Bloomberg News

Tougher China Laws Might Have Hurt Apple in IPad Dispute

March 25, 2012

An Apple Inc. employee shows a customer the new Apple Inc. iPad at an Apple store in San Francisco, California, U.S. Photographer: David Paul Morris/Bloomberg

An Apple Inc. employee shows a customer the new Apple Inc. iPad at an Apple store in San Francisco, California, U.S. Photographer: David Paul Morris/Bloomberg

China is proposing improvements to its 30-year-old trademark law that help household names from abroad better protect their rights. Apple Inc. (AAPL), in its dispute over the iPad name, might be better off without the reforms.

Government proposals for tackling “the rampant problem of trademark squatting” include doubling the maximum damages for infringers to 1 million yuan ($158,539). Since a court already ruled that Apple doesn’t own the iPad name in China, the company would be on the wrong side of the sanctions, said Caroline Berube, an intellectual property lawyer in the southern Chinese city of Guangzhou.

The Apple case “is another example of why multinationals need to do their diligence and tread cautiously in China as domestic companies have become much more savvy about protecting and exploiting IP rights,” Steve Rizzi, a New York-based attorney and former head of China for Foley & Lardner, said in an e-mail.

Apple’s appeal that it, and not Hong Kong-listed display maker Proview International Holdings Ltd. (334), owns the iPad name in China will hinge on contract law rather than trademark law, the lawyers said. A decision from a Guangzhou court is due by the end of May, and the new trademark law won’t be voted on until next year’s national legislature at the earliest, said Berube, of HJM Asia Law & Co.

‘Never Knowingly’

Apple, which won a lawsuit against Shenzhen-based New Apple Concept Daily Technology Co. in 2008 for using an apple in its logo, started its legal battle with Proview in 2010, the same year it introduced the iPad tablet. A court in Shenzhen, across the border from Hong Kong, ruled against Apple last year, saying the purchase agreement for the trademarks featured the wrong Proview unit.

“As a company that generates a lot of intellectual property we would never knowingly abuse someone else’s trademarks,” Carolyn Wu, Apple’s Beijing-based spokeswoman, said in a statement. She declined to comment on the proposed laws and how they would have affected the iPad case.

The Cupertino, California-based company argued that at least three employees of the Proview unit owning the trademarks had participated in negotiations leading to the sale.

Separately, Apple has sued Proview founder Rowell Yang in Hong Kong for conspiring with his companies to breach the sale agreement. That case is in the pre-trial phase.

Michael Jordan, Britney Spears

“It seems the problems have arisen because of the drafting of the agreement,” said David Llewelyn, a professor of law at Singapore Management University.

Proview obtained the trademark in China in 2001 for a desktop terminal with touch-screen display called the Internet Personal Access Device, or IPAD, that the company developed starting in 1998.

“This doesn’t seem to be a case in which a Chinese company has registered a foreign company’s trademark in China to try and blackmail them into buying them off,” said Llewelyn, the author of “Invisible Gold in Asia: Creating Wealth Through Intellectual Property.”

Hall of Fame basketball player Michael Jordan and pop singer Britney Spears have been involved in disputes regarding the use of their names in China this year.

“In China, there is a lot of trademark hijacking, meaning someone files a trademark similar or identical to a trademark of another, especially something famous outside China,” said Benjamin Bai, a partner of intellectual property law at Allen & Overy in Shanghai.

Widely Known in China

Jordan said Feb. 23 he had sued a southern China-based sportswear company for the unauthorized use of his Chinese name and his jersey number 23. Qiaodan Sports Co. (QDTYSZ), which received regulatory approval in November to raise 1.06 billion yuan in an initial public offering, said its brand was registered according to Chinese law.

Spears failed in January to convince authorities to cancel a trademark for the Chinese translation of “Britney,” obtained by a Shenzhen-based for use on alarm clocks and watches, domestic media, including the Beijing Morning Post, reported. The Beijing court refused to hear her case, saying the singer couldn’t show she was widely known in China in 2001, when Shenzhen Wanfuda Trading Co. registered for the name.

Ken Hertz, a Beverly Hills-based lawyer for Spears, didn’t comment on the dispute in China.

Sounds, Colors

There have been 8.3 million trademark applications made in China since 1979, with a record 1.2 million filed in 2010, according to intellectual property consultancy, Rouse. Disputes over trademarks rose almost eight-fold from 2004 to 2010, Rouse’s data shows, and punishments have included criminal sentences.

China established specialized courts for trademark, copyright and patent issues after joining the World Trade Organization in 2002. The third planned revision of the trademark regime comes as more than half of the companies polled last year by the American Chamber of Commerce in Shanghai said intellectual property infringement hindered their business.

Proposed changes include allowing sounds and colors to be registered, as well as trademarks that cover more than one class of product. One proposal prohibits applicants from filing anything that they should know, through contractual or business relationships with the rights holder, already exists.

While the higher damages payable by infringers would be a deterrent, the changes don’t do enough to prevent registrations of trademarks by parties who know the name is already in use, Berube said.

If Apple’s iPad appeal in mainland China fails, it faces fines of three times the “volume of illegal business” in addition to damages for trademark infringement. China is Apple’s biggest market outside the U.S.

While not strictly dealing with trademark issues, the Apple-Proview case has raised awareness of intellectual property issues in China, according to May Tai, a Beijing-based disputes lawyer with Herbert Smith LLP.

“This case certainly makes Chinese people think more about the value of a brand,” Tai said.

To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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