China IPR

The Proview and Apple Controversy – An Increasingly Tangled Web

The ongoing trademark dispute between Proview and Apple, which has now reached Apple’s home state of California, continues to draw attention around the world.  A court in Pudong, Shanghai refused to grant the injunction against sales of iPads, while Huizhou intermediate court has granted such an injunction. An appeal from the first judicial decision from the Shenzhen Intermediate People’s Court, which was adverse to Apple, to the Higher People’s Court of Guangzhou has just been heard, a ruling at this level is usually final in China. The Chinese central government has, thus far, properly abstained from declaring a position in this dispute and it is too early to tell whether Supreme People’s Court will hear a further appeal.

As with many controversial IP issues that are discussed in the media, there appears to be plenty of disinformation on all sides. The US media appears to view this as another example of Chinese IP perfidy. It is not, however, another case of “trademark squatting” involving trademark acquisition by a party who does not practice the mark in a commercially meaningful way.  Proview did in fact have a product to be sold under the “iPad” trademark.

The problem has been exacerbated by a lack of transparency and thoroughness on all sides.  For example, no major media outlet has gone back to the relevant trademark registries to report on the trademarks in suit, or discuss their relative strength as a trademark.  The full text of the Shenzhen court decision is not yet available.  There is only a press release from the court.  One prominent blogger, Stan Abrams, has reported on seeing the underlying contract in the Shenzhen case and has shared an unofficial link to it.   The summary of the case posted by the Shenzhen court does not discuss the contract in suit, nor do we know of the choice of law.  A related Hong Kong case from July of last year is hosted on docstoc.  A webcast was available for the Guangdong High Court proceeding, but we know little else beyond that of the nature of the arguments.

From an outsider’s perspective, the facts suggest that Apple and its legal counsel appear to have been pursuing an aggressive trademark strategy, with a difficult uphill battle in China given the nature of its legal and trademark system.

The first aspect of that battle is that the iPad itself is not a highly distinctive trademark. In fact, upon last verification, the “iPad” name had 43 applications and registrations in the USPTO database dating back to 1971 and at least 47 in the Chinese Trademark Office, including several registrations in class 9, which is the same class as the iPad.

The “iPad” mark is part of a series of i-marks that Apple has applied for, granted or contested with others, including the iphone, ipod, ibook, and icloud.  Apple also has had some difficulties in other areas asserting rights to marks that other IT companies consider generic, such as use of the word “app” for application, for Apple’s “App Store”.  Apple’s aggressive use of the Apple name has been reported by the media as having resulted in controversies with Sichuan Fangguo, a food company, and including, apparently, the City of New York, for a “Big Apple” marketing campaign.

Based on filings in the HK court case, the company didn’t begin to negotiate for the rights to the trademark until August 2009 – five months before the release of the iPad product.  Although Chinese netizens may view the Apple’s acquisitions through a shell company as surprising, it is hardly unusual given the higher cost it likely would have to pay if it entered into negotiations directly.  However, it would have been prudent to seek a co-signature or acknowledgment by Proview in Shenzhen.  Moreover, anybody with a computer can easily confirm that the iPad mark was owned by Proview Shenzhen on the Chinese Trademark Office Database, which is free of charge and has been open to the public for many years (although it can be rather slow when accessed from the United States).

Even worse, after IP Applications Development (the Apple affiliate, whose abbreviations are IPAD) signed a contract with Proview Taipei in December, and thereafter contractually “transferred” the right to Apple, the transfer was never formally registered with the Chinese Trademark Office, as required by the Trademark Law. It is also unclear if Apple sought Chinese government approval for the transfer of the mark to insure ownership has been vested.  This may be required if the mark is owned by a state-owned entity, or if other public interests maybe involved (foreigners have faced these types of problems before, as appears to have been the issue in transfer of a trademark within China in a dispute between Wahaha and Danone from France, amongst others).

Various media reports have loosely referred to Proview Technology (Shenzhen) Co., Ltd. (Proview Shenzhen), which owns the IPAD trademark in China, as being affiliated with Proview Taipei, which signed the agreement with Apple to transfer ownership of the IPAD trademark to a number of other countries.   Recently released documents as well as a webcast  from the Guangdong High Court suggest that some officials from Proview Shenzhen may have played a direct part in the negotiations between Proview Taipei and Apple. However, as Proview Shenzhen did not sign the contract directly in its name, it remains unclear whether Apple or its subsidiaries had acquired the rights to the trademarks.

Most lawyers active in China know that there is a great deal of emphasis on contractual formalities, through execution by designated legal representatives, notarization by a Chinese notary or use of an appropriate Chinese-registered “chop”,  which may not have been followed here.    Having such formalities in place which are more readily acceptable by a court, is especially critical if a law suit is contemplated, as Chinese civil IPR trials can be very quick and there is no system of evidence exchange before trial.

Apple, it seems, would need to prove that Proview Shenzhen is bound under doctrines of “apparent authority”.   A Chinese court will also face thorny issues involving Choice of law.  Under Article 16 of China’s recently concluded choice of law law, a Chinese court may need to look to the place where the agent was acting to determine his or her scope of authority.  If Chinese domestic law regarding agency authority applies, Article 49 of China’s Contract Law provides: “where the person lacking agency authority, acting beyond his agency authority, or whose agency authority was extinguished concluded a contract in the name of the principal, if it was reasonable for the other party to believe that the person performing the act had agency authority, such act of agency is valid. “

Did Proview Taipei actually suggest that it was signing on behalf of Proview Shenzhen? These issues of fact may be determined in a different manner by different courts and different judges, according to relevant local laws.

