Apple Loses iPad Trademark Case in China

December 13, 2011 Posted by China Briefing Reading Time: 4 minutes

By Vivian Ni

Dec. 13 – Apple has recently hit a roadblock in its key growth market China, as a local Chinese court rejected the company’s ownership claim of its iPad trademark. The giant California-based technology company may therefore be forced to either change the name of its tablet computer products in China, or pay a large sum as compensation to its Chinese rival.

Apple’s loss in the legal case – where the U.S. company sued the Hong Kong-listed Proview Technology (Shenzhen) for trademark infringement – has been the latest development in a series of back-and-forth lawsuits between the two parties since 2006.

According to a report by the Financial Times, the Taiwanese-owned flat screen contract manufacturer Proview registered the trademark named IPAD in the European Union, China, Mexico, South Korea, Singapore, Indonesia, Thailand and Vietnam between 2000 and 2004, long before Apple launched its popular tablet computer.

In 2006, Proview Electronics (Taiwan) sold off its “global trademark” for the IPAD name for US$55,104 to a U.S. registered company called IP Application Development, which later turned out to be an agent secretly working for Apple.

However, after the 2006 deal was struck, the two signing parties disagreed on whether or not the package included China. Apple failed to obtain the ownership of the iPad trademark before it started selling the iPad on the Chinese market early last year, as the Chinese trademark office rejected its application based on the fact that the trademark in China is owned by Proview Technology (Shenzhen) – a separate Proview International affiliate with a Hong Kong holding, rather than the Taiwan one.

Apple then filed a lawsuit against Proview Technology (Shenzhen) at the Shenzhen Intermediate People’s Court, but its request on regaining the rightful ownership of the iPad trademark was again rejected, with the court ruling that it was Apple’s responsibility to do its due diligence.

Unfortunately, the legal disputes do not seem to simply stop here. Proview says it may also take a legal action in return, seeking a compensation of US$1.5 billion from Apple for trademark right infringement.

The astronomical sum of compensation is a significant climb in the monetary amount that Proview Technology (Shenzhen) originally demanded. Apple turned down their original offer of US$10 million for the trademark transfer and chose to resort to legal means as a result.

In the mean time, Proview Technology (Shenzhen) has also sued Apple resellers in the southern Chinese cities of Shenzhen and Huizhou, a move that may potentially block iPad sales in the two cities. In addition, the Chinese company says it will consider going after Apple resellers elsewhere in China, if its initial legal move succeeds in getting iPad sales stopped.

The situation may seem ironic for Apple if Proview gets its way. While the U.S. company itself is normally the one that is busy fighting against counterfeits – which range from Apple products to Apple stores – it now has to worry about an interruption in its robust iPad sales in China due to accusations of intellectual property right infringement.

It still remains a puzzle as to why Apple’s lawyers somehow failed to notice that the trademark rights in China were not actually held by Proview’s Taiwan unit, but according to Xiao Caiyuan, the lawyer representing Proview, the Apple side “tried to claim in court this was because they could not read Chinese.”

Xiao also acknowledged there had been negligence on both sides, since Proview in Taiwan should have realized that it did not have the right to sell the trademark.

In a recent commentary on his China Hearsay blog, Beijing-based IP/IT lawyer Stan Abrams warned the Apple-Proview case may reveal a downside, as the names of Apple’s “i”-series products – although appearing to be a great branding idea – are relatively easy to predict by competitors. With Proview’s success, other companies may follow suit and will have good chances of hitting paydirt.

Abrams also predicted that Apple may just end up paying the compensation for the ownership of the trademark in China, as there seem to be “no other options.”

The right to use the iPad name in China is crucial for Apple as the company is in a successful process of developing the Chinese market. Apple’s four official stores and over 1,000 resellers in the country reported soaring sales in the past three quarters, while executives say they have just scratched the surface in China in terms of sales.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. To contact the firm, please email china@dezshira.com, visit www.dezshira.com or download their brochure here.

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