A Closer Look at the iPad Trademark Case

December 8, 2011

The repercussions of this case out of Shenzhen could be significant, so it’s worth spending a little time on the details. Additionally, some of the reporting has played fast and loose with the facts. By the way, this is my third post on this case (see here and also here).

The basic details: Proview, a Hong Kong company and, through a subsidiary, the owner of the “IPAD” trademark in mainland China, versus Apple, which sells the iPad device. (For background, see Kathrin Hille’s reporting on this in the Financial Times.)

Simple facts. Proview has the trademark and therefore controls use of the “IPAD” name, or similar, in China. Case closed?

Actually, yes. But several things happened before the court ruling that deserve some attention. Let’s first clear up a couple of things.

First, this is a trademark case. There are no other intellectual property rights at issue here. You may have read several articles out there that refer to a potential copyright infringement action against Apple by Proview. This is incorrect and probably stems from this (badly translated) quote in Xinhua:

Li Su, president of the Beijing-based Hejun Vanguard Group, a leading management consultancy firm, has been entrusted by the banks to assume the post of “debt restructuring consultant” for Proview Shenzhen.

After the court’s decision was announced, Li told reporters that the company will claim 10 billion yuan (1.6 billion U.S. dollars) in compensation from Apple for copyright infringement.

“Apple’s actions are strange. They had not obtained the rights to use the ‘iPad’ trademark when they began to sell the iPad on the Chinese mainland in September last year,” said Huang Yiding of the Hejun Vanguard Group’s public relations department.

“Their copy infringement is very clear. The laws are still there, and they sell their products in defiance of laws. The more products they sell, the more they need to compensate,” he said. [my emphasis]

There is no such term as “copy infringement” in English, and I suspect this poor translation led this Xinhua reporter to use the term “copyright infringement” by mistake. Unfortunately, a lot of other reporters out there using Xinhua as a source just did the usual cut and paste, not stopping to wonder what sort of copyright infringement was going on.

Second, what sort of trademark case was this? Some history is useful:

[Proview] registered trademarks for the IPAD name in the EU, China, Mexico, South Korea, Singapore, Indonesia, Thailand and Vietnam between 2000 and 2004, trademark databases show.

[ . . . ]

According to Mr Yang, Proview Electronics (Taiwan) agreed in 2006 to sell the “global trademark” for the IPAD name to a US-registered company called IP Application Development (IPAD) for £35,000 ($55,104). Proview did not at the time suspect the company had any link with Apple.

However, Mr Yang claims that the trademarks for the Chinese market were not included in that agreement. These were filed in 2000 by Proview Technology (Shenzhen), another affiliate of Proview International, the group’s Hong Kong-listed holding company, rather than by the Taiwan unit.

FYI, I think this “IPAD” company was a front for Apple. Smells like it, huh?

What were Apple’s options? Either they could go after the trademark itself, or they could sue Proview (Taiwan) under a contract theory based on the 2006 assignment agreement, claiming that the agreement did include mainland China. This may in fact be occurring parallel to the Shenzhen action, I have no idea.

With respect to the China mark, though, there are two problems with the contract action. First, apparently Proview (Shenzhen) was the owner of the PRC mark, not the signatory of the assignment agreement, Proview (Taiwan).

Second, even if a court somewhere ruled that Proview had breached the 2006 agreement, that wouldn’t mean that Apple would automatically be assigned the PRC mark. They might get monetary damages (not so useful since Proview is nearly bankrupt), but a foreign court ruling about ownership of a PRC trademark is completely worthless – the China Trademark Office would ignore it.

So, a contract action looks tough. What about a trademark case? Since the mark has already been registered, Apple only had one administrative route: a trademark cancellation. They could file with the Trademark Office and argue, for example, that Proview filed the mark in bad faith.

But that’s a loser. Proview filed the mark way before the iPad was on the market. Unless there was some evidence that they had advance knowledge of the “iPad” name, a cancellation wouldn’t work.

What are we left with here? The case being reported on this week was an action initiated by Apple against Proview in Shenzhen. Since Proview (Shenzhen) is obviously located in that city, we can assume that Proview (Shenzhen) was the target.

But what was the cause of action? Reuters used the following language:

A court in southern China has rejected a lawsuit by Apple Inc, accusing a Chinese technology company of infringing its iPad trademark[.]

Trademark infringement? How is that possible? Apple is not the trademark owner, Proview is. That’s nonsensical.

Here is the Financial Times‘ description:

Apple then sued Proview Technology (Shenzhen), asking the court to declare the US company the rightful owner of the IPAD trademarks in China. The Shenzhen Intermediate People’s Court rejected that request earlier this week in a ruling that Apple can appeal.

Apple wanted the court to declare them the rightful owner of the mark? Based on what? No other argument out there I can see except one based on the 2006 assignment agreement. This is speculation, but I assume that the Shenzhen court was essentially ruling that either: Proview (Shenzhen) can not be held responsible for the promises made by Proview (Taiwan) in the assignment agreement; or the agreement did not include the PRC mark.

I sure hope that the court did not rule on the latter, that the 2006 “global” agreement did not include China. If so, it would mean that some lawyer over at Apple committed malpractice.

It’s very difficult to believe that this happened, but what would have been the error? Well, it’s standard practice with an IP assignment or license agreement to specify (with great detail) which IP rights are at issue. This sometimes includes a list of the IPRs within the body of the agreement itself, but always includes an attached appendix with a comprehensive list of all IPRs plus copies of all registration certificates.

If I were purchasing PRC trademarks from someone, I would make sure of three things. First, I would do some basic due diligence and confirm that the signatory of the agreement was the actual (record) owner of the marks. None of this Proview (Shenzhen) vs. Proview (Taiwan) crap. That’s a rookie error, folks!

Second, I would ensure that all IPRs were listed, with registration certificates attached, to the agreement itself.

Third, and perhaps most important, I would require that the trademark owner sign a Power of Attorney for trademark and an assignment application, and furnish these at closing. Given these documents, I (or my agent) could go over to the Trademark Office and make the formal assignment application, with no further help from the IP owner necessary.

Apple should never have signed off on that 2006 agreement without the necessary transfer documents. I’m sure there’s a story behind that, and I’d love to hear it.

What’s next for this dispute? Looks like Apple is going to have to pay through the nose for this mark. No other options that I can see, and Proview is already ramping up infringement suits against Apple, cases they will win.