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China has a reputation for being rather less attentive to the niceties of intellectual-property law than the U.S. But guest commentator Oliver Herzfeld says Apple's scuffle over the trademark for its iPad in China is less a clash of IP cultures than a case of failing to sign a contract with the right company. Herzfeld's company, Beanstalk, has good reason to get this story out; Beanstock advises companies on licensing their trademarks around the world. Herzfeld is a New York University and Columbia Law School grad and expert on intellectual property law. We look forward to hearing more from him in the future.
Apple's Fight Over iPad Name: Strictly Business
By Oliver Herzfeld, chief legal officer, Beanstalk
There’s tension brewing between the U.S. and China over “trademark squatting,” the practice of grabbing trademarks under China’s rules that allow whoever registers them first to own them. But the most high profile trademark dispute in China, Apple’s fight over the iPad trademark, is something entirely different. Essentially, it is a commercial dispute triggered by Apple’s regrettable failure to properly purchase the rights to that trademark in China.
Apple’s current dispute with Proview appears to be strictly a commercial matter. Proview is not a trademark squatter since it started using the “IPAD” mark in 1988 and first registered the trademark in China in 2001, years before Apple introduced its iPad tablet computer. Apple, through an intermediary, entered into an agreement to purchase from a Taiwanese company, Proview Electronics Co. Ltd. (Proview Taiwan), the “IPAD” trademarks in a number of countries including China. The problems started when it came to light that a Chinese company, Proview Technology (Shenzhen) Co. Ltd. (Proview China), was the true owner of the “IPAD” trademarks in China.
The parties have since entered into formal legal proceedings in both the U.S. and China. Proview China has demanded that the authorities in various Chinese cities prohibit retail sales of Apple’s iPads. Some cities complied and other cities have so-far refrained - mostly for political reasons. Proview China has also demanded a ban on exports of Apple’s iPads from China, but so-far Chinese authorities have refused to comply - also for political reasons.
Apple was simply not duly diligent in its most basic obligation as a purchaser, investigating and verifying the seller’s ownership before entering into a purchase agreement. A quick and inexpensive trademark search would have revealed that Apple was contracting with the wrong party. Most recently, Apple claimed that it really wanted to contract with the correct party, Proview China, but Proview China insisted on selling the trademarks through its Proview Taiwan affiliate to avoid having to pay its creditors. That argument seems incredible since it does not explain or justify Apple’s diligence lapse. And logically it makes no sense when you consider that, under the agreement, Apple only paid £35,000 – hardly enough to make a dent in Proview China’s debts. The most likely outcome now is that the parties will settle the dispute based on an additional (and much larger) payment from Apple to Proview China.
The territorial nature of trademark laws is highlighted by the different methods of acquiring ownership in the U.S. and China. In general, trademark rights in the U.S. are conditioned on first use in commerce. However, in China, trademark rights are conditioned on registration, creating a veritable race to the filing office.
Although, as described above, the dispute between Apple and Proview does not involve trademark squatting at all, China’s “first to file” rule has led to many actual and serious instances of trademark squatting. In the past few weeks alone the news headlines have featured numerous disputes involving trademark squatting in China. In many cases, the rightful owners, including Hermes, Chivas Regal, Michael Jordan and Jeremy Lin, have encountered difficulties in proving their ownership and the squatter’s bad faith.
Consequently, legal practitioners should counsel their clients to file trademark registrations in all relevant jurisdictions as soon as practicable, since delays can lead to costly disputes. And when confronted with a trademark squatting situation, companies must decide whether to pay a ransom to purchase the mark or commence a lawsuit claiming the squatter registered the mark in bad faith. One must keep in mind, however, that any such dispute would require a production of evidence of the mark’s well-known status prior to the squatter’s registration – which evidence may not be available or easily accessible with required notarization or other proof of authenticity.
While Apple shouldn’t have to look far to find the cash needed to purchase the iPad trademarks in China, the question remains: How high will Proview’s asking price be?
