Apple v Proview: Lessons for business in China
On July 2, 2012, Guangdong Higher People's Court announced that the trademark dispute between Apple Inc and Proview Technology (Proview Shenzhen) had been settled through mediation. Apple agreed to pay $60 million to Proview Shenzhen for assignment of IPAD trademarks registered by Proview Shenzhen in China.
First of all, it is necessary to know the legal status of Proview Shenzhen and other Proview-related companies.
Proview International Holdings, based in Hong Kong (Proview International), has seven subsidiary companies worldwide (collectively, the Proview Group) including Proview Shenzhen and Proview Electronic, located in Taiwan (Proview Taiwan).
In 2000, Proview Taiwan applied for registration of IPAD in some countries and regions excluding mainland China. Meanwhile, Proview Shenzhen filed two trademark applications in China which successfully matured into registrations for IPAD and in respect of Class 9 goods including computers.
It is obvious that the two trademarks were filed and registered much earlier than Apple’s iPad computers were brought to the market of mainland China.
In 2009, IP Application Development Limited (IPADL), which had been set up by Apple in the UK, contacted Proview’s UK subsidiary company and then Proview Taiwan in respect of purchase of all IPAD trademarks owned by Proview Group.
On December 17, 2009, an agreement was reached between IPADL and Proview Taiwan that IPADL bought all IPAD trademarks including the two Chinese registrations for £35,000. Apple and IPADL thought the person they contracted with represented the Proview Group.
"Proview Shenzhen said it was not aware of the Taiwan deal and not party to the agreement, and the person the plaintiffs dealt with had no authority to represent Proview."
However, the applications for recordal of assignment of two Chinese registrations were rejected by the China Trademark Office. Proview Shenzhen, the actual owner of the two Chinese registrations, said it was not aware of the Taiwan deal and not party to the agreement at all, and the person the plaintiffs dealt with had no authority to represent Proview Shenzhen when he signed the agreement. Proview Shenzhen’s refusal to execute the necessary transfer documents required by the China Trademark Office made Apple unable to be recorded as the new owner of the two Chinese registrations.
On April 19, 2010, Apple and IPADL, as co-plaintiffs, brought a lawsuit to Shenzhen Intermediate People’s Court to request that the registrations for IPAD and be transferred to Apple Inc.
On February 23, August 21, and October 18, 2011, the court opened three public hearings on the case. During the hearings, the focus of the dispute was whether the agreement between IPADL and Proview Taiwan was binding to Proview Shenzhen, and whether implied agency existed in the course of negotiation.
The court finally held that when wishing to obtain another party's trademarks for commercial purposes, plaintiffs should bear a higher duty of care, and should, in accordance with Chinese law and regulations, execute a contract of assignment with the trademark owner and complete necessary procedures of assignment.
Because the original contract of assignment was executed between IPADL and Proview Taiwan, and implied agency of Proview Shenzhen was not established, the court dismissed the plaintiffs’ claims.
After the verdict, Proview Shenzhen took action against Apple’s dealers in China by initiating several lawsuits and submitting complaints to nearly 40 Administrations for Industry and Commerce at provincial and municipal levels.
On January 5, 2012, Apple appealed the first instance decision to Guangdong Higher People's Court. On June 25, 2012, the Higher Court served a verdict of civil mediation to both parties, and the dispute reached a resolution. The court-mediated settlement was a win-win.
According to Proview Shenzhen, $60 million was “not satisfactory but acceptable” (it originally expected $400 million). On the other hand, Apple will not risk losing even more than $60 million without ownership of the IPAD trademarks in China, and it can now accelerate importing new iPad products to China.
This case demonstrates the importance of ownership and the value of IP rights. Foreign companies must do business in China according to Chinese law to avoid potential risks, including performing adequate due diligence to understand law and practice. They must also know the background of collaborators and competitors thoroughly, and locate the true owner of a particular right.
