Proview, Apple & Customs — reality check

February 15, 2012

Just wanted to make a quick note here this morning after seeing some of the press reports on this Customs issue overnight, many of which are quoting yours truly but making some assumptions that need a bit more nuance (some of the headlines on the tech sites are particularly over the top). The ability of Proview, the owner of the iPad trademark in China, to file with China Customs is clear. The general authority of Customs to halt imports/exports of infringing goods under customs law is also clear.

Additionally, Proview’s legal counsel confirmed yesterday to the press that it would be making such a filing, although I think counsel sort of left hanging what it thought it could actually accomplish with this procedure at the end of the day and after Apple got involved. This of course makes the threat sound as terrifying as possible!

Any sort of move in this area would be bad news for Apple, but how would this actually go down? That’s not so clear, as I stated in an updated post on this issue yesterday.

Let me break this down. Lets say you are the owner of a trademark in China and you know that an infringer is shipping in product. You can go to Customs and have those goods seized and held, pending an infringement suit.

So far, so good. In Apple’s case, I have no idea if there is any product being imported or not. If so, this would be a very serious problem.

Second scenario. You own a China trademark and you know that goods are being exported with that trademark from China to another jurisdiction. This is where it gets tricky. (Note by the way that if this were a patent or copyright issue, the situation would be much worse.)

Customs regulations give you the ability to petition Customs about a suspected infringement. However, and I would guess something like this would happen if Proview made a move here, Apple would have the chance to respond.

What would be Apple’s argument? That although they do not own the trademark in China, they do own the mark in other jurisdictions and that they therefore have been legally authorized to manufacture those products (under that mark) specifically for export to that other jurisdiction.

Sounds reasonable, and certainly many companies source products from China even though they do not own the China IP (as long as they own the mark in the destination jurisdiction).

OK. Where does that leave Apple? Some of this depends on their supply chain and logistics, which I noted yesterday. I’m not an expert on Apple’s international business, so I’ll leave that to others. It’s seems clear, though, that Proview could make a great deal of trouble here, more for imports than exports, but to some degree on both fronts.

Could Proview choke off all exports of the iPad from China, as I’ve seen discussion of in the press? I think more likely is that Proview could try to disrupt exports, but I think Apple ultimately wins this argument. The question is what sort of trouble could Proview throw Apple’s way in the short term? Hard to say.

If I’m Apple, I would be proactive on this Customs issue based on what Proview said yesterday. I would go to the authorities with all my trademark documentation for other jurisdictions and try to forestall any action by Proview on the export side.

Final point. This is a great deal of speculation on what might, or could, happen. I still don’t see it as likely. Both sides still have huge incentives to settle. Either way, breathless pronouncements of the end of the worldwide iPad business should be taken with a grain of salt.

29 thoughts on “Proview, Apple & Customs — reality check

  1. S. K. Cheung

    Just read in the news that proview has in fact asked customs for an export ban, although the authorities have yet to respond to the request.

    1. Stan Post author

      Yeah, the scuttlebutt is that their strategy is to go after the iPad 3. Honestly, I’m a bit confused at this point, but I still don’t think that they could succeed in ultimately shutting down manufacture/export as their threats indicate. Doesn’t make sense. Mischief making, on the other hand, seems to be going forward full steam ahead. Just threatening this stuff is making heads explode all over.

      1. S.K. Cheung

        At the end of the day, and as you’ve suggested earlier, I think Proview’s end-game is to wrest over as big a settlement as possible. So they’re pushing all the buttons now to try to make settlement as appealing as possible, in comparison to the growing mountain of litigation.

        From the end-users’ standpoint, and especially for the Apple geeks, you could call it an iTurd and they would still want one…preferably with the retinal HD screen and the A6 quad-core processor.

    2. Robert L.

      New just came out – Chinese Customs will not get involved with import or export issues relating to the disputed iPad trademark.

      This is good for Apple, since it puts the issue back in the courts, with less risk of disrupting their supply chain or sales. I guess this means Apple iPads will be able to enter/leave China easily? Not sure what the local governments can/will do about stopping sales (especially Shenzhen’s government, which seems to be pro-Proview).

      Also, the HK court case (see link below by “numble”) sheds new light and shows Apple’s position to be much stronger than was portrayed here earlier by Stan.

