Summary

After hearing heated arguments on 22 February, a day later, the Shanghai Pudong New District Court issued a decision refusing an interim injunctive application by Proview Technology Shenzhen Company Limited (“Proview Shenzhen”) - the registered owner of the IPAD trade marks in China, to stop Apple Computer Trading (Shanghai) Company Limited (“Apple Shanghai”) from selling iPad tablets in China.

Background

Readers who have read our legal updates “iPads Being Taken off Shelves in China” and “‘The iPad’ Trade Mark Dispute - Hong Kong Chapter” should be familiar with the core of the dispute which seems distracted by red herrings. For the benefit of new readers, this is not the typical story of trade mark squatting in China. Proview Shenzhen applied for the registrations of two IPAD trademarks in China (“IPAD Marks”) as early as 2000, well before Apple’s iPad has taken the world by storm (Apple’s iPad was first released in April 2010).  

The gist is whether Apple entered into an effective contract to purchase the IPAD Marks from the true owner.

The Shanghai Pudong Court Decision

After successful court actions at the Shenzhen Intermediate People’s Court (which Apple is appealing against and the appeal action will be heard on February 29) and Huizhou Intermediate People’s Court (which we shall refer to later in this alert), 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 stop Apple Shanghai from selling iPad tablets in China pending trial.  

On 23 February, a day after hearing the application, the Shanghai Court issued a short written decision. It took the view that since who owned the IPAD Marks was yet to be decided by the appeal court - Guangdong Higher People’s Court, hence the question of whether iPad tablets constituted trademark infringement was uncertain, there was no basis for granting an interim injunction to stop sales 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 appeal court.  

The Huizhou Court Decision

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

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

The Huizhou Court decision naturally sent a shock wave to all Apple iPad dealers and re-sellers across the country in China, especially after Proview Shenzhen’s proclamation that it would also commence administrative and custom enforcement actions.

What Is Going to Happen Next?

In China - If the parties are unable to settle, the decision of the appeal court - Guangdong Higher People’s Court, is key to the fate of Apple’s iPad name in China.

In the US - Lately, the dispute spreads to the US. It was reported on 23 February that Proview Electronics (which we believe 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 we believe to be Proview Shenzhen) filed a lawsuit in Santa Clara County, California against Apple. They claim 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 IPAD marks in 6 other countries, and a CTM registration which now covers 27 countries of the European Union). For ease of reference, all these IPAD registrations, including the IPAD Marks in China shall be referred to as “Worldwide IPAD Registrations”. According to Proview, before Apple’s purchase of the Worldwide IPAD Registrations through IPADL, the parties had been in dispute in the UK in 2006 when Apple tried unsuccessfully to cancel Proview’s registration (presumably the CTM registration) for non-use. Proview therefore claims that they will never have sold any of the Worldwide IPAD Registrations to Apple had they known it was Apple behind the transaction.

Interesting Observations

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

Whilst relatively Apple is not as vocal as Proview Shenzhen outside the courts, it was reported that on 20 February, Apple through its PRC lawyers 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 (a) Apple’s affiliate “mistakenly” transacted with Proview Taiwan who did not own the IPAD Marks in China; (b) Proview Shenzhen had no knowledge of the trademark transfer; (c) Apple’s affiliates dealt only with representatives of Proview Taiwan who “had nothing to do with Proview Shenzhen” and (d) the IPAD Marks in China “were not included in the package of trademarks under consideration” in the sale.  

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

Yet, as Apple says 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.  

Perhaps the following parts of the Hong Kong interim decision (“Hong Kong Interim Decision”) issued on 14 July 2011 shed some light on what happened at the material time. It says:-  

“8. The investigations revealed that Proview Group owned trademark registrations in eight countries or territories [Worldwide IPAD Registrations] including two trademark registrations in the Mainland, Registrations Nos. 1590557 and 1682310 [the IPAD Marks]. 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 23 December 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 [IPAD Marks in China]. The County 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 the PRC] to [IPADL].”

So, it was said that it was only after January 2010 that Apple discovered Proview Shenzhen was the registered owner. However, since the IPAD Marks were applied for registration in 2000, Proview Shenzhen has since been the registered owner and this information is readily revealed from an online search of the China Trademark Office database. Apple’s investigations which revealed the registration numbers of the IPAD Marks in China must have revealed also 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 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 then suspicious that IPADL was Apple’s special purpose company. So what happened? Did someone drop the ball?

Complications

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 PRC 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 trademark 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 must handle the necessary trademark assignment procedure.”

It remains to be seen how the Chinese and the 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. Whilst this is not an uncommon strategy in dealing with trademark squatters in China, this is not a trade mark squatting case. Further, considering the previous dispute between Proview and Apple in the UK, does it matter that behind IPADL, Apple is the real interested purchaser?  

News reports also suggest that given the attention and interests this case has attracted and generated, this is not a mere legal battle but 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 in the manufacture and sale of iPads in China and supply and sale of (made-in-China) iPads outside China. Reports further suggest that as Proview Shenzhen’s financial position is dire, its 8 creditor banks view the IPAD registrations to be 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.

Reminders

We wish to remind that in China, a trademark is not assigned until the PRC Trademark Office approves the assignment. Article 39 of the PRC Trademark Law reads:- “In case of assignment of a registered trademark, the assignor and assignee shall enter into an assignment agreement and jointly file an application with the Trademark Office... After an assignment of a registered trademark has been approved, such assignment will be gazetted. The assignee shall enjoy the exclusive right to use the trademark from the date of gazetting”. Currently, it takes about 12 months for the PRC Trademark Office to approve an assignment. Prospective assignee should therefore bear it in mind that until the assignment is approved, it has no exclusive rights yet in the registration.  

Equally important, do not rely on assumptions or representations from the other side, always conduct your own due diligence.