Proview and Apple Settle: What Does It Say about IP and Rule of Law in China?

According to the press reports, Apple and Proview have recently settled their dispute over ownership of the iPad mark for 60 million USD (See http://apnews.myway.com/article/20120702/D9VOHLB00.html).  The news has even made it to the blogosophere (see http://www.chinahearsay.com/), and the iPad name is being assigned to Apple.

What, if anything does the case say about intellectual property and the rule of law in China?  To an American lawyer, a settlement is a typical conclusion to a litigation.  The United States may have the highest settlement rate in the world.  Settlements in the United States are facilitated by such factors as our extensive and expensive discovery practices, relatively longer time to trial, and reluctance of defendants to face a civil jury which they may view as less predictable than a judge.  Unlike China, the unwillingness of a judge to decide cases attracting the public’s attention is generally not a key factor in settling cases.

Settlement rates are lower in China, but have nonetheless been climbing for reasons different from the United States.  My colleague at Fordham, Prof. Carl Minzner has written extensively on judicially driven mediation and other forms of ADR as part of trend within China away from rule of law.  As Prof. Minzner has noted: “Chinese authorities …are turning away from trials and adjudication according to law. Top Party political-legal authorities are promoting mediation as the key to resolving all disputes. They have linked it to the Party’s new ‘harmonious society’ political doctrine, enshrined as central policy in 2006.” Minzner further notes that” “Chinese leaders’ shift against law is a distinct domestic political reaction to building pressures within the Chinese system. It is a topdown authoritarian response motivated by social stability concerns.”   Prof. Minzner’s research suggests that a phenomenon known as  “greater mediation” in particular (da tiaojie), which involves parties other than the judiciary and the litigants, such as local officials, is used “to handle complex disputes that may generate mass citizen discontent or social unrest. Examples include land seizures, corporate reorganizations of failed enterprises.…”Carl F.  Minzner, China’s Turn Against Law (February 22, 2011). American Journal of Comparative Law, 2011; Washington University in St. Louis Legal Studies Research Paper No. 11-03-01. Available at SSRN: http://ssrn.com/abstract=1767455.

How much is the Apple iPad settlement a part of this trend?  The Proview case involved a major investor in Guangdong, a world leader in high technology, and the creditors rights in the failed Proview.  The case would suggest a need for “greater mediation” of the type that Prof. Minzner described.   This type of mediation is also not unknown in IPR cases.  According to the Supreme People’s Courts’ annual white paper on IP litigation in China: “The courts were building a dispute resolution mechanism that combined judicial and non-judicial processes, and were promoting “Greater Mediation” (da tiaojie), which includes “people’s mediation”, administrative mediation and judicial mediation. The courts have also strengthened judicial confirmation for settlement agreements reached through people’s mediation, and have supported mediation agencies, arbitration bodies and the industrial organizations in their work of resolving social conflicts.”

It is clear that mediation in China has a different set of imperatives for a US company in China, particularly one that is cast in a defensive position.  According to another academic, Prof. Lan Rongjie, intellectual property cases – especially patent cases – show a much higher rate of settlement (69%) than other forms of civil disputes (as low as 20%).   Based on data that she obtained from two courts, Prof. Lan also came to the conclusion that foreigners, when they appear as plaintiffs “are extremely against settlements.”   Prof. Lan believes that a major factor in these settlements is the difficulty that judges may have in making informed decisions involving complex technologies.  The data was substantiated by comparing with other courts, which showed a lower settlement rate for foreign related IPR cases compared to domestic IPR cases. (Lan Rongjie,  “Are Intellectual Property Litigants Treated Fairly in China’s Courts? An Empirical Study of Two Sample Courts” , http://www.indiana.edu/~rccpb/Working_Paper/Lan%20Rongjie%20RCCPB%2016%20IPR%20Courts.pdf, at p. 25).  What Prof. Lan did not identify, is whether large judgments against foreigners are a particular focus of mediated settlements in order to shield the case from the public eye.

A quick review of the available statistical data shows this iPad dispute is an outlier in terms of the amount of the mediated settlement.   According to the CIELA IPR database (www.ciela.cn), the settlement rate for trademark contract disputes was 28 out of 214 cases for 2006 – 2009 (13%).  The average settlement was 52,632 RMB in 2009, or about one seven thousandth  of the Apple iPad settlement.  By comparison there were 293 settlements out of 1,580 for TM infringement cases for 2006-2011 (19%).  Average damages claimed were 90,573 in 2011, still a very small fraction of the iPad settlement.

As another example of an effort to shield an outlier judgment, I was recently told that the Wenzhou court, which has an excellent website, has yet to publish its trial court decision in the landmark Chint vs. Schneider case, which was another outlier in patent damages assessed against foreigners, and was settled, like Apple vs. Proview on appeal.

Apple may believe that is now paying twice for the same trademark that it thought it acquired from Proview.   With a blockbuster product, Apple may rationalize that this is the cost of its own success.  Foreign related cases in China constituted about 3% of the IPR civil docket last year.  China should consider publishing all cases including decisions involving mediation involving foreigners and to provide some reassurance that foreigners are not the driving force for an outlier IPR jurisprudence and that cases are being decided by the judges tasked with their adjudication.   As I noted elsewhere in discussing preliminary evidence and asset preservation measures, statistics can be deceiving when decisions are being made behind closed doors. Sunshine is the best antiseptic.

 

Edit: Another article in Chinese on the Trademark climate in China, inspired by the Apple Proview dispute, where I am quoted.

4 thoughts on “Proview and Apple Settle: What Does It Say about IP and Rule of Law in China?

  1. […] so I dug down for something clever to say, discussing the Chinese judicial system and mediation (here’s a good post by ChinaIPR on that topic, by the way), best legal practices for MNCs, […]

  2. […] so I dug down for something clever to say, discussing the Chinese judicial system and mediation (here’s a good post by ChinaIPR on that topic, by the way), best legal practices for MNCs, […]

  3. chinaipr2 says:

    We recently discovered that an unofficial copy of Schneider v. Chint has been unofficially published on the Internet. Here’s the link: http://wenku.baidu.com/view/b5f9a88171fe910ef12df891.html###

  4. […] use of the IPAD name years ago. This fact is further highlighted when considering that the average settlement amount in 2009 for trademark cases in China was RMB¥52,632 (about US$8,200), and even the average damages claimed […]

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