      Stan, I think you realize you jumped the gun with your previous posts decrying Apple attorneys for “dropping the ball.” now we see they didn’t so badly and had the contract tightly defined – though I agree they failed in an important area by not doing the due-diligence to check who actually owned the PRC rights. I suppose in their view, Proview Technologies (HK) owned Proview (Shenzhen), and so the HK parent’s sale meant its subordinate firm also consented. While such an assumption is not wrong, it’s an example of not “dotting the i’s and crossing the t’s.”

      And with knowledge that Yang was the principle owner of all three Proview firms, this starts to appear disingenuous on Proview’s part. It appears they were either sloppy (and trying to take advantage of it now), or they were being deceitful by claiming “worldwide rights” in one set of negotiations, but later reneging on that clause.

      My guess of the “true, behind the scenes story” is this: Yang truly intended to and believed he (Proview International) sold all rights he had to the trademark, to a small British firm for what he considered a fair transaction. He was going to transfer the PRC trademark to IPAD (UK), and upon trying to do so found they were an agent for Apple. Yang felt cheated by IPAD’s non-disclosure of their Apple ties (though what IPAD and Apple did in terms of contract law was entirely legal in China), and he then had seller’s remorse. He probably tried to contact IPAD about details, who probably confirmed their ties with Apple. And Yang found out (maybe after consulting lawyers about his situation) that he could claim to still hold the PRC trademark (since he hadn’t yet transferred them as the contract stipulated he must do). His attorneys likely informed him that Apple and the original contract would dispute his version. So Yang, knowing Apple won’t pay him more (he probably had his attorneys contact them), decided to hurt Apple by mounting a media and legal/government-backed campaign (whatever support he could get) to try to make Apple give him more. What’s interesting is the US $1 billion in damages he’s seeking for trademark infringement. That seems outrageous considering the only real damage he’s suffered is embarrassment from knowing he could have gotten more than £35,000.

      The Shenzhen court’s ruling seems valid and correct, that Proview (Shenzhen) owns the PRC trademark, but Apple’s point (I believe) is not whether they/Yang own it but that the contract required them to transfer the trademark to IPAD. Apple taking a breach of contract position will probably not be sufficient, but together with the clause for Hong Kong law to apply, this becomes an issue of whether PRC courts will remedy a HK breach of contract case. Since the only material asset Proview (all) seem to have is this one trademark, and given its creditors would be automatically included as parties to the contract, the only remedy possible for Apple (in a HK breach of contract case) is for them to be awarded Proview’s asset(s) as damages. It could be proven (and probably Apple’s reason for allowing Proview to continue in their destructive actions) that damages to Apple caused by Proview’s actions are far beyond what Proview (or its creditors) can/will pay – thus the PRC trademark should be the damage reward.

      At the end of the day, the sole issue ultimately is how PRC courts will rule on HK law/contracts and their applicability within China. It seems difficult for PRC courts to rule against Apple, since that would mean they’re also reducing HK’s shine as a major business destination/gateway for foreign companies (i.e., showing that Hong Kong is NOT a stable/reliable business location because it’s laws are NOT supported / enforced by PRC). Don’t belief China would do that. Either way, Apple “wins”.

      However I agree the legal issues may not be settled soon. A court-only battle benefits Apple since their distribution/sales probably won’t be affected (see news today), but this hurts Proview because their creditors won’t wait years (signaling them to settle earlier, and for much less than the $1 billion they’re dreaming of). The irony is, if Proview had taken a reasonable amount from Apple ($1 million), and invested that in Apple/Foxconn stocks, they will be much better off. Maybe Apple’s strategy is sound after all — they know more of the details than any of us. We should assume they are fully competent in this matter, in the absence of contrary evidence.

      1. Stan Post author

        The most recent information out there does make Apple look better, and we’ve known from the beginning that Proview is not exactly innocent when it comes to the original transfer. Two things are still out there, though. First, IF Apple did their homework when the agreement was signed (still not sure about that) and therefore knew about Proview’s corporate structure, they should have nailed down the signatory authorization upon execution. That was one issue with which the Shenzhen court found a problem. Second, and this is what I started with quite a while ago, why didn’t they require a signed assignment application upon closing? Again, this simple thing would have avoided this entire mess.

        I’d still like to know more about the underlying agreement, but that information is not public.

