Apple-Proview iPad Trademark Case: Extra Innings

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Yes, this trademark dispute is still alive and shows little sign of being resolved without a big payout from Apple. I think this is post #5 for me on this case, which is impressive in its own right for what should be a relatively simple commercial dispute. It is, however, an excellent primer on how even multinationals with valuable IP can fuck up their global portfolios with sloppy lawyering.

You can check out my earlier posts (go here or search for “Proview” on China Hearsay) on this case for background and history of the dispute, but the basics are that Apple, through an intermediary, attempted to purchase a portfolio of “IPAD” marks from a company called Proview (Taiwan). They signed an agreement to that effect that was not only poorly drafted, but the execution was half-assed as well. It turns out that the China mark was not included in the deal (Apple says it was, Proview says no) as it is held not by Proview (Taiwan) but by Proview (Shenzhen).

The two companies have already battled in out in a Shenzhen court. Apple lost that case, which was an attempt to assert ownership of the mark on contract grounds. Note that this was not an infringement case – Apple is not the registered owner, Proview is.

And it looks like Apple has already filed an appeal:

Shenzhen-based display device manufacturer Proview Technology, a subsidiary of Proview International Holdings, announced recently that Apple and its associated company IP Application Development had filed an appeal with the Higher People’s Court of Guangdong Province in their failed iPad trademark lawsuit case. Apple is seeking control and ownership of the iPad trademark in Mainland China, as well as damages and legal costs totaling RMB 4 mln.

Apple laid forth a number of views in its appeal, including that the case should be adjudged according to the laws of the Hong Kong Special Administrative Region; that Proview (Shenzhen) had given written authorization for Proview International Holdings’ Taiwan subsidiary, Proview Electronic, to sign a trademark transfer agreement, under the principle of unnamed agency, meaning that all iPad-related trademarks should be considered by the court to have already been transferred by Proview (Shenzhen) to Apple. Apple will also name Proview Electronic as a defendant in the case. (Marbridge)

I wouldn’t hold out too much hope for Apple in this case. Aside from the issues I’ve discussed in previous posts, this matter of Hong Kong vs. China law seems to be a new one. Perhaps the underlying transfer agreement between Proview (Taiwan) and Apple specified Hong Kong law. For a commercial agreement, that’s certainly no problem. I’m not sure how much that helps Apple, though.

The other issue here is whether Proview (Shenzhen) had given the Taiwan company authorization to sign a trademark assignment agreement on its behalf. This depends, in part, on the language of the assignment agreement, which I haven’t seen.

However, let’s assume that the High Court agrees with Apple, applies Hong Kong law and says that the Shenzhen company gave some sort of authorization to the Taiwan company. Even with that, Apple still has to prove that the assignment agreement in question did, in fact, include the China marks. I assume they were able to do so in the Intermediate Court proceeding, but again, the devil is in the details of that assignment agreement.

Moreover, as I’ve said before, what happens if Apple wins the case? They would not automatically get the trademark. A trademark assignment is a formal process governed by the rules of the Trademark Office and under the ultimate authority of the State Administration of Industry and Commerce. All the court can do is rule on beneficial ownership or, more likely, simply assess monetary damages to Apple. In other words, a verdict might help pave the way to a settlement, but it would not necessarily solve Apple’s problems in the short term. Unless and until Proview (Shenzhen) executes a formal assignment application that is then submitted to the Trademark Office here in Beijing, that mark isn’t going anywhere.

What is Apple’s chief short-term problem? Well, it is using someone else’s trademark illegally — using the hell out of it, in fact. And what happens when you do that? Yes, you guessed it. Infringement lawsuits:

A Shanghai court is to hear a case where Apple is accused of infringement by a Shenzhen-based company for using the iPad trademark on the Chinese mainland.

On February 22, the Pudong New Area People’s Court will hear a suit filed by Proview Technology (Shenzhen)[.]

Let’s be honest about this Shanghai lawsuit. Apple doesn’t stand a chance of winning based on any of the traditional defenses to an infringement charge. And because Proview has already won the Shenzhen case with respect to the assignment agreement, Apple doesn’t even have a favorable ruling on that issue on its side, pending the appeal.

I think it’s pretty clear here that a settlement needs to happen, sooner rather than later. Unfortunately, that price is going to be quite high at this point.

Finally, and just to be clear, this is not another instance of China’s IP enforcement regime failing to protect a foreign company’s assets. Apple made a lot of mistakes here and could have very easily avoided all of this. As I said last December:

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.

Stay tuned. (By the way, are you starting to get tired of all the Apple-related posts? I certainly am, but news is news.)

2 responses on “Apple-Proview iPad Trademark Case: Extra Innings

  1. Ed

    Having drafted and negotiated contracts for a large Chinese multinational. I am not surprised in the least that the level of detail was not sufficient. Even between 2 Chinese parties, their contracts are often incomplete at best. For a Western company, I would recommend the utmost caution in contracting with a Chinese counterparty, specificying ALL assumptions and dependencies and demanding complete documentation. The Chinese counterparty may view the contract as a starting point, not a final, definitive meeting of the minds. It is essential that Western companies probe each issue to completion.

    On the issue of the separation between the Shenzhen and Taiwan companies, the Chinese mentality is that these companies are one family. They really do not understand the metes and bounds of legal entities the way we do in the West. They do not understand privity very well. The attitude is very much one of “just make it work”. In other words, do not assume that they have a Western understanding of corporate governance. Perhaps it is that scrappy attitude that has made them successful. Whatever the case, when contracting with a company that is controlled, functionally, by the mainland entity, always put the mainland entity on the contract even if you make the Taiwan or Hong Kong a jointly liable party. In this case, even if you have evidence of the assignment or power of attorney, I would still want the mainland company on the hook. Be sure to specify that the non-mainland company is the mainland company’s agent for service of any notices, remembering that it’s harder to provide effective delivery in China.

    Would a warranty/precondition that a legal authorization to represent the Shenzhen entity has actually been obtained in fact be wise? No. Make your Chinese counterparty produce an actual, physical document. In the West, you would have a legal remedy for breach of the warranty. But do you really think that a suit in China against a Chinese company will be successful?

    I’m not saying that it’s impossible to do business with our friends to the East. Rather, it’s important to meet them on their playing field, understanding their assumptions and landscape. Always be mindful that they still have a system of social regulation by shame. They will have an incentive to do high-quality business with a prestigious Western company. You just need to push them a little.

    1. Stan Post author

      I agree with you generally as far as most commercial deals are concerned. And if this were a license or distribution agreement, then yes. However, Apple didn’t really have to worry about all this stuff if it performed DD correctly and demanded the correct documentation at closing. If all the paperwork for the trademark assignments had been executed and delivered at closing, then at least for the China marks, all Apple would have had to do at that point was deposit them with the Trademark Office and wait for the assignment to go through.

      All of this could have been avoided by very simple lawyering!