China’s trademark wars

Since its early days Apple has had trouble with trademarks. Soon after incorporation, the computer firm was sued by Apple Corps for trademark infringement, on the claim that the Beatles’ recording label in Britain was already called Apple. According to Walter Isaacson’s excellent biography of Steve Jobs, the suit was settled three years later, when Apple paid Apple Corps $80,000.

The settlement specified that the Beatles would not make computers and Apple would not market music products. As Isaacson comments, “The Beatles kept their end of the bargain; none of them ever produced computers. But Apple ended up wandering into the music business.” After the launch of the iTunes Store, legal hostilities began once more. In 2007 Apple paid Apple Corp a further $500 million for worldwide rights.

Now Apple has another major trademark war on its hands, and this time it’s in China. A different plaintiff, Yang Rongshan, has sniffed the possibility of scoring big bucks from the cash-rich US firm.

What’s in dispute?

The name of Apple’s near ubiquitous tablet, the iPad. As WiC has previously reported, ownership has been contested in China, in a case that has even seen iPads seized from shops in the city of Shijiazhuang. Sales have also been suspended on Amazon’s Chinese website.

With China now Apple’s second biggest market, and the iPad3 rumoured for launch on March 7, this is nothing short of a disaster for the Cupertino-based tech giant.

Apple is being challenged by a relative minnow in the trademark dispute. In 1999 Yang Rongshan’s Proview Electronics – at one time a major player in making computer displays – announced that it was branching out with a new device called the IPAD (standing for ‘internet personal access device’). The Taiwanese firm trademarked the IPAD name.

But Proview’s IPAD never made much of a splash, and the company turned lossmaker in 2008. In December 2009 Proview then agreed to sell its IPAD trademarks to IP Applications Development for the minor sum of $55,500.

It later emerged that Apple had established IP Applications Development as a vehicle to acquire the IPAD marque. Shortly afterwards Apple launched its own iPad tablet.

So does Apple own the name in China?

This is the question being resolved in the Chinese courts. The crux of the case is that the Chinese trademark was never owned by Proview in Taiwan but by a subsidiary called Proview (Shenzhen). Yang’s argument is that it was never part of the bundle of worldwide trademarks sold by Proview in 2009. As a result, it still belongs to Proview (Shenzhen), and was never transferred to Apple.

Apple disagrees and says that a Hong Kong court even concurred with its view that Apple had bought worldwide rights. However, this court has no jurisdiction in China. It is down to the Higher People’s Court of Guangdong to decide whether Apple purchased and owns the trademark or not.

That crucial hearing started on Wednesday. Local media is saying that – should the verdict go against Apple – Proview will be looking to settle by selling the iPad trademark to the American tech firm for an estimated $1.6 billion. Apple is sitting on $98 billion of cash, so Proview has clearly formed the view that it can afford to pay up.

The case started this week, and will be eagerly watched by Apple shareholders and the wider business world. How Apple got itself into this situation is perhaps the most incredible thing of all – especially given the company’s perfectionist, brand-obsessed culture. But when it bought the trademarks in 2008, someone in Apple’s trademark team must have erred spectacularly. After all, it is a fact, says the China Law Blog, that Proview (Shenzhen) still shows up as the owner of the iPad trademark in China.

This can mean only one thing: at the time of the sale no one at Apple followed through and checked the paperwork – i.e. the responsible exexecutive failed to confirm that the Chinese trademark had been transferred to Apple in China itself.

But Yang sees the error as potential salvation for Proview and a way to rejuvenate his business. “My biggest wish is to resolve all these frustrating problems and put them behind me,” he told Reuters in a recent interview. “If we can resolve all the problems we have now and I have a chance to make a comeback, I’d still want to overtake my old competitors.”

Lawsuits aplenty…

The stakes are high for Apple, with more than iPad sales in China at risk. Proview is also trying to get court permission to seize the iPads being made in China and prevent them from being exported, reports the Financial Times. It believes it has grounds to do so: it won an initial case confirming trademark infringement in a lower court in Huizhou and has since launched injunctions against iPad sales across the country.

But round two appears to have gone to Apple. In a case in Shanghai last Thursday, it managed to stop an injunction that would have blocked iPads from being sold in Shanghai. (Interestingly, Apple’s local lawyer argued that a ban on iPad sales would “hurt China’s national interest”, reports PCWorld.)

However, quite separate from the Guangdong legal case, Proview has launched a further action in California. In this suit it is looking to reclaim full international ownership of the iPad trademark, claiming that Apple committed fraud (by concealment and fraudulent inducement) in the original trademark purchase. States Proview spokesman Cal Kenney, “Apple obtained the iPad trademark by defrauding Proview Taiwan through tactics that involved explicit misrepresentations, and the use of foreign entities specifically created to perpetrate the fraud.”

According to the AllThingD website, Proview has also hired PR firm Powell-Tate to push its case. But it may need a lot of spin. Stan Abrams, a Beijing-based IP lawyer told the South China Morning Post that he thought fraud would be hard to prove.

Still, it ups the pressure on Apple and furthers the case for settling.

Other companies have trademark disputes too?

Yes, Apple is not alone. Another big brand in a trademark spat in China is French luxury goods firm Hermès, which is fighting a local company over its Chinese language brand name.

As the Shanghai Daily explains, Hermès claims “Guangdong-based menswear maker, Dafeng Garment Factory, registered a trademark, 爱玛仕, similar to the Chinese name of Hermès, 爱马仕, which could mislead Chinese buyers. The pinyin for the two Chinese names has the same spelling: Ai Ma Shi.”

Ai Ma Shi means ‘officials who love horses’, reports the Beyondbrics website. Dafeng’s version contains a rare character (the middle one) that sounds confusingly similar (although it conveys a different meaning: it’s a type of crystal). Shanghai Daily points out that while Hermès registered its French name in China in 1977 (a far-sighted move, given what would happen in the coming decades), it didn’t initially trademark its Chinese name (not so far-sighted). And over the weekend, Hermès call to get Dafeng’s version annulled was officially rejected. It lost a lawsuit with China’s Trademark Appeal Board (which has refused to cancel the Chinese firm’s name).

Sounds like trademark squatting?

The cases have opened a wider debate about trademark squatting – where enterprising companies and individuals register popular foreign names and brands. Sometimes it is in the hope of cashing in commercially by launching a product. Altenatively it can be a ruse to sell the trademark back to the concerned party later at a high price. It can be a lucrative tactic. Last week we reported on the case of businesswoman Yu Minjie who bought the rights in China to a particular representation of basketballer Jeremy Lin’s name. It cost her just Rmb4,460 ($708), which now looks like a bargain, considering the exploding popularity of the New York Knicks point guard.

However, the practice can infuriate those whose names are secured. Case in point, another basketballer, the now retired Michael Jordan, who has filed a suit against the Qiaodan Sports Company, a sportswear firm.

Its name ‘Qiaodan’ is the Chinse moniker by which Jordan has been known since he became a star in the nineties. But again, Qiaodan holds the trademark to this name in China, not Jordan.

In a press release Jordan has said: “It is deeply disappointing to see a company build a business off my Chinese name without my permission, and even attempt to use the name of my children. I am taking this action to preserve ownership of my name and brand.”

It will be interesting to see how the case plays out.

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