Nevertheless, from a perspective of daily legal practice in China, the Shenzhen Intermediate Court points out: Apple should have taken more care and would have realized that Proview Shenzhen and Proview Taipei are independent of each other .  Perhaps the court is saying that there was no “apparent authority” because it was not reasonable for Apple to believe that Proview Shenzhen was bound by this agreement.  This issue of reasonableness was discussed in the Guangdong High Court webcast.

This is certainly not the first time that Apple has dealt with problems that arose in part from the explosive growth in China’s trademark office, including extensive abusive registration of marks.  Many practitioners know how incredibly difficult it can be to accomplish what should be relatively easy: nail down a transfer of trademarks, establish a proper valuation, and determine how best to execute and deliver funds.  The ascendant interest in IP in China, the transborder nature of Chinese trademark holdings, rapid growth in the trademark office and weak legal remedies against abusive filings, have made these transactions much more difficult.  According to the registration records from the CTMO, in China, the trademarks from “Apad” to “Zpad” have been all registered. Apple has no alternative letter in alphabet for their “IPad” now. Due to the extensive abusive registrations and weaknesses in Chinese law in addressing such registrations, many Chinese companies – and increasingly foreign companies – have been forced to file trademarks in multiple classes as prophylactic measures to address these risks.  These problems are exacerbated by the difficulties foreign companies historically had in obtaining well-known mark protection in China, which would have provided protection against marks filed in other classes, as well as protection for their marks even if the mark is not yet registered in China. Moreover, market access barriers for many foreign products entering China, such as existed originally for Apple’s iPhone products, have acted as a further disincentive to prompt registration of marks for products, which, while globally well known, cannot be legally offered for sale in China.

The past history of the trademark of Apple’s IPhone is instructive in this regard. On August 2011, a manufacturer of lamps in YiWu, Zhejiang, filed an application of trademark registration of “IPhone” to SAIC for his lamps under the Class 11. At that time, Apple only registered its “IPhone” under 14 classes, such as “mobile phone”, “computer hardware”, etc, but not under the catalog 11. Apple objected to the filing and requested that the relevant agencies affirm “IPhone” as a well-known trademark, to provide cross-class protection.  According to the record from the CTMO this objection has not been settled yet. Besides this lamp manufacturer, there is also a fur and leather manufacturer, eye-glasses manufacturer, even a car accessory industry in China are trying to register IPhone as their trademark in different classes.

Chinese companies and individuals have also been victims of these squatting efforts, and other foreign companies have found their famous products squatted upon, such as Pfizer for its Viagra trademark and Chinese basketball star Yao Ming who had his name used on women’s sanitary products made in China.  Many companies have also faced problems with domain name cybersquatting a well.  These problems are especially acute in “first to register” systems such as China, which do not require first use in order to obtain a mark. Such first to register systems may result in a rush to the trademark office by entities whose only interests are to hijack the mark and thereafter sell the trademark to the legitimate user.

Another problem that Apple appears to share with many foreign companies is that the company does not have many Chinese marks for its products, such as iPhone, iPad, iPod.  Focusing solely on English language marks may look good in an English speaking boardroom, but may not be an effective marketing strategy for a consumer product in a country where the people overwhelmingly speak Chinese at home, and not English.

Many would argue that the long term solution for China is only through more extensive recognition of equitable rights in trademarks, including more extensive protection of well known marks, more robust protection across classes and against “typo squatting” for small differences in marks, less reliance on formalities such as registration of assignments to determine validity, and perhaps greater recognition of the use of corporate shells to avoid accountability for transfer or registration of marks – all of which are common phenomenon that lawyers face in trying to protect the name and reputation of companies doing business in China.

China’s forebearance in not interrupting Apple’s supply chain during the pendency of these proceedings was probably undertaken out of concerns for the economic impact of making Apple sell its slate computer under a different name in China, but may also reflect a concern for the burdens this case would impose on Apple and the reputational risks to China’s IP system.   Chinese authorities would otherwise have the right to stop infringement of a registered mark, and could also stop the export of iPads manufactured in China.  They have done neither, Chinese authorities are also no doubt concerned that if companies are faced with the possibility of interruption in their supply chain due to seizures of their goods by Chinese Customs for infringing a local registered “squatted” right, they may decide to relocate to other markets where there is a sense that the legal system will respond more flexibly based on their equity in the brand.

The long range solution to this problem should be in creating a healthier environment for trademarks which is more transparent, less tied to formalities of registration and legal authority to execute and more readily recognizes the underlying equities of parties involved in a trademark dispute.

2 replies »

  1. Magnificent post. Unfortunately long by necessity, it explains, however, point by point what there is to know. Further details will emerge by the hour I presume. Even Harris at ChinaLawBlog did not have a clear view on most issues and had to make the best from assumptions. It strikes me that a big company like Apple, in this specific case, is reportedly mistaking a company with which it made business (ie, confusing two <> companies.. how is that possible?). And from the IP perspective: hard to also believe that Apple had forgotten (?!) to specify negotiations for Mainland China distribution with that name.


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