The IPAD saga continues - and grows bigger

China

After hearing heated arguments on February 22 2012, a day later the Shanghai Pudong New District Court rejected an application for interim injunction by Proview Technology Shenzhen Company Limited, the registered owner of the IPAD marks in China, to prevent Apple Computer Trading (Shanghai) Company Limited from selling iPad tablets in China.

This is not a typical story of trademark squatting in China. Proview Shenzhen applied for the registrations of two IPAD marks in China as early as 2000, well before Apple’s iPad had taken the world by storm. The issue in this case is whether Apple entered into an effective contract to purchase the IPAD marks from the true owner.

After successful court actions at the Shenzhen Intermediate People’s Court (which Apple is appealing against) and Huizhou Intermediate People’s Court (see below), and complaints to various administrative authorities and Customs in China, Proview Shenzhen commenced an infringement action against Apple Shanghai and applied for an interim injunction in an attempt to prevent Apple Shanghai from selling iPad tablets in China pending trial.

On February 23, a day after hearing the application, the Shanghai court issued a short written decision. It took the view that, since the issue of who owned the IPAD marks was yet to be decided by the appeal court (the Guangdong Higher People’s Court), the issue of whether the sale of iPad tablets constituted trademark infringement remained uncertain and there was no basis for granting an interim injunction to stop the sale of iPad tablets in the meantime. Further, it decided to suspend the Shanghai court proceedings pending the outcome of the appeal decision by the Guangdong court.

It is interesting to contrast the decision made by the Huizhou Intermediate People’s Court on February 17, less than a week before the Shanghai court decision. The Huizhou court decision has not been uploaded by the court, so this summary is based on news reports. In this action, Proview Shenzhen sued an iPad tablet reseller, Shenzhen Sundan (Chain-Store) Stock Company Limited, for infringing the IPAD marks. The case was heard on January 6 and February 13 2012. Apple Shanghai was added as a third party to that lawsuit.

On February 17 the Huizhou Court ruled in favour of Proview Shenzhen and held that Sundan had infringed Proview Shenzhen’s IPAD marks. It granted a permanent injunction preventing Sundan from further selling Apple’s iPad tablets, and ordered Sundan to pay Proview Shenzhen’s legal costs and court fees. However, the Huizhou court did not rule on Apple Shanghai's liability because no claim was made against Apple Shanghai and Sundan did not raise any argument about Apple Shanghai’s liability at the hearing.

The Huizhou court decision sent a shockwave among Apple iPad dealers and re-sellers across the country, especially after Proview Shenzhen’s statement that it would also commence administrative and customs enforcement actions.

What will happen next?

  • In China - if the parties are unable to settle, the decision of the Guangdong Higher People’s Court will be key to the fate of Apple’s iPad brand in China.
  • In the United States - the dispute has recently spread to the United States. It was reported on February 23 that Proview Electronics (which is believed to be Proview Electronics Co Ltd of Taiwan, the company being the vendor in the sale and purchase agreement of the IPAD marks worldwide) and Proview Technology (which is believed to be Proview Shenzhen) filed a lawsuit in California against Apple. They claimed that, by using a special purpose entity (IP Application Development Limited, the acronym of which is IPAD Limited (IPADL)), Apple deceptively concealed its role in the purchase of the IPAD marks (besides the IPAD marks in China, the transaction also involved similar marks in six other countries, and a CTM registration which now covers the 27 countries of the European Union). According to Proview, before Apple’s purchase of the worldwide IPAD registrations through IPADL, the parties had been in dispute in the United Kingdom in 2006, when Apple unsuccessfully tried to cancel Proview’s registration (presumably the CTM registration) for non-use. Proview thus claimed that it would never have sold any of the worldwide IPAD registrations to Apple had it known that it was Apple behind the transaction.

Besides their heated arguments in the courts, both Apple and Proview Shenzhen have used, to different extent, the media to state their case.

Proview Shenzhen published announcements and hosted press conferences to explain how the IPAD name came about and how they were “deceived” into selling the mark to IPADL - Apple’s special purpose vehicle. Proview Shenzhen claimed that 'IPAD' stands for 'Internet Personal Access Device' and that, between 1998 and 2009, approximately 10,000 to 20,000 pieces of IPAD computer/monitor had been produced and sold. On the other hand, Apple disputed whether such equipment had ever appeared on the market, particularly as Proview Shenzhen has been in financial difficulties since 2008. Interestingly, while the issue of whether the IPAD marks may be vulnerable for non-use seem to be a red herring in this dispute, in view of Proview Shenzhen’s refusal to assign, in February 2010 Apple commenced a non-use cancellation against one of the IPAD marks in China.

While not as vocal as Proview Shenzhen outside the courts, on February 20 Apple sent a warning letter to Proview Shenzhen and its parent company Proview International Holdings Limited that they should not make “false and misleading” statements to the public about Apple, including that:

  • Apple’s affiliate “mistakenly” transacted with Proview Taiwan, which did not own the IPAD marks in China;
  • Proview Shenzhen had no knowledge of the trademark transfer;
  • Apple’s affiliates dealt only with representatives of Proview Taiwan who “had nothing to do with Proview Shenzhen"; and
  • the IPAD marks in China “were not included in the package of trademarks under consideration” in the sale.

