6 and higher were for sale today in China, and that it had appealed an administrative order from a regional patent tribunal in Beijing last month.

"As a result the order has been stayed pending review by the Beijing IP Court," Apple told CNBC, as the stock leveled off, down 1.8 percent mid-day.

The phone in questions is Baili's 100C (which is also branded as 100+), which is central to the design patent infringement dispute. (Information about that company is, to put it mildly, hard to come by.) Though Harris doesn't know the details of that case, he said that design patents, unlike the patents most Americans think of, are simply based on an aesthetic look, and can be invalidated by showing that Apple was using the design first.

"I don't know, the iPhone exterior has been pretty similar for years and years, so I don't know what it is that this person is claiming," Harris said. "Basing this on what we have seen, Apple will just crush this company. Maybe the Chinese company wanted money or publicity, maybe it's legitimate. But if everybody were super confident that the Chinese company had a strong design patent the order probably would not have been stayed."

China is the world leader in patent filings and litigation, according to researchers at the Santa Clara University School of Law, with roughly 80 percent more patent suits filed than the United States in 2012, and 40 percent more patent applications than the U.S. in 2014, for instance. Indeed, Harris said, he's seen patent disputes against his clients go from one yearly to about one monthly, because design patents in China are not substantively reviewed.

By making it this far, the 100C has gotten farther than most Chinese design patent disputes Harris has dealt with. Still, he said, "the lower court order oftentimes never has any real impact."

Wall Street has become highly sensitive to Apple's maneuvers in China after the tech titan's second quarter earnings were hurt by sales in Hong Kong. Greater China sales, once the tech giant's fastest growing market, fell to $12.49 billion in the second quarter, the company said, a 26 percent year-over-year decline.

Frank Gillett, an analyst at Forrester, said that the news will obviously raise concerns for investors, especially those prone to "conspiracy theories," as by focusing on a local area and a prior iPhone generation, the move could be viewed as a low-intensity warning from the Chinese government. But given the uncertainty around China's intentions, he remains focused on Apple's product offerings.

"Apple wants to be there [in China], they believe they offer a premium product, they're doing their best to offer the market something within in the confines of their core beliefs," Gillett said. "The actions that are taken against or with Apple are symbolic of the interactions the Chinese government will have with other foreign companies. Chinese actors are probably conscious of that symbolism."