        I’m still not sure how the HK suit factors into this or what Apple can do with that judgment when/if it is forthcoming. Do not assume that they can simply waltz into the trademark office with something like that and force a transfer. It doesn’t work that way. Moreover, taking that judgment into a PRC court and attempting to attach the marks in an enforcement action — again, I’m not a litigator, but there are a lot of “if”s there.

        The good news for Apple is that Customs doesn’t sound like it’s going to jump into this dispute anytime soon, although there are different accounts flying around out there about this issue as well.

    1. Stan Post author

      Not sure what else happened with that case. The link is to an interlocutory opinion. Regardless, I’ve sort of been ignoring the HK action since it is of questionable relevance to the PRC disposition of the marks. It seems fairly clear that Proview Taiwan breached the agreement, and therefore may owe certain damages to Apple/IP, but under China law, as the Shenzhen court made clear, the transfer of the PRC marks was not made with sufficient authority. That’s the problem, and I don’t think a HK judgment is going to change that reality.

  2. numble

    The HK opinion indicates that it may find that Proview Shenzhen holds the marks in trust for Apple/IP due to breach of contract and conspiracy claims. It also indicates that the written agreement included all 3 Proview parties, so Proview Shenzhen may be bound by the agreement. Finally if the contract indicated that Hong Kong law applied, would the conclusion of the ongoing HK case take precedence?

  3. numble

    Finally, the HK opinion indicated a willingness to pierce the veil behind all the Proview companies (and Yoke Technologies) and trace it all back to Yang, the owner of all the companies. If in fact Proview Taiwan (Yang) is liable for the breach, resulting in Apple paying Proview Shenzhen to purchase/settle the China marks question (paying Yang), it may require Proview Taiwan (Yang) to indemnify Apple for its payments to Proview Shenzhen (Yang again).

    1. Stan Post author

      I have no quarrels with any of that. Any Common Law court would definitely pierce the veil here. The problem lies in enforcing that here in China, meaning forcing a trademark transfer. It was my understanding that the Shenzhen court found that the transfer did not include the PRC marks because there was insufficient authority/authorization to do so with respect to Proview Shenzhen. In other words, even if they were a party, there may have been an issue with the signatory. Since I haven’t seen the agreement, and only part of the Shenzhen decision, I’m speculating.

      So even if we have a HK judgment, we also have a judgment from a PRC court that deals with some of the same issues. That’s messy, and enforcing foreign judgments in China is usually impossible. In this case, we’re dealing with a HK court, and I think there might be a fairly recent mechanism for HK judgments to be recognized in the PRC, but I don’t know for sure — I’m not a litigator. And if there is, it might be difficult/time consuming.

      Either way, I don’t see how the HK case could be used to wrest these marks away from Proview in the short term, and I suspect that it might not be possible in the long term either. At that point, the damage may have already been done. I don’t see Apple relying on this to bail them out of this mess.

  4. Joyce Lau

    Setting aside the legal questions — how do you think this will play out in a broader sense?
    Most consumers — Chinese or otherwise — just care about getting their hands on the products they want. Most people would be like “Proview who?”
    Given the frenzy for Apple products in China — people lining up around the block, people getting into fights — what do you think the public reaction will be?
    Will they back the rights of the Chinese company? Or do they mostly just want hassle-free access to their iPhones and iPads?
    I wonder if this will make even more mainland tourists swarm the new Hong Kong Apple store.

    1. Stan Post author

      I haven’t trolled the online stuff much, so I don’t know what the reaction has been so far from the cultists. There are probably some nationalists out there who are enjoying all this, and others who are tearing their hair out and complaining about China’s legal system. One thing that is difficult about this is the information that keeps leaking out. I have a very different opinion than I did a few weeks ago, particularly about the original contract signed between Proview and Apple’s agent.

      Either way, I don’t think consumers here need to worry about access to iPads in the future. The question is only what name will be on them. Since they will continue to have that Apple logo, everything else probably doesn’t matter. In the short term, though, there could be a shortage of already-branded products that may be taken out of circulation pending resolution of all this. If that happens, then I guess the HK/JPN gray market comes into play. Wouldn’t be the first time.

  5. Chris Devonshire-Ellis

    Sometimes I wish we could get back to a more gentlemanly way of conducting business. Although Proview have a case, the amount of money they are attaching to that mark is not in any way related in any proportion to any work they have conducted in adding to its value themselves. The cost of filing a trademark is just a few hundred dollars. They’re asking over USD1billion for it.

