Apple versus Proview: the iPad trade mark is the core of the matter

The high profile court action between the largest company on the planet and a near-bankrupt technology minnow now spans China and the US as the legal, financial and reputational stakes are raised constantly. What can trade mark owners learn from this case?

The ongoing dispute between Proview and Apple continues to reach ever increasing levels of complexity. The case, which started in mid-2010, now involves claims and counterclaims in both the United States and mainland Chinese courts. How did this all start?

Proview is a Taiwanese flat-screen manufacturer that previously operated a successful business with global ambitions. In 2000, it launched a desktop system called the iPAD – Internet Personal Access Device – effectively just a stripped-down PC with a monitor (in a bizarre twist, this device was designed to look very similar to Apple’s original iMac).

However, the device never sold well, and by 2009 the financial crisis had hit Proview hard.

In December 2009, Proview was approached by a London-based company called IP Application Development, offering to buy the iPad trademark. Given their financial situation, Proview agreed to sell the rights to the trade marks for £35,000. Apple claims that this agreement included the global rights to the iPAD mark, Proview insists that the sale excluded the Chinese rights, which it claims are held by its Chinese subsidiary. Shortly afterwards, Proview’s shares inexplicitly started to climb on the Hong Kong stock exchange, and then Apple announced the launch of their iPad.

Proview then realised that it had sold the trade mark to a special-purpose company (not an unheard of tactic in the technology sector), working on behalf of Apple.

This meant that Proview, whilst being almost bankrupt, sold highly valued IP too cheaply. If it could prove that it had not sold the rights to the mark in China, it possessed some IP that was now worth more than the company – a point probably not lost on the creditor banks, which now controlled the company. Apple, however, had a different view and insisted the agreement covered the acquisition of the China trade marks as part of the global rights. Time was running out for Proview and its shares were suspended on 2 May 2010.

Proview started its legal action in mainland China, trying to prevent Apple selling its iPad devices in certain cities and even trying to prevent iPads manufactured in China to be exported. In February, Proview filed an action in California claiming that Apple engaged in deceptive practices to purchase the trade mark for less than its commercial value. It started with unspecified damages (believed to be around $1.6 billion), and has now amended its complaint to include the entire 2009 sale of iPad products worldwide, quoting: ‘disgorgement of Apple’s profits from unfair competition’ and an injunction to prevent Apple from using the trade mark in a number of territories.

Proview also cite that they were ‘defrauded through tactics that involved explicit misrepresentations, and the use of foreign entities specifically created to perpetrate fraud’.

The Chinese legal action involves Proview Shenzhen (their major manufacturing base), which maintains that it still owns the rights to the trade mark in China. It has had some success in blocking sales of the iPad (although many retailers continued to sell ‘under the counter’ given the huge demand). However, the next major move will be when Guangdong High Court hears Apple’s appeal of a lower court judgment in favour of Proview.

If Proview wins either of its actions against Apple, it stands to benefit from a substantial out of court settlement, but time is not on its side. It may be delisted from the Hong Kong stock exchange within the next few months. Apple, meanwhile, can sit back and take its time, although it must judge how much this case is negatively impacting on its brand, and whether it would be better to agree a settlement that suits both parties.

Either way, this case will set clear IP benchmarks and precedents – not just for China and Chinese companies – but globally.

There are some clear conclusions that can be drawn.

1: trade marks are valuable

As our colleagues at Nucleus say, ‘Your brand is your business; your business is your brand”. The value of trade marks can be immensely valuable and if you are selling marks, take good advice and make sure you formally value them.

We recently acted for a client who owned a single alpha numeric mark that turned out to be the missing link in a series of marks a major car manufacturer was planning on launching. Our client’s mark predated the auto manufacturer’s, which meant we could challenge the adjacent marks in the series. Having initially been offered a minimal sum of £10,000 for the trade mark, Nucleus was engaged to value the mark and define a negotiation strategy and ultimately agreed a sale price of £3m.

2: watch over your trade marks

Your trade mark registrations are valuable assets. Having invested in creating or acquiring these assets, it clearly makes sense to ensure they are not threatened by the activities of others. Just because you have valid registrations does not mean they will be safe forever – you must maintain a watchful eye over your assets and be aware if anyone is planning similar registrations in any of your key markets.

Nucleus IP is able to devise a watching strategy to suit any need. This can cover any individual country or continent, the European Union or worldwide. We can watch solely in relation to the goods or services of interest to your business, or in relation to other specified goods and services as required.

3: Be careful when acquiring trade mark assets

Sale and purchase agreements need to be clear and comprehensive. Skimping on due diligence or legal advice when making a potentially valuable acquisition is foolish. If Apple’s mighty legal team can run into problems, anyone can.

It is also important not to try and be too clever in shielding vendors from the ultimate use of the IP, as most will build-in clauses that prevent re-sale to another party or use for other purposes than originally stated. This is potentially where Apple will have a problem with Proview.

When negotiating to acquire trade marks, or any other IP, be very clear about your intentions, and be certain to make your agreements watertight.

4: think ahead

If you are developing a range of goods or services with a particular distinctive brand or name attribute, think about the consequences. Apple are pursuing brands with an ‘i’ prefix, and this leaves them constantly exposed to situations similar to the Proview case. Securing trade marks well in advance of intention to use is becoming very important.

Whatever your circumstances: take professional advice. Intellectual property, like any prized asset, has significant potential value in the right hands. Registering and protecting your trade marks not only makes good sense in protecting your core business assets, but, as this case proves, in certain circumstances it can also realise value in unexpected ways.

Both Proview and Apple know that to their cost.

Contact us on +44 (0)203 102 9000 for more information.