Apple vs. Proview: The Assignment Agreement!

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I was going to give this issue a rest for a couple days, but apparently that’s not going to happen. The challenge of commenting on this case is that new information keeps coming out. Gives me something to write about, but it’s tough on continuity.

OK, latest issue is that the 2009 trademark transfer agreement and at least some of the related evidence that Apple introduced both in the Shenzhen court case and the Hong Kong action has been published online. I’ll take a look at the agreement below and leave the rest to another post, if anything in there is worth talking about.

Big disclaimer: the docs are on the AllthingsD site (h/t Paul Denlinger (@pdenlinger) for the link). I have no way of verifying the authenticity of these documents, nor do I know if they have been edited or are otherwise incomplete. If any of this is true, my analysis might be way off, and I’ll be really annoyed (but hey, I’ve come this far, so I can’t resist.)

I’ll try not to get stuck in the tall legal grass and keep it simple, but there are some legal procedures at issue here. Let’s start with the Assignment Agreement, which is between Apple’s intermediary, IP Application Development, Ltd. (let’s call them IPADL for short). Remember that big brand owners commonly use reps like this to disguise their purchases. Apple didn’t want to reveal itself as a deep pocket for fears of getting taken advantage of; in this case, those fears were certainly warranted!

Some miscellaneous points about the Agreement:

1. It appears to be two pages long, unless I’m missing pages. This is not unprecedented, but I would never allow a client of mine to sign something like that unless it was a “friendly” arrangement, such as parent-subsidiary. Although the basics are included, there is nowhere near enough protection built into the Agreement.

2. The signatory is Taiwan Proview. I wasn’t 100% sure about this before, since they do have a Hong Kong holding company.

3. The payment is 35,000 pounds for the entire portfolio, and the marks are all set forth in an appendix (Schedule A) as one would expect. I dimly recall writing about this many weeks ago expressing shock that a deal would go through without the trademark particulars being listed in an appendix like this. So to confirm, that was in fact done (I would say properly).

4. Post-execution responsibilities. This is the main event, folks. If you look at the payment clause (Article 1, page 2), it specifies that in consideration of the 35K, Proview shall transfer the marks. In addition, for each jurisdiction, “Proview shall also execute an assignment document which IPADL can record in that jurisdiction to evidence the transfer of that Trade Mark.”

This is very important! I’ve discussed this assignment document several times before. While the Assignment Agreement we are talking about is the commercial arrangement between the two parties, the assignment document is part of the application package that needs to be filed with the Trademark Office to effectuate the transfer itself. You don’t just file the contract.

When a commercial transaction requires docs like this to complete the deal, there are two ways to do this. First, if it’s possible, you can require all parties to sign everything and present it at closing (in this case, when the Agreement was executed). However, this is not always possible or desirable, for a variety of reasons related to government procedure or payment mechanisms. This can get complicated, but there are many options, including having multiple payments to secure cooperation.

Second, you can do what IPADL and Proview did in this instance in Article 1, which is to include language requiring the IP owner to cooperate with the purchaser after the Agreement is signed. This is also a very common approach and one I have used on many occasions.

What if the seller fails to cooperate? Then the purchaser, who has already paid, has to rely on the contract to enforce their rights. In other words, you can take the other party to court for breach of contract. As we know, Apple has pursued this in Hong Kong, but their limited victory there in an interlocutory ruling does not translate into getting the trademark back in China. (Another complicated matter relating to cross-border litigation and enforcement.)

What was the proper approach in this case? Well, Option 1 is always preferable to the purchaser, assuming you can do it. We don’t know whether it was discussed or not, but this is still my #1 question about this whole dispute: why didn’t IPADL require Proview to present the assignment documentation at closing? There might be a reason for this, but I still don’t know what it is. My criticisms of Apple’s lawyers, including “Epic Fail” characterizations, are mainly about this issue.

One more quick (very technical) disclaimer. If you’re a practitioner, you might be thinking, “Stan, you’ve got it all wrong. The assignment application system doesn’t work that way in China.” Correct, sort of.

It is my understanding that within the past two years, the Trademark Office has changed the rules slightly because of a problem with fraudulent transfers. These days, even if the purchaser files all the docs, the original owner still must respond to an official notification from the Trademark Office. In other words, under current rules, Option 1 is no longer viable for trademark in China — you will always need the cooperation of the other party post-execution. However, the iPad transfer deal went down in 2009, before these new rules went into effect.

Bottom line: looking at the Agreement doesn’t fundamentally change my mind on any of this. Proview still broke its promise and Apple still didn’t mandate the best closing procedures. The only surprising bit is the length of the agreement itself. Apple’s best shot here is still the Shenzhen appellate case that will begin on February 29.

6 responses on “Apple vs. Proview: The Assignment Agreement!

  1. H.Z.

    Proview is now in bankruptcy, so even if Apple wins the contract claim in China, it will still have to stand in line with other claimants like the banks, (after all the banks have contracts that they want to enforce as well), won’t it? At least in the US that would be the case? So if Apple chooses to fight and wins, it may be able to make sure that the owners don’t profit but it still have to substantially pay off other creditors. Or it can change its trademark in China to ApplePad which probably will do just as well. Or it can settle in which case it will probably have to pay off the other creditors completely and pay the equity owners something, but it won’t have to go through the interim pain of confiscation and the risk of losing the contract case.

    I remember a case in the US NextWave v FCC. Wikipedia has a good summary of that part of history: They won auction for billions dollars worth of spectrum. They only put down a small down payment and soon declared bankruptcy. The court basically ruled that FCC was just another general creditor and can’t simply take the spectrum back even though NextWave never paid up. Years later they were able to settle with FCC and the spectrum went to some big carriers for billions more. Actual control of valuable asset is worth quite a bit!

    1. Stan Post author

      At this point, the dispute is not about money damages. The Shenzhen suit is all about getting a Chinese court to recognize Apple’s beneficial ownership rights of the trademarks. If they were to win on appeal, for example, then they could use that domestic judgment to push the transfer through at the Trademark Office, not to mention stopping all the enforcement actions.

  2. H.Z.

    My question is then that even if Apple wins the contract claim can they enforce it against the bankrupt estate? After all it is a valuable asset that the estate controls. In the US won’t the bankruptcy court enjoin the enforcement of such contract to ensure all creditors are treated equally?

    1. Stan Post author

      But this isn’t a debt collection situation or a situation involving money damages. If Apple wins in Shenzhen, the court will be recognizing its ownership rights in the marks. To put it another way, the court will be saying that Apple purchased the marks back in 2010. The marks therefore ceased to be Proview assets at that time.

  3. Mehmet

    Isn’t the contract between Apple and Proview Taiwan? Even with the same owner, I thought one company cannot sell the property of another company. I would have expected that Proview Taiwan entered into a contract it could not honour – how can this force the Shenzhen company to relinquish the trademark?

    1. Stan Post author

      To my understanding, it was a HK contract. The issue you raise is the one the Shenzhen court dealt with. The answer depends on the relationship between the companies.