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.

 

A reporter called me the other day on the Apple-Proview trademark kerfuffle. She kept wanting me to give her a quote on what foreign companies should take away from this dispute and I kept parrying with her, unable to give her just one. I kept finding myself saying “it’s probably more complicated than that.”

Let me back up a bit. As many of you no doubt know, Apple is in a massive trademark fight with a Shenzhen-based company called Proview. Near as I can tell, the facts are as follows:

  • Proview-Shenzhen registered the iPad trade-name before Apple had ever manufactured an iPad.
  • Proview-Taiwan (a Taiwanese company that is not the same company as Proview-Shenzhen) entered into an agreement with Apple (or, more accurately, a company acting on Apple’s behalf) to sell its Asian iPad trademarks to Apple.
  • Apple claims that agreement with Proview-Taiwan included the PRC iPad trademark, but Proview is claiming otherwise.
  • Apple sued Proview (I think Proview-Taiwan, but I am not sure) in Hong Kong and the Hong Kong court ruled that Apple is entitled to use the iPad trademark on the Mainland.

Here is where it gets so complicated and here is how I see it:

  • Proview-Shenzhen still shows up as the owner of the iPad trademark in China.
  • It is not clear if Proview-Shenzhen ever contracted with Apple to give Apple the China iPad trademark or any sort of license to use that trademark.
  • It appears that Proview-Taiwan did enter into some sort of trademark sale or licensing agreement with Apple (again, actually the company acting on Apple’s behalf), but since Proview-Taiwan did not own the PRC trademark for iPad, there are some real issues as to the validity of such a sale or license.
  • Did Proview-Taiwan have any interest in the PRC iPad trademark such that it could transfer or sell that interest to Apple?
  • Did Proview-Shenzhen ever agree to sell or license its iPad trademark to Apple?

What I find really difficult to believe is that Apple and/or Apple’s attorneys would have done a deal to acquire rights to the iPad trademark in China without having done real due diligence on that trademark. Basic due diligence would have revealed that the PRC iPad trademark was registered to Proview-Shenzhen and at that point, Apple would have required Proview-Shenzhen (not Proview-Taiwan) sign on to the contract to assign or license the PRC mark. So the first thing to be learned from this (maybe) is to do your due diligence and make sure that when you are buying something or securing a license to something that you are in fact doing so with the company that is actually authorized to sell or license that item.

This all came to the fore when Proview-Shenzhen started asking trademark officials in various Chinese cities to start pulling iPads from store shelves because those iPads infringe on Proview-Shenzhen’s trademark.  Some cities are pulling iPads from store shelves and this is obviously not good for Apple. [Full Disclosure: I have a disproportionate percentage of my retirement savings wrapped up in Apple stock]. Some cities seem to be refusing to do so, in what appear to be political, not legal, reasons.

Now Proview-Shenzhen is saying that is going to ask China customs to block exports of Apple’s iPads from China because they infringe on Proview-Shenzhen’s trademark. The media (and even Proview-Shenzhen itself) seem to believe this will not happen because it would look so bad for China politically. This is where the real lesson lies. If you are not Apple, I can pretty much assure you that all of your iPads would be off the shelves in China by now and they would also not still be leaving China via export. The real lesson then is on how to prevent this from happening to “your” trademark and that lesson is really quite simple. If you want to avoid your product getting pulled off shelves in China and/or prevented from leaving China, make sure that the trade-names and trademarks you put on your product (or on its packaging) are actually registered (or licensed) to you in China. And just to be clear, “in China,” for purposes of China’s trademark law, does not mean in Hong Kong or in Taiwan or in Macau or in the United States or in Australia or in any other country. If you want China trademark protection, you must register the trademark in China.

For more on China trademark law, check out the following:

Here are some articles for those who want to read more about the Apple-Proview fight:

Just don’t say we didn’t warn you.

UPDATE: Stan Abrams over at China Hearsay has two great (recent) posts on this dispute. The first post, “Apple vs. Proview: The Assignment Agreement!” contains Stan’s analysis of the Trademark Assignment Agreement between Apple (actually it’s stand-in entity) and Proview. Stan does a great job of analysing the Assignment Agreement, which really is by far the key issue involved in the case. I completely agree with all that Stan says about the Agreement and I add one thing to it. If you think you can properly assign a Chinese trademark without using an experienced attorney to draft the contracts and oversee the agreements you are wrong. And if you think that after reading Stan’s post, you are flat out crazy.

The second post, “What Have We Learned About China’s IP System? Answer: nothing,” posits that the issues in this matter involve a commercial dispute, not IP. I generally agree with this. The heart of the issue is how you secure ownership or rights to someone else’s trademark.

Every few months or so, I see something that reminds me of how important it is to file your trademarks in China before anyone else does. I often tell clients that filing a trademark is about the only China legal no-brainer. Or as I said in a post from earlier this year, entitled, “China: Do Just One Thing. Trademarks,” if you do nothing else to protect your company in China, register your trademarks.

Apple Computer is learning the importance of being first to file a trademark in China. Apple just lost a lawsuit in China against Proview Technology over ownership of the iPad name. Proview Technology filed a trademark for the iPad name in China back in 2000 so my initial reaction to the lawsuit was that Apple had zero chance of prevailing. China is a first to file country, which means whoever files for a trademark first (with only a few rare exceptions) gets it. Turns out the case is not so simple in that Apple’s claim was actually based on a 2006 contract it had with Proview to buy the iPad name from Proview. So the real question in the case appears to have been one of contract interpretation, not China trademark law.

Every few months, my firm gets a call from someone seeking either to sue someone in China for having “stolen” their trademark or seeking to buy it. I put quotes around the word “stolen” because if someone beats you by filing “your” name as a trademark in China, they have not stolen anything; they have merely beaten you to a name by being the first to file it.

When someone retains us to try to buy a name from a Chinese company that has registered it as a trademark in China, the first thing we do is try to learn more about the company and what it is actually doing with the trademark. That helps us develop our initial offering price. Then we have a Chinese person (NOT a lawyer) call to see about buying the trademark. We would never call the company ourselves because we figure that a foreigner calling drives up the price 100-fold. A Chinese lawyer would have a similar effect.

We are also increasingly getting retained by American companies seeking to register their competitors’ trade names in China before their competitors catch on to the need to do so for themselves.

How can you stop a Chinese or a foreign company by beating you to “your” name in China? One simple way, register it before they do.

For more on China trademarks, check out the following: