iPad legal fight highlights China's trademark minefield

A key hearing in Apple's legal fight over the rights to the iPad name in China takes place on Wednesday

Apple is locked in a high-stakes legal fight over the rights to its iPad brand in China, but the technology giant is just one of many multinational companies to have come unstuck while trying to navigate the country's complex trademark system.

Drug company Pfizer, auctioneer Sotheby's, luxury fashion house Hermes and coffee chain Starbucks, along with many others, have fought court battles over trademarks and logos in China - with mixed results.

Legal experts describe a situation where the law favours opportunistic "trademark squatters", who register trademarks - often by the hundred - in the hope of turning a quick profit, rather than the companies who actually use them to do business.

"It's a first-to-file jurisdiction, so foreign companies with well-known brands are advised to come in here as soon as possible and register their trademarks," says Stan Abrams, a US lawyer, who teaches intellectual property law at Beijing's Central University of Finance and Economics.

By contrast, the US operates a "first-to-use" system meaning that the party that files for a trademark has to show that is has used, or intends to use, the trademark for business purposes.

Infringements

Reports suggest that Facebook is working hard to solve trademark infringements in China as it prepares for its massive share listing. Individuals can also encounter problems.

For example, an enterprising Chinese sporting goods firm registered the Chinese name of US basketball star Jeremy Lin in 2010 - before his recent NBA success.

Mr Abrams says the practice is common and legitimate, although there is an established legal process for seeking the return of trademark rights.

"You have to prove these guys registered in bad faith and sometimes that's difficult," he says.

"But generally the squatters buy these things so they can sell them so they generally want a deal."

Complicated dispute

Apple's current dispute in China is more complicated than a straightforward case of trademark squatting.

Apple's products are popular in China

The technology giant says it bought the rights to the iPad name in China and nine other countries from the Taiwan unit of a now struggling Hong Kong electronics company called Proview International for £35,000 in 2009.

Proview International had registered the name back in 2001 and used it to develop its own device, which was not a big success.

However, a Chinese court in Shenzhen ruled in November that the trademark belonged to Shenzhen Proview, a mainland Chinese unit of Proview International. Apple's appeal in that case begins on Wednesday.

Apple maintains that the 2009 contract gave it worldwide rights to the iPad name and Proview "refuses to honour their agreement with Apple in China" while Shenzhen Proview has claimed to be unaware that the Taiwan unit signed away the trademarks.

Apple declined to comment further given that their case is still pending in China, while Roger Xie, a Chinese lawyer representing Shenzhen Proview contacted by BBC News, said he was too busy to answer questions about the case.

Time pressure?

Experts say that Apple's problems most likely stem from a lack of due diligence on the 2009 trademark deal.

"My personal guess is that they were under immense time pressure," says Eugene Low, a trademark lawyer at Mayer Brown JSM in Hong Kong.

"It's very surprising that they overlooked this problem. Anyone can go to the PRC trademark office's online database and do a simple search that would reveal the owner."

While Proview still claims ownership of the iPad brand and is asking commercial authorities to ban iPad sales in some Chinese cities, Mr Low says ultimately it is in the interests of the company and its creditors to settle the case.

"It's not in their interest for Apple to stop selling iPads in China. They want to realise whatever assets Proview has."

Mr Abrams says the sticking point is likely to be the amount Proview is prepared to settle for.

"I have a feeling what they (Proview) can live with and what Apple can live with are very far apart. It's the only asset left for this company essentially... and there are rumours that Proview is being manipulated by its creditors."

According to a report by Bloomberg news agency, Shenzhen Proview is controlled by its creditors, including two of China biggest banks - Bank of China and China Minsheng Banking Corp.

Politics?

Mr Abrams says that Apple and its contractors employ millions of workers in China and this will work in the technology giant's favour should the case "turn political", as he puts it.

Proview once made computer monitors

"Who is more important as a company to this country?" he asks. "Apple is a big employer, the products are popular, it's a big multinational, it pays taxes. Proview is a non-entity"

"If politics are involved at all, then Apple looks pretty good."

Many foreign companies have weathered disputes over their intellectual property in China.

Earlier this week Hermes lost a Shanghai court case over a translation of its name and Pfizer fought and lost a long court battle over the Chinese name of its Viagra brand, which was registered first by a Chinese company.

Starbucks and Sotheby's, however, both won their cases against Chinese companies using translations of their names.

While the Proview case is embarrassing and could ultimately prove costly for Apple, it is unlikely to deal a devastating blow to its business in China, where fights have broken out as customers scrambled to purchase new Apple products.

"Worst-case scenario is rebranding in China but even with that people are still going to buy their products. It's not going to kill them," says Mr Abrams.

"If there's any lessons to be learned it's due diligence and making sure your lawyer doesn't screw up when you sign your contract."