    It would be nice, just for once, to see a company like that behave with rather more decorum than merely attempt to piggyback on someone else’s efforts. I’m dreaming maybe, but for sure Proview are not a company I would wish to have anything to do with whatsoever.

    1. Stan Post author

      You wont’ have to deal with them. They’re bankrupt. Not to mention desperate. The online rumor mill says that their creditors are pushing them on this as well. It’s a juicy story.

    2. whatever

      We all see clearly who is the greedy one here but yet we still have to say the appology to that greedy and pay them a lot of money. Just all because of what seem to be the protector of justice called the law.Is that really the law system we want to protect our innocence people? Is that really the social we want to live in?
      I wish Apple will not pay anything for that batard. It’s not the time when the good must be afraid of the bad. Apple shouldn’t surrender to that blackmail, just change product’s name to something else and leave the Proview in it’s own disaster.

      1. firefighter

        Why Apple not just play China game with China’s law of fake and deceive. It’s is simple when iPad is famous many other product such as aPad, bPad, cPad… appear. Well actualy you are selling iPad2 now and soon move to iPad3 not iPad anymore. So who care about iPad ?, in China game of fake and deceive iPad2 # iPad. So it’s better for Apple to register the iPad2, and iPad3 ,4 ,5 trade mark in China ASAP.

    3. Daniel

      Proview is pictured like the bad guys here but the truth is that Apple is not new to the game, they are the definition of Bad Boys when it comes to pressuring other companies to cave down, use their lawyers in any way they can and brutally sue for supposedly patent infringement and block export/import of competitors products. And that’s a fact.

      Apple is the last company I’d feel sorry for. “iPad” is not just a name and indeed has a great value, it’s part of Apple’s marketing success, iPod, iPhone, iPad etc. SHOULD be worth a fortune and I would do the same were I was in Proview’s shoes. Business is business. Oh and Chris, the gentleman way of doing things used to be a duel to the death :) Or, “lets take it ourside, shall we?”

      1. Daniel

        @Daniel (posted Thursday, February 16, 2012 • 4:23 pm):

        You wrote “the truth is that Apple [...] are the definition of Bad Boys when it comes to pressuring other companies to cave down, use their lawyers in any way they can and brutally sue for supposedly patent infringement and block export/import of competitors products. And that’s a fact.”

        What you said is not “the truth” or “fact” (your words). Both are examples of your opinion, or your belief – and so falls under the concept of conjecture. If you’re uncertain of the distinction, I implore you to reference a dictionary or perhaps contact your GED instructor.

        You then said, referring to Proview’s questionable business practices, “I would do the same were I was in Proview’s shoes. Business is business.”

        Well, it appears that says it all. If you publicly state that you would renege on business agreements (contracts you’ve signed, which are “your word” of your intent) — just as Proview appears to have done — then your word and character appear untrustworthy. I sincerely hope you recant your words here!

        And you ended with a chide to Chris Devonshire-Ellis (who posted here on Wednesday, February 15, 2012 • 1:42 pm) by saying “Oh and Chris, the gentleman way of doing things used to be a duel to the death Or, ‘lets take it ourside, shall we?’ “.

        I realize you might not have been fortunate enough to have had access to a decent education or to venerable reference literature to guide your mental development, and possibly this shaped your discourse; however, relying on the “Pokémon” approach (“duel to the death”) makes you appear childish. Perhaps such an approach would suffice in the red-neck back-country of 18th-century West Virginia – but this hardly can be an espousable position today. Kindly refrain from portraying such a cartoonish visage when you step out into the public.

        And lastly, please strive to be astute & erudite in your online presence, even if it’s against your nature. Not doing so casts my good name in a bad light!!

  6. Mike

    I think Apple is handling all of this excellently. In my opinion they still have control of everything. Apple knows China is a key market for them,and they also know demand in China for their products is at ridiculous levels as seen at Beijing apple stores recently with the public disturbances. If Proview is really suffering financially, then wait them out. Even if they cut off sales within China (this is highly doubtful) two things I think are likely to happen in the future if Proview keeps putting pressure to have iPads not be sold in China.

