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Feb 16, 2012

China's Proview Takes a Bite out of Apple: The Proview v. Apple Saga

Most of our readers have probably already heard about Apple’s latest hurdle here in China, a costly mix up over the trademark ownership of the “iPad” name.

While one can easily see how Apple’s lawyers were confused as to which trademarks they were purchasing in 2006, it is ultimately inexcusable that America’s largest company, with arguably the world’s most valuable collection of patents, trademarks, and intellectual property, could have made such a costly legal oversight. This doesn’t appear to be a case of a sneaky Chinese company front running a predicted future Apple product name in hopes of a payout. The company is a legitimate manufacturer of LCD screens and registered the name in 2000, six years before the first iPhone. It was possibly their intention to suggest a nonexistent affiliation between their products and the reputed apple iMac, but there are plenty of other companies around the world, including the largely successful iHome, which successfully exist inside the Apple economy, without popular criticism.

Apple’s arguments have been weak in this case, especially knowing that they should be extra prepared when addressing Chinese courts against a local company. They contend of course that they were under the impression that they had purchased these patents in 2006, and that their lack of Chinese language skills has left them without the proper trademarks.

There is evidence that Apple’s attorneys uncovered the separate Chinese trademarks in 2006 after closing the $55,000 deal for the rest of the global trademarks, but rejected the then $10 million asking price. Now, after having launched iPad sales at their 4 China Apple Stores and 1,000 Chinese resellers, Apple’s strategy was to sue Proview for the iPad rights. Unfortunately, China operates under a first to file, not first to use, trademark basis.

This protects Proview’s ownership of the iPad name even if they haven’t brought a product called the iPad to market in the 10 years since they registered the trademark. Chinese courts found in favor of Proview and Apple is currently appealing. Poorly handled is an understatement.

Some are wondering why Proview would have sold the international trademarks to Apple for a measly $55,000, but at the time, Proview thought they were dealing with a small British company called IP Applications Development (IPAD), not knowing that IPAD was a wholly owned subsidiary of Apple Inc. The sneaky tactics seemed to be played on both sides, and in this case Apple has been outplayed.

The latest developments show just what Apple is up against. After winning the case in December and verifying their ownership, Proview filed a $1.3bil countersuit for trademark infringement that has since increased to $1.6bil. That number may have been set excessively high to attract press, but Proview does mean business. It is rumored that Proview is struggling financially, making a prolonged legal battle in Apple’s interest. Rather than wait for the outcome of the appeal, Proview has taken to the offense.

This week Proview convinced the local Administration for Industry and Commerce in Shijiazhuang to seize iPads from the shelves of resellers across the city. The resulting press led Apple resellers across the country to take down iPad advertisements and hide remaining stock for fear of having their own confiscated.

While the Apple stores in Shanghai and Beijing, as well as Apple’s online store continue to operate as usual, the uncertain future for resellers will likely hurt orders, as they fear future inventory seizures. Proview has announced that they intend to pull iPads from shelves in 30 more cities across China, and on Wednesday succeeded in having iPads in Zhengzhou at least sealed if not seized. Proview can legally resell the seized iPads domestically for now to fund their legal battle.

Proview admits that it is unlikely they will be able to convince customs officials to seize exports or halt production at Foxconn, but the latest jab should encourage Apple to reach a settlement. It is rumored that an iPad 3 will soon be released, China is an important market to maintain sales figures for iPad 2s in order to avoid steep discounts on excess inventory when the iPad 3s come out.

As we frequently remind the readers of these blogs, it is crucial to register your patents and trademarks separately in China, as international patents will not hold up. Let this be a reminder that failure to do so could end up costing you in bad press, halted sales and shipments, and in the worst case up to $1.5 billion.

by Frank Caruso. Chair, China Practice Team at IPG
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, Vietnam and the U.S.