iPad woes in China – Apple claims ‘I Paid!’

Wednesday 29th February 2012

When Steve Jobs unveiled a new tablet computer in January 2010, the Wall Street Journal touted that “the last time there was this much excitement about a tablet, it had some commandments written on it.”  It seems that Apple’s iPad lived up to the hype. In less than nine months the iPad held almost 90% market share and generated $9.5 billion in revenue.

The iPad has become an iconic phenomenon. But in a strange twist, Apple has found itself embroiled in a legal stoush with a company that claims it owned rights to the iPad mark in China almost a decade earlier.

Proview Shenzhen, is the Chinese subsidiary of Proview Group, a producer of LCD screens. In 2001 it registered a figurative iPad mark in China which was used to unsuccessfully launch a tablet computer.

Fast forward to 2009, Apple by proxy of “secret agent” companies, sought to register and acquire rights to the iPad name throughout the world. One of these secret agent companies negotiated a £35,000 sale with Proview’s Taiwan subsidiary for the rights to Proview Group’s entire portfolio of iPad trade marks registered in ten different countries. 

After the launch of the iPad, Apple was informed that the Chinese trade marks were in fact owned by Proview Shenzhen and that this company had neither attended the trade mark negotiations nor had it formally transferred its rights to Proview Taiwan. Apple countered that even though the agreement was executed only by Proview Taiwan, the transaction was entered into collectively by Proview Group.

On December 5 2011, the local Shenzhen court ruled in Proview’s favour. It agreed that Proview Shenzhen was not involved in the negotiations and had not authorised an assignment of the iPad marks on its behalf. The court further ruled that it was Apple’s responsibility to have conducted due diligence to determine correct ownership of the iPad marks in China. Its failure to do so resulted in a contract that was not legally binding.

Apple was found to have infringed Proview’s trade mark rights and that distributors should stop selling iPads in China. Local officials began removing iPads from third party retailers in Shenzhen in early February 2012.

Apple has appealed the lower Shenzhen court’s decision to the Guangdong High Court. The appeal is now pending. In the meantime, Proview has expanded its legal arsenal by:
-        commencing infringement lawsuits against iPad retailers in 40 cities;
-        seeking a customs ban on all of Apple’s iPad shipments in and out of China; and
-        suing Apple for trade mark infringement and applying for an interlocutory injunction to stop Apple from selling iPads in Shanghai.
Last week on February 24, the Shanghai court denied Proview’s injunction and agreed to suspend the trade mark infringement case in Shanghai pending the appeal before the Guangdong High Court.

There are several messages from this case.  One is that a purchaser must conduct comprehensive due diligence prior to purchasing a trade mark or other intellectual property.  A simple error could cost you millions of dollars in legal costs and lost revenue.  

Another is to remember that China is a first to file country: that means that the first party to apply for a trade mark will own it.  Even if trademarked products are being manufactured but not sold in China, it is worth applying for trade marks to prevent another party from usurpng your trade mark rights. 

A third is that in China border protection stops infringing exports as well as imports: that means that Proview could stop iPads being made in China from being exported if it were to assert its trade mark rights.

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