    1. Government listens and iPads are not sold in China. Chinese people or companies buy iPads outside of China and then bring them back into China. Thus, Apple sales go up in other countries and people go back to doing what happened before with many Apple products before they were released in China. Proview waits for a settlement that likely will never come and the public blacklist Proview if they haven’t already. Apple products become even more of a luxury item as people try and get products that cannot be released in China.

    2. Officials in many areas of China ignore Proviews requests either due to public pressure to continue selling the products, or government officials requests to continue selling Apple products (we all know many officials use Apple products now). Either way Proview is ignored and it is business as usual.

    In either case it becomes a waiting game that Proview loses in my opinion. I think they made the wrong moves here. They took this whole thing public which I think is only going to end up bad for them. Apple wins because they get the publicity and their fans see this as someone trying to keep them from having Apple products, thus increasing the frenzy for Apple products. If Apple is smart they wait Proview out, buy the company at a hell of a low price and then move forward.

    I should say though that this is all just speculation, and if someone was smart maybe they should buy up Proview and the IP rights, maybe a company that would make Apple want to settle this all quickly? How possible would that be Stan? Any reason to think Proview couldn’t sell the IP rights to another company right now?

    1. Stan Post author

      Two issues on a Proview sale of the China marks. First, if they are really as indebted as reports indicate, this is their last major asset. No one is going to buy those marks for tens of millions of dollars, or whatever the amount is they need. Second, there is a judicial order against selling the marks, issued out of HK. Proview could still go ahead with this in PRC, but they’d pay for it later.

      You make a good point about the public, and I’d say the gov’t as well. No one, excepted some misguided nationalists online, are on Proview’s side. Consumers here love Apple, and via Foxconn et al, they employ a huge number of workers here. No one wants to bite the hand that feeds it.

    2. Junko Tien

      Even if Proview owned the iPad trademark in China, Apple could simply call it ApplePad in China, and continue calling it iPad elsewhere until the lawsuit appeal is settled, or even forever. End of story.

      1. Stan Post author

        For the iPad 3 and so on, yes, that’s right. For existing product, different story of course. One other wrinkle. Once they settle on a new name, it would take many months for that new mark to be registered in China. During that time, ANYONE can use it, not just Apple. That means big-time shanzhai tablets using Apple’s own brand perhaps, at least for a while.

        1. firefighter

          Apple don’t have to change the name of iPad 2 because it’s iPad 2 not IPAD or iPad. That’s all due to China law. You can find many China product is named similar as other world famous product. And yet it’s similar but not the same so it can avoid China Law.

  7. garth

    Greed and a twisted inate mindset. This is a classic example of what, unfairly, gives the world a unilateral view of all Chinese. Coupled with obvious desperation, and a corrupt, partisan legal system in China we are going to see just how far this will go. The short term reactions of mainland authorities and final resolution may have far reaching effects on the future investment policies of foreign companies in China. Im sure they are looking at this closely. Mr. Yang is counting on the nationalist support but he forgets, when it comes to principals with government, like himself, money will trump it everytime. Apology?? Typical mentality, he is such a peasant.

    1. Stan Post author

      Mr. Yang aside, I fail to see how this in any reveals the legal system as corrupt and/or partisan? Are you criticizing the Shenzhen decision? The actions of the AICs? As to the former, I have seen the entire decision, but I haven’t seen anything out of the ordinary. That case involved the original contract and whether Proview Shenzhen formally authorized its affiliate to transfer the marks on its behalf. This is a very common contract law issue here.

      As to the AICs, this is quite clear. The contract issue is none of their business. Proview is the trademark owner, and Apple is using that mark without authorization. Any action they take is justified and within their discretion. Isn’t this exactly what Westerners want out of the Chinese legal system? (Note, by the way, that the majority of the AICs so far have not taken action.)

  8. Chris Devonshire-Ellis

    I didn’t realize Proview are also insolvent. That must mean someone is funding the case to pay off the lawyers.
    It’d be interesting to know of any Apple contingency plan though for manufacturing – whether they have any options to relocate production to India for example in the light of Proview requesting exports are seized. It’d have major repercussions if Apple downsized in China because of this and put their assembly elsewhere.

    1. Stan Post author

      Unsubstantiated rumors say that Proview’s creditors are floating the legal costs. No idea if that’s true.

      Seems like Customs is not going to charge forward with anything, so I don’t think manufacturing is a big danger. Right now, I’d be mostly worried about local sales. Then again, this story keeps changing every day! (I’m exhausted)