iPads taken off shelves as Apple faces multiple lawsuits and enforcement actions

China

The IPAD trademark dispute between Apple Inc and Proview Technology Shenzhen Company Limited in China has recently escalated: on February 9 2012 the Shijiazhuang Xinhua District branch of the Hebei Administration for Industry and Commerce accepted a trademark infringement complaint filed by Proview Shenzhen, commenced raid actions against Apple iPad retailers and seized a total of 45 iPad2 tablets.

As early as in January 2000 Proview Shenzhen applied to register the figurative trademark IPAD in Class 9 of the Nice Classification in respect of computers and related devices in China:

In September 2000 Proview Shenzhen applied to register another IPAD mark, also in Class 9:

Both trademark registrations were successfully obtained.

In late 2009, just before the launch of iPad1, Apple entered into a trademark assignment with Proview Electronics (Taiwan) Company Limited, a subsidiary of Proview International Holdings Limited (a Hong Kong-listed company which is also the parent company of Proview Shenzhen) by which all the IPAD global trademark registrations of Proview Taiwan were assigned to a UK company called IP Application Development Limited at a consideration of £35,000. Shortly thereafter in February 2010, IP Application sold and assigned all such trademark rights to Apple at a consideration of £10. The issue was: did the assignment cover the two Class 9 IPAD marks in China? Proview Shenzhen claimed that it did not because they are vested in its name and not Proview Taiwan's.

Apple argued that, as Mr Yang, the CEO and legal representative of Proview International and Proview Taiwan (he also holds the same capacity in Proview Shenzhen) was, at the time, actively involved throughout the negotiation of the assignment, the assignment should be taken as a transaction entered into collectively by the entire Proview group, even though it was executed only by Proview Taiwan. Therefore, the assignment should cover Proview Shenzhen's Chinese IPAD marks.

In April 2010, failing a satisfactory resolution of their differences, Apple and IP Application commenced a lawsuit in China against Proview Shenzhen claiming that the assignment was binding and enforceable against Proview Shenzhen and seeking an order for the two Chinese IPAD marks be transferred to Apple on the ground that the assignment was a collective transaction and that Proview Taiwan had signed the assignment as an agent of Proview Shenzhen with ostensible authority.

On December 5 2011 the Shenzhen Intermediate People's Court ruled against Apple and held that Apple's ostensible authority argument did not stand - Proview Shenzhen was not involved in the negotiation and had never authorised anyone to enter into the assignment on its behalf. The court further opined that, in acquiring another's marks, one should conduct due diligence carefully in order to enter into a trademark assignment with the proper proprietor and record the assignment with the PRC Trademark Office. On January 5 2012 Apple filed an appeal against this first instance decision with the Guangdong Higher People's Court. The appeal is now pending.

According to reports in China, Proview Shenzhen has commenced infringement lawsuits against a number of iPad retailers in Guangdong Province at the local courts, such as Shenzhen Futian People's Court and Huizhou Intermediate People's Court. Proview Shenzhen has also sued Apple at the Shanghai Pudong New District Court for trademark infringement and applied for an interlocutory injunction to stop Apple from offering for sale and selling iPad tablets in Shanghai. The Shanghai case is reported to be heard on February 22 2012.

Proview Shenzhen has also lodged complaints with the local Administration for Industry and Commerce (AIC) in over 20 cities across China. So far, Xi Cheng District AIC of Beijing (where a big Apple store is located) has accepted the complaint and is investigating the matter, while the Shijiazhuang Xinhua District AIC (in Hebei) has already raided some retailers and seized iPads from them. Naturally, retailers who do not wish to take risk are removing iPads from their shelves.

Most of the time, when there is a pending infringement lawsuit, local AICs prefer to wait for the infringement judgment before conducting administrative enforcement action. Now that Apple has lost the first instance case before the Shenzhen court, local AICs may well act on the complaints filed with them. Hence, Apple (and its authorised dealers) now faces multiple lawsuits and administrative enforcement actions simultaneously taking place in different parts of China, all carrying various degrees (depending on the quantity involved) of financial and liability risks.

This dispute highlights some fundamental trademark issues in China that overseas brand owners should bear in mind:

  • 'First to file' principle - under this principle, whoever first applies gets the registration, unless there is obvious bad-faith squatting of famous or well-known marks. This means that, unless the mark is already famous in China or well-known internationally (including in China), prior use in China is irrelevant. Foreign brand owners should thus apply to register their marks in China as early as possible and not later than when they have started any commercial activities in China (including manufacturing for export only) or contemplate China as a market.
  • Due diligence - as in most jurisdictions, unless there is fraud or exceptional circumstances, companies within a group or companies that share the same management and/or shareholders are still separate legal entities. In China, one often finds group companies with strikingly similar names. It is of fundamental importance to conduct proper due diligence to ascertain the ownership, validity and status of a mark. Non-IP lawyers often misunderstand IP due diligence. It goes much further than just verifying the official record against the information provided. The extent of due diligence conducted by Apple when it prepared the assignment is not clear, but it seems that it might have missed Proview Shenzhen.
  • Assignment formalities - in China, an assignment between the parties alone is not sufficient to transfer the ownership of a registered mark or an application. First of all, such assignment is not effective until approved by the Trademark Office. Currently, the approval takes about 10 to 12 months. Further, the office is strict on formalities and requires the registered owner and the assignee to complete a designated trademark assignment form and file the same together with copies of the parties' identification documents (eg, incorporation documents for companies and ID cards for individuals) to seek approval and record the assignment. It is very important to ensure that the assignor will give all necessary assistance to ensure the successful approval and recordal of the assignment.
  • Trademark enforcement channels - the actions taken by Proview Shenzhen highlight the dual trademark enforcement channels in China (ie, through AIC and/or the courts). In addition, PRC customs can also enter into play if Proview Shenzhen records its trademark registrations with the General Administration of Customs, allowing Customs to stop and seize iPad products passing the Chinese borders.

Proview Shenzhen has chosen to sue in Shanghai probably to demonstrate its confidence in winning the case. Shanghai courts are known to have IP expertise and have awarded the largest damages ever to a plaintiff in a software infringement case. Besides, there are many Apple stores and retailers there. A favourable judgment or a pre-action injunction will place Proview Shenzhen in a very strong position if Apple wants to explore a settlement, and will likely influence the decisions of judges and AIC officials in the rest of China.

Kenny Wong, Mayer Brown JSM, Hong Kong

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