The IPAD dispute: the Hong Kong chapter

Hong Kong

The dispute between Apple Inc and the Proview group over the IPAD marks in China has recently grabbed the media's attention. This article looks at the dispute brought before the Hong Kong courts - interestingly, the findings are different.

The facts surrounding the Hong Kong proceedings and the parties' litigation in China are very similar. At or around the time when Apple and IP Application Development Limited filed a lawsuit in China against Proview Shenzhen seeking a transfer of the two Chinese IPAD trademark registrations, developments suggested that the Proview group was facing financial difficulties and that Proview Shenzhen had applied to the Chinese Trademark Office to transfer the IPAD registrations to Yoke Technology (Shenzhen) Co Ltd. Apple then applied to the Hong Kong courts in May 2010 for an interlocutory injunction to, among other things, stop the relevant Proview entities from disposing of the IPAD registrations.

The Hong Kong Court of First Instance granted an interlocutory injunction against the four defendants - namely, Proview International, Proview Shenzhen, Yoke Technology and Mr Yang (the founder of the Proview group).

The key facts and findings of the Hong Kong action are as follows.

Among the defendants, Proview Shenzhen and Yoke Technology did not appear in the hearing. Proview International consented to the interlocutory injunction through its solicitors. Yang, declared bankrupt, did not have legal representation and failed to file any admissible evidence. The only outstanding issue before the court was the application for interlocutory injunction against Yang.

The applicable legal principles were the well-known American Cyanamid criteria - namely, it must be established that there is a serious question to be tried and that irreparable harm will be caused to the plaintiff if no injunction is granted (and that no such harm will be caused to the defendant if the injunction is granted). If the issue of irreparable harm is not conclusive, the court will consider the balance of convenience.

The court agreed that there was a serious question to be tried for each of the four causes of action raised by Apple and IP Application:

  • Breach of contract - the court found that IP Application had contracted with Proview International, Proview Taiwan and Proview Shenzhen in December 2009 for the assignment of the trademarks at issue. Proview Taiwan was expressly mentioned in the formal written agreement as the proprietor of the IPAD registrations, and was warranted to be the unencumbered sole owner. The court considered that there was a serious issue to be tried - namely, it was arguable that the relevant Proview parties had wrongfully refused to honour their obligation to assign the IPAD registrations.
  • Unlawful means conspiracy - the court found that the defendants had demonstrated by their conduct that they had conspired with the intention of injuring Apple and IP Application by breaching the agreement. The Proview entities were all under Yang's control, but refused to take steps to effect the assignment. Instead, they tried to obtain another $10 million from Apple for the assignment. Yang participated in the conspiracy, as he had control over the entities and had knowledge of the agreement.
  • IPAD registrations held on trust - the court considered it arguable that Proview Shenzhen holds the IPAD registrations on trust for Apple and IP Application. There might be a remedy of specific performance to IP Application if the breach of contract claim succeeds.
  • Breach of trust and dishonest assistance - it was arguable that Proview Shenzhen had acted in breach of the trust by refusing to transfer the registrations and that the other defendants had dishonestly induced and/or assisted in the breach.

The court went on to find that there would be irreparable harm to Apple and IP Application if no injunction was granted, given that Apple had already launched its iPads worldwide, including in China. On the contrary, no damage or harm would be caused to the defendants if they were prevented from disposing of the IPAD registrations. The balance of convenience also clearly favoured Apple.

Hong Kong is now part of the People's Republic of China, but remains essentially a common law jurisdiction independent of the Chinese judicial system. Although the parties' dispute is based on the same facts, it is interesting to note how the Hong Kong court and the Chinese courts read them differently. One would imagine that concepts such as breach of trust and conspiracy might appeal more in a common law court.

A note of caution is that the Hong Kong proceedings are, so far, interlocutory: the court reached a decision based on affidavit evidence and the issues have yet to be fully tried.

Kenny Wong, Mayer Brown JSM, Hong Kong

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