Apple iPad Event
Apple iPad Event (Photo credit: Wikipedia)

Bloomberg News just came out with a story, entitled, “China Court Encourages Apple, Proview to Settle Dispute,” describing the latest goings-on between Apple and Proview in their fight over the “iPad” name in China:

A Chinese court is mediating talks between Apple Inc. (AAPL) and Proview Technology (Shenzhen) Co. in a bid to get the companies to settle their dispute over the iPad trademark in the country.

“On the one hand, we are trying to process this case, and on the other, we are working on encouraging both sides to settle,” Zhao Le, an official at the foreign affairs office of the Higher People’s Court of Guangdong, said by telephone yesterday. Zhao said he had no further information on the effort.

On Feb. 29, the Guangdong court heard Apple’s appeal against a lower court ruling last year that Proview owned the iPad trademark in China. Proview, a failed maker of computer displays, has filed separate complaints alleging that Apple’s sale of iPad tablets in the country infringed intellectual- property laws.

“We started work, through the mediation of the court, on trying to get both sides to settle,” Roger Xie, a lawyer for Proview, said by phone. Before issuing rulings, Chinese courts typically initiate proceedings for litigants to settle, he said.

None of this is any surprise.  We have helped oversee about a dozen Chinese litigation matters and all but one of those was fairly routine. The one that was not fairly routine was “sticky,” in that the law was clear but the law also would require the court to issue a ruling that it clearly would not want to issue. The Apple-Proview case is what I would describe as a highly sticky case in that the law seems to favor Proview, but a ruling for Proview does not favor China. The court should rule one way, but it really does not want to do so.

When I say the law seems to favor Proview, please understand that I am basing this strictly on media reports and that there is a very real possibility I have it all wrong. But to put it simplistically, it seems that Proview tricked Apple into believing that Apple had purchased the iPad name in China from Proview when, in fact, under Chinese law, Apple had not.  I am going to ask you to go with me on this and just assume that the law/facts favor Proview.

Because the politics and the economics certainly do not.

If Proview defeats Apple in their various Chinese lawsuits, the end result will almost certainly be that Proview will end up owning the iPad name in China. That would not be a good thing for China. The world would freak out even more about China’s IP protections and at least some foreign companies would cite this case to justify not going into China, not selling their product into China, not working with Chinese companies, and even not buying from China. None of this would be good for China.

The second way in which a Proview court victory would hurt China is that it would probably lead to Apple moving its iPad manufacturing (or at least some large parts of it) out of China. If Proview is deemed to own the iPad name in China, Apple will not be able to use the iPad name at all in China unless it pays to license that use from Proview. If the Chinese courts hold that Proview owns the iPad name in China, I do not believe Apple will pay Proview even one Yuan for the licensing rights to that name because doing so would set such bad precedent for Apple. A holding that Proview owns the iPad name would also mean Apple would not sell iPads (and other Apple products?) in China again. Note that Apple has yet to release its newest iPad in China. How do you think the lose of iPad related jobs will play among China’s masses? How do you think the loss of the iPad at retail will play among China’s elites?  I am quite certain the Chinese government is thinking about these things.

So what can the Chinese government do? A lot.

Back to the “sticky” case we had in China. Every China case we had before that sticky case either settled or was ruled on shockingly quickly. But our sticky case just languished. Six months at a time would go by with nothing.  Then when our Chinese lawyers would ask the court what was happening on our case, the court would tell them that we needed to settle. The other side was being told the same thing. Between the lower court and the appellate court, this went on for more than three years.  The courts eventually did rule, but of course our case had nowhere near the significance of the Apple-Proview one.

So what is going to happen in the Apple-Proview case? It has to settle.  It just has to. There are certain cases where not settling could be so horrible for one or more sides that settlement has to happen. Picture two people fighting at the edge of a cliff. There are times where both parties go off the cliff, but that becomes less likely when you have a powerful and self-interested third party moderating.
The Chinese government is that third party in the Apple-Proview case and you should just assume that the courts are taking their direction straight from Beijing’s highest echelons.

The problem with my firm’s sticky case was that both sides knew that a compromise court ruling was extremely unlikely; either one side or the other would win big. We were representing a foreign plaintiff and the amount at stake was large enough so that any settlement might prove devastating to the defendant. This mad settlement all the more difficult.

Since Apple has One Hundred Billion Dollars cash on hand it can easily afford to pay to resolve the Proview case. It just not want to do so, and certainly not in a way that will make it appear to be admitting defeat. The Chinese government is going to need to come up with a face-saving solution for Apple that will involve Apple maybe indirectly paying off Proview while receiving some sort of major bone from the Chinese government. Something that will give Proview money and yet still allow Apple to claim an overall victory.

This case just has to settle and it will.

Bet on it.

  • Twofish

    Harris:  The Chinese government is that third party in the Apple-Proview case and
    you should just assume that the courts are taking their direction
    straight from Beijing’s highest echelons.

    No you shouldn’t.  I don’t see any particular reason why the Central Government should care about the outcome of this trial, and no evidence at all of Central Government intervention.  In 2007, Apple and Cisco got into an argument over the trademark “iPhone” in the United States and it pretty much went the same way.  It’s hard to believe but sometimes the Chinese government has more important things to worry about than this trademark case.

