14 February 2012
The "iPad" trade mark dispute between Apple Inc. ("Apple") and Proview Technology Shenzhen Company Limited ("Proview Shenzhen") in China has escalated. On 9 February 2012, the Shijiazhuang Xinhua District branch of the Hebei Administration for Industry and Commerce accepted a trademark infringement complaint filed by Proview Shenzhen, commenced raid actions against Apple iPad retailers and seized a total of 45 iPad2 tablets. This probably marks the beginning of a series of nationwide raid actions against iPads which may force Apple to succumb.
The "iPad" Trade Mark Dispute
As early as in January 2000, Proview Shenzhen applied to register " " as a trade mark in Class 9 in respect of computers and related devices in China. Subsequently in September 2000, Proview Shenzhen also applied to register " " also in Class 9 in similar goods. Both " " and " " trade mark registrations (collectively "IPAD Trade Mark Registrations") were successfully obtained.
In late 2009, just before the launch of iPad1, Apple entered into a trademark assignment ("Assignment") with Proview Electronics (Taiwan) Company Limited ("Proview Taiwan"), a subsidiary of Proview International Holdings Limited ("Proview International") (a Hong Kong listed company which is also the parent company of Proview Shenzhen) by which all the "IPAD" global trade mark registrations of Proview Taiwan were assigned to a UK company called IP Application Development Limited ("IP Application") at a consideration of £35,000. Shortly thereafter in February 2010, IP Application sold and assigned all such trademark rights to Apple at a consideration of £10.
So, did the Assignment cover the two Class 9 IPAD Trade Mark Registrations in China? Proview Shenzhen claimed that it did not because they are vested in its name and not Proview Taiwan's.
Apple argued that as Mr. Yang, the CEO and legal representative of Proview International and Proview Taiwan (and he also holds the same capacity in Proview Shenzhen) at the time, was actively involved throughout the negotiation of the Assignment, although the Assignment was only executed by Proview Taiwan, it should be taken as a transaction entered into collectively by the entire Proview group. Therefore, the Assignment should cover Proview Shenzhen's PRC IPAD Trade Mark Registrations.
In April 2010, failing a satisfactory resolution of their differences, Apple and IP Application commenced a lawsuit in China against Proview Shenzhen claiming that the Assignment was binding and enforceable against Proview Shenzhen and seeking an order for the two PRC IPAD Trade Mark Registrations be transferred to Apple on the ground that the Assignment was a collective transaction and Proview Taiwan signed the Assignment as an agent of Proview Shenzhen with ostensible authority.
On 5 December 2011, the Shenzhen Intermediate People's Court ruled against Apple and held that Apple's ostensible authority argument did not stand - Proview Shenzhen was not involved in the negotiation and had never authorized anyone to enter into the Assignment on its behalf. The court further opined that in acquiring another's marks, one should conduct due diligence carefully in order to enter into a trademark assignment with the proper proprietor and record the assignment with the PRC Trademark Office ("TMO"). On 5 January 2012, Apple filed an appeal against this 1st instance decision with the Guangdong Higher People's Court. The appeal is now pending.
According to reports in China, Proview Shenzhen has commenced infringement lawsuits against a number of iPad retailers in Guangdong Province at the local courts such as Shenzhen Futian People's Court and Huizhou Intermediate People's Court. Proview Shenzhen has also sued Apple at the Shanghai Pudong New District Court for trademark infringement and applied for an interlocutory injunction to stop Apple from offering for sale and selling iPad tablets in Shanghai. The Shanghai case is reported to be heard on 22 February 2012.
Besides the above lawsuits, Proview Shenzhen has also lodged complaints with the local Administration for Industry and Commerce ("AIC") in over 20 cities across China. So far, Xi Cheng District AIC of Beijing (where a big Apple store is located) has accepted the complaint and is investigating the matter whilst the Shijiazhuang Xinhua District AIC (in Hebei) has already raided some retailers and seized iPads from them. Naturally, retailers who do not wish to take risk are removing iPads from their shelves.
Most of the time, when there is a pending infringement lawsuit, local AICs prefer to wait for the infringement judgment before conducting administrative enforcement action. Now that Apple lost the 1st instance case before the Shenzhen court, local AICs may well act on the complaints filed with them. Hence, Apple (and its authorised dealers) now faces multiple lawsuits and administrative enforcement actions simultaneously taking place in different parts of China all carrying various degree (depends on the quantity involved) of financial and liability risks.
This dispute highlights a few fundamental trade mark issues in China which are noteworthy for overseas brand owners to bear in mind:-
(i) First to File Principle
China adopts the "first to file" principle for trade mark registrations. This means whoever first applies gets the registration, unless there is obvious bad faith squatting of famous or well-known marks. This means that most of the time, unless the mark is already famous in China or well-known internationally (including in China), prior use in China is irrelevant. Foreign brand owners should therefore apply to register their marks in China as early as possible and not later than when they have started any commercial activities in China (including manufacturing for export only) or contemplate China as a market.
(ii) Due Diligence
As in most jurisdictions, unless there is fraud or exceptional circumstances, companies within a group or share the same management and/or shareholders are still separate legal entities. In China, one often finds group companies with strikingly similar names. It is of fundamental importance to conduct proper due diligence to ascertain the ownership, validity and status of a mark. Non-IP lawyers often misunderstand IP due diligence. It goes much further than just verifying the official record against the information provided. It is not clear the extent of due diligence Apple had conducted when it prepared the Assignment but it seems that it might have missed Proview Shenzhen.
(iii) Assignment Formalities
In China, an assignment between the parties alone is not sufficient to transfer the ownership of a registered mark or an applied mark. First of all, such assignment is not effective until approved by the TMO. Currently, the approval takes about 10 to 12 months. Further, the TMO is strict on formalities and requires the registered owner and the assignee to complete a designated trademark assignment form and file the same together with copies of the parties' identification documents (e.g. incorporation documents for companies and ID cards for individuals) to seek approval and record the assignment. Technical issues like unmatching company chops, different signatures (with previous documents) can arise. It is very important to ensure that the assignor will give all necessary assistance to ensure the successful approval and recordal of the assignment.
(iv) Trademark Enforcement Channels
The actions taken by Proview Shenzhen highlight the dual trademark enforcement channels in China, i.e. through AIC and/or the courts. In addition, PRC customs can also enter into play if Proview Shenzhen records its trademark registrations with the General Administration of Customs allowing customs to stop and seize iPad products passing the Chinese borders.
Proview Shenzhen has chosen to sue in Shanghai probably to demonstrate its confidence in winning the case. Shanghai courts are known to have IP expertise and have awarded the largest damages ever to a plaintiff in a software infringement case. Besides, there are many Apple stores and retailers there. A favourable judgment or a pre-action injunction will place Proview Shenzhen in a very strong position if Apple wants to explore a settlement, and will likely influence the decisions of judges and AIC officials in the rest of China.
For inquiries related to this Legal Update, please contact Kenny Wong, Alan Chiu, or your usual contacts with our firm.
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