In addition, certain documents relating to the sale and purchase of the IPAD marks were posted on the internet. It is uncertain whether these documents are genuine, and how they were posted since they should be held confidential by the parties, their lawyers and the courts. Although the documents do not show the complete dealings between the parties, they do, to some extent, support Apple’s case.

However, as Apple claims that it had negotiated with, and involved, Proview Shenzhen in the transaction concerning the acquisition of the worldwide IPAD registrations (including the IPAD marks in China), it remains unknown why the formal written contract and assignment document do not have Proview Shenzhen as a contracting party. The following parts of the Hong Kong interim decision issued on July 14 2011 might shed some light on what happened at the material time:

8. The investigations revealed that Proview Group owned trademark registrations in eight countries or territories, including two trademark registrations in the Mainland, Registrations Nos 1590557 and 1682310. Negotiations between an agent engaged by Apple and [IPADL] and Proview Group’s representatives then took place between August and December 2009. Eventually, [IPADL] and [Proview International Holdings Limited - the parent company], [Proview Taiwan] and [Proview Shenzhen] (the contracting defendants) entered into a written agreement in December 2009 whereby the contracting defendants agreed to sell, transfer and assign the [worldwide IPAD registrations] to [IPADL] for £35,000 (the agreement).

9. It is Apple and [IPADL]’s case that, in the process of drawing up the formal written agreement (the written agreement) and the assignments (the country assignments) to give effect to the agreement, the representatives of the contracting defendants represented and led [IPADL] to believe that all the [worldwide IPAD registrations], including in particular the [IPAD marks in China], were owned by and registered in the name of [Proview Taiwan]. Accordingly, the written agreement and the country assignments executed on December 23 2009 expressly stated that [Proview Taiwan] was the proprietor of the [worldwide IPAD registrations], including the China trademarks, and that [Proview Taiwan] warranted that it was the unencumbered sole owner of the [worldwide IPAD registrations], including [the IPAD marks in China]. The country assignment pertaining to the [IPAD marks] (the China country assignment) also recited that [Proview Taiwan] was the proprietor of the [IPAD marks in China]. However, after Apple had announced the launch of iPads in January 2010, it was discovered that the [IPAD marks in China] were in fact registered in the name of Proview Shenzhen. The China country assignment was accordingly ineffective in assigning the [IPAD marks in China] to [IPADL].

According to the decision, it was only after January 2010 that Apple discovered that Proview Shenzhen was the registered owner. However, as the IPAD marks were applied for registration in 2000, Proview Shenzhen has since been the registered owner and this information is readily revealed by an online search of the China Trademark Office database. Apple’s investigations, which exposed the registration numbers of the IPAD marks in China, must also have revealed the identity of their registered owner - Proview Shenzhen. Further, in a transaction as important as this, it is hard to imagine that Apple would rely on the representations and warranties of Proview Taiwan. At that time, there should have be no difficulty in including Proview Shenzhen as a contracting party in the written agreement and the China country assignment, when none of the Proview companies were suspicious that IPADL was Apple’s special purpose company. So what happened? Did someone drop the ball?

Although it seems that Proview Shenzhen is taking advantage of technical arguments, particularly the fact that an assignment cannot be effective in China until it is approved by the Trademark Office, the stance it takes is understandable if, in fact, Apple’s agreement or assignment was defective. The Shenzhen Intermediate People’s Court made the following comment:

If Apple and IPADL wanted to obtain other people’s trademarks from a commercial transaction, they should bear a higher duty of attention. They should, in accordance with our country’s legal requirements, enter into an assignment contract with the trademark owner and handle the necessary trademark assignment procedure.

It remains to be seen how the Chinese and US courts would deal with the argument that it is an act of deception to use a special purpose vehicle to purchase a mark in order to preserve the anonymity of the real purchaser. While it is not an uncommon strategy when dealing with trademark squatters in China, this is not a trademark squatting case. Further, considering the previous dispute between Proview and Apple in the United Kingdom, does it matter that, behind IPADL, Apple is the real interested purchaser?

News reports also suggest that, given the attention and interest this case has attracted and generated, this is not a mere legal battle: it involves economic and political considerations, as the decision will affect not only the Proview Group (Proview Shenzhen in particular) and Apple, but also the interests of many other Chinese and US enterprises and work force involved in the manufacture and sale of iPads in China, and supply and sale of iPads outside China. Reports further suggest that, as Proview Shenzhen’s financial position is dire, its creditor banks view the IPAD registrations as its most valuable asset and would want to see it fetch a ‘fair’ price. It is claimed that a settlement will require the bank creditors’ approval.

Brand owners should bear in mind that, in China, a trademark is not assigned until the Trademark Office approves the assignment. Moreover, they should not rely on assumptions or representations from the other side, and always conduct their own due diligence.

Kenny Wong, Mayer Brown JSM, Hong Kong

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