    Also, any statement that “the Chinese government believes” has to answer the question “which part of the Chinese government.”  The reason that courts exist in China (and for that matter the United States) is that different parts of the government want different things.

    One reason that both Apple and Proview could end up settling is that there is a good chance that the court would rule in a way that *both companies lose*.  If the court rules that Apple didn’t transfer the trademark, and then rules that Proview doesn’t control the trademarks because they have no product using them, then the trademark goes into the public domain, at which point anyone in China can label their product iPad.  So if the judge rules according the the applicable law *both companies lose*.  Apple has no trademark, and Proview doesn’t make a penny.  At this point the judge may point this out to both companies to see what they want to do about this situation. 

    Harris: We were representing a foreign plaintiff and the amount at stake was
    large enough so that any settlement might prove devastating to the
    defendant. This mad settlement all the more difficult.

    That’s where non-disclosure agreements come in.  It’s standard in these sorts of cases to have a clause in the settlement that states that no one can say what the settlement was.

    • I agree with you that Beijing doesn’t care about 99.99% of all business disputes, but this is the exception. It is the exception because it is already making China look bad as a place to do business and if the case turns out badly, it will make China look worse, rightly or wrongly.

      The reason settlement was so difficult in the case I was discussing was not because of any fear that the settlement amount would be made public — you are right, confidentiality agreements can go a long way towards solving that — but because the defendant may not have been able to recover financially if it did pay a large amount in settlement.  

  • Gilman Grundy

     . . . and if it does go that way, this would be an example of how the rule of law still has a way to go in China, even if the Apple fan boys will try to spin it otherwise.

    • MHB

      But, in this case, would the rule of law be a good thing? Particularly as the rule of law is POWERLESS regarding media reporting and political spin.

      It’s a Catch 22 for the Chinese courts – their existing poor reputation has crippled them.

      Is it more important that justice is done, or that justice is seen/believed to be done? Can both be achieved here?

      Dan raises the possibility of the following: Western companies complain about the rule of law in China, particularly regarding IP. Western company breaches Chinese company’s IP rights. Rule of law upheld by Chinese courts. Ruling in favour of Chinese company. Western company calls foul play and pulls out of China/reduces China commitment. Other Western companies follow suit. Issues raised during state visits. Upholding rule of law undermines rule of law.

  • Artur Rubenstein

    Just because Apple has USD100 billion in cash they’ll settle for an absurd claim of USD1 billion or thereabouts? That seem to be your argument. I hope you’re wrong. If they do you’ll see all kinds of monkey shit going on. I WON’T bet on it so we’ll see whose got the most brains and balls and blinks Harris Dan.

  • H3rm

    I am with you but I am absolutely sure that apple will not move any of its production outside of China. Makes no sense. Foxconn is doing this work almost entirely. Not only for the iPad, but also for all other devices, including the development of the non pro macbook (The fact that apple moved production from Taiwan to China, was probably caused by Foxconn moving to China). Also Apple will not stop selling into China, with 1,5 Billion people this market is significant for Apple now and will be even more in the future.

  • Lokokkee

    Hi Dan,
    Are you offering odds on this bet? If Proview is already a failed company, won’t it be easier for a friendly party like Foxconn to buy it over and then withdraw the case, seeing how much is at stake with Foxconn if Apple were to stop its contract manufacturing in China?

  • Twofish

    This sort of thing happens all the time with big companies.  Big companies screw up filings at which point a small company comes up, points out the problem, and then big company quietly settles.  Everything is kept quiet, and the amounts of money are usually trivial enough for the big company, that it’s a lot cheaper to just pay the money rather than fight.

    One thing that you have to do if you are a small company shaking money out of a big company is to keep everything quiet.  Big company is usually quite happy to give you some money just to go away, but if the media gets hold of this then big company has to dig in its heels.  This means not filing any lawsuits, because the moment a suit is filed, then everything becomes public record, and once it hits the newswires, you can undo things.

    Invoking the Chinese government is like invoking animal spirits.  The problem with invoking the Chinese government is that if you start with any outcome, you can come up with an argument as to how “the Chinese government willed it.”  I can’t *prove* the the Politburo didn’t personally intervene, just like I can’t *prove* that the whole thing isn’t engineered by space aliens.  What I can argue is that everything is behaving exactly as it would if there was no high level intervention by the Chinese government, so invoking high level intervention is unnecessary.  Even if the Politburo called the courts involved, the courts involves are doing exactly what they would be doing had no call been made.

    One reason that I’m skeptical of high level intervention is my experience with the Chinese government which is that people in Beijing are **extremely** busy people, and the threshold at which you need to get their attention is extremely, extremely high.  There is no way that the Proview situation is going to result in a war, and $100 billion is a not a terribly large amount of money for a national government.  This is just not that important in the grand scheme of things.  You might get provincial officials involved, and I’m sure that both sides are lobbying local officials, but I doubt that anyone in Beijing cares, and they’ll get quite angry at you if you make them care.