Apple to Further Expand its Territory in the Chinese Market: With or Without the iPad

Apple to Further Expand its Territory in the Chinese Market: With or Without the iPad

The trademark dispute over the “iPad” name rages on in the People’s Republic of China (PRC) between Shenzhen Proview Technology and Apple Inc. However, the Cupertino-based producer of the ever popular iPod, iPhone, and of course the iPad won’t let its legal issues in China get in the way of the brand’s overall  expansion into the Mainland Chinese market. A few days ago, it was reported that Apple is set to open two new retail stores in the country, one in Chengdu and the other in Shenzhen where higher Chinese courts have yet to decide on a final ruling for the Proview and Apple fight over the iPad trademark in the PRC.

The saga began in 2011 when Proview alleged that they remained the trademark holders of the name “iPAD” from their development of a monitor device that was “an all-in-one internet terminal” in 2000. Although Apple supposedly purchased a worldwide iPad trademark in 2009 through Proview’s parent company in Taiwan, Shenzhen Proview contend that this deal did not include the PRC jurisdiction. Proview successfully influenced some cities in China to pull the iPad from store shelves when it won its case as the rightful owners of the trademark in a decision by the People’s Court of Huizhou in Guangdong province.

The case then went downhill for Proview when a California judge dismissed their claim against Apple in a U.S. Superior Court a few months ago. In the filing, Proview argued that Apple intentionally misrepresented itself by using a shell company called IP Application Development Ltd. (IPADL) to purchase the trademark rights from Proview Taiwan, effectively hiding Apple’s interest in the purchase. A proxy company is often utilized in business transactions to ensure that purchase prices are not irrationally inflated when a high-value buyer is involved. Indeed, one can easily imagine a few extra zero’s behind IPADL’s purchase price of $55,000 if it was publicly known that Apple Inc. was the buying party. Judge Mark Pierce of the Superior Court of California in Santa Clara granted Apple’s motion to dismiss the case on the grounds that he saw no reasons for the dispute not to be resolved through mediation in Hong Kong (as the parties had already agreed to).

In the PRC, trademark law operates strictly on the basis that legal owners of trademarks are determined on a first-file, first-served basis. The current battle with Apple remains focused on whether these trademark rights were appropriately transferred to Apple through the necessary procedures according to PRC intellectual property law.  As of right now, Mainland Chinese officials have held that it was not, with the State Administration for Industry and Commerce (SAIC) issuing their first public statement regarding the iPad/Proview trademark suit in April of this year (*N.B.: Original transcript and video of the SAIC’s press conference is in Chinese). According to Chinese law, the original sale of the iPad trademark would require Apple (or IPADL in this case) to have signed an agreement with Shenzhen Proview instead of its parent company to validate the transfer of the trademark rights in the PRC. Thus, at present, Shenzhen Proview remains the rightful trademark holder to the name “iPad” in Mainland China.

In early May, Apple reportedly offered a settlement of $16 million for Proview to release the trademark rights it still technically holds in Mainland China. An agreement has yet to be reached however, as this amount fell far short of cash-strapped Proview’s original demand of $2 billion, as well as its subsequent amendment to $400 million. Given that Shenzhen Proview is on the verge of bankruptcy, many predict a settlement resolution to be on the horizon but are quick to point out that the motivation behind Proview’s fervent challenge against Apple seems to be an attempt to amass more money for paying off its debts to creditors.

While the ongoing settlement negotiations between Apple and Proview has meant that the iPad 3 is currently unavailable to residents in the Mainland, Apple’s decision to continue its expansion into more Chinese cities may signify its confidence in a swift resolution to the issue at hand. It is worthwhile to note that some regard the PRC government as being caught in a situation where the law rests on the side for Proview, but an unfavourable ruling for Apple is not a good outcome for China as a whole. As Apple’s second largest market after the U.S., China remains a profitable territory for Apple and it is hard to imagine Chinese citizens being comfortable with having access to the full range of Apple products available in their shopping centres, save for the iPad. Nonetheless, given that Hong Kong is merely an hour’s subway ride from Shenzhen and costs roughly $5 Canadian one way, the option remains for Mainland residents to purchase the iPad in Hong Kong where the device is readily available, sans tax. This could mean that Apple’s forays into China without the draw of the iPad may not be as dire as expected.

Fan Hannah Lan is a JD candidate at Osgoode Hall Law School.