New Federal Circuit Opinions - Mar. 26, 2013

Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., Nos. 2011-1218, -1238 (Fed. Cir. Mar. 26, 2013).

In re Owens, No. 2012-1261 (Fed. Cir. Mar. 26, 2013).

New Federal Circuit Opinions - Mar. 25, 2013

Dawson v. Dawson, Nos. 2012-1214,-1215,-1216,-1217 (Fed. Cir. Mar. 25, 2013).

Checkpoint Sys., Inc. v. All-Tag Sec. S.A., No. 2012-1085 (Fed. Cir. Mar. 25, 2013).

New Federal Circuit Opinions - Mar. 13, 2013

Aristocrat Techs. Austl. Pty, Ltd. v. Int’l Game Tech., No. 2010-1426 (Fed. Cir. Mar. 13, 2013).

SynQor, Inc. v. Artesyn Techs., Inc., Nos. 2011-1191, -1192, -1194, 2012-1070, -1071, -1072 (Fed. Cir. Mar. 13, 2013).

Three Lessons from Apple’s “iPad” Trademark Dispute in China

NOTE: This article was published by IP and Technology Law360 in a slightly modified form on March 6, 2013.

One of the high-profile intellectual property (“IP”) cases in 2012 was the dispute between Apple and Proview Technology of Shenzhen, China regarding Apple’s use of the “iPad” mark in China. Apple eventually paid $60 million to settle the dispute. The implications from this dispute, including how it may impact Apple’s business in the U.S. and how Samsung missed a golden opportunity in its patent war against Apple, are less understood. This article discusses three general lessons that U.S. companies and IP professionals can learn from this dispute.

First, understand potential risks of doing business in China. Doing business in China can be very rewarding, but one must also understand the possible risks. This article focuses on risks involving trademarks.

In Apple’s case, Apple, through an intermediate company, purchased the right to use the “iPad” mark in various countries from a Proview entity in Taiwan. Later, however, Proview filed a trademark infringement lawsuit against Apple in China, claiming that the purchase agreement does not cover China.

It appears that the purchase agreement was not clear as to whether it covers the “iPad” mark in China. Since China is a civil law country, parol evidence regarding the parties’ intent carries little or no weight even if the agreement is ambiguous. To effect a transfer of the right, the agreement itself must comply with the statutory requirements. After a court initially ruled in Proview’s favor, the Chinese authorities began seizing iPads in several Chinese cities.

Luckily for Apple, Proview only sought to stop Apple’s sales of iPads in China, but did not seek to stop Apple’s manufacturing of iPads in China that would be shipped to the U.S. and other countries. Essentially, Apple may have dodged a lethal bullet because a less-known aspect of China’s Trademark Law is not even on the radar of many Chinese trademark lawyers.

Specifically, China’s Trademark Law does not explicitly say whether the manufacture of trademark-bearing products in China exclusively for export infringes the trademark rights of the party that has registered the trademark in China. Several Chinese courts have ruled that such manufacturing activities in China constitute trademark infringement regardless of whether the products are bound exclusively for export.

For example, in 2002, a Chinese court found that manufacturing branded products exclusively for export in China constitutes infringement of the Chinese trademark owner’s rights. Nike Int’l Ltd. v. Cidesport, Dec. 10, 2002, Civ. No. 55 (Shenzhen Intermediate People’s Court) (in Chinese). In that case, Nike and Cidesport owned the exclusive-use rights to the “NIKE” mark in China and Spain, respectively. Cidesport authorized a Chinese manufacturer to produce men’s ski jackets bearing the “NIKE” mark for export to Spain. Nike alleged that the Chinese manufacturer’s production infringed on Nike’s exclusive-use rights of the trademark “NIKE” in China despite the fact that the ski jackets would be exported to Spain. The Shenzhen Intermediate People’s Court ordered Cidesport and its Chinese manufacturer to halt production, destroy all branded products, and compensate Nike.

Therefore, it is important for U.S. companies that have their products manufactured in China to have a proper clearance procedure for trademarks in China, even if they do not sell such products in China. Obviously, if Proview had requested an order prohibiting Apple from manufacturing iPads in China, it would have posed a much bigger threat to Apple since it could affect Apple’s business internationally. This leads to our second general lesson.

Second, appreciate the international aspects of today’s IP practice. In today’s global business environment, IP practice has also evolved. One must appreciate the international aspects of today’s IP practice in order to properly manage and minimize risks for companies doing business internationally. As discussed above, Proview’s claim of ownership of the “iPad” mark in China could have threatened Apple’s business not only in China, but in other countries as well.

Therefore, for contentious IP matters such as patent litigation, optimal solutions often require global strategies. For example, as companies protect their inventions worldwide by filing for patent protection in different countries, patent litigation can turn into global warfare. Hypothetically, when a company sues its competitor for patent infringement in the U.S. and seeks an injunction to stop the competitor from selling competing products in the U.S., the company may also choose to sue its competitor for patent infringement in China, where the competitor’s products are manufactured. Note that under China’s Patent Law, manufacturing activities constitute patent infringement even if the products are bound exclusively for export.

In this manner, the company can manage its litigation risks in the U.S. by hedging its bets in China. In other words, even if the company loses the lawsuit in the U.S., it may win the lawsuit in China under China’s Patent Law to stop the manufacturing of the competing products, thus potentially obtaining the same business goal — stopping the competitor from selling competing products in the U.S.

Conversely, the competitor, when facing a patent infringement lawsuit brought by the first company in the U.S., could proactively sue the first company for patent infringement in China, where the first company’s products are also manufactured. In this manner, the competitor manages its own litigation risks by creating leverage. For example, if the competitor loses in the U.S., but prevails in China to stop manufacturing of the first company’s products, neither company may be able to sell its products in the U.S. and each would then be more willing to reach a business compromise to settle their dispute. This leads to our third general lesson.

Third, leverage competitors’ legal trouble in China for one’s own competitive business advantage in the U.S.  For the reasons below, Apple’s legal trouble in China regarding the “iPad” mark actually was an opportunity for a number of Apple’s competitors, such as Samsung and HTC. Unfortunately, no one seized this opportunity.

For example, another high-profile IP dispute in 2012 was the global patent war for smartphones and tablets between Apple and Samsung, which resulted in a verdict of over $1 billion in damages against Samsung (NOTE: the court since has vacated a portion of the verdict). The two have litigated and continue to litigate in many countries.

Because China’s Trademark Law likely prohibits manufacturing of products in China that would infringe someone else’s mark, as discussed above, the “iPad” mark in China could have been a huge bargaining chip for Samsung. Indeed, Proview was in a bankruptcy proceeding when it sued Apple for trademark infringement in China. Had Samsung stepped in and purchased the “iPad” mark in China from Proview, Samsung could have extracted much more value from this mark. This could have helped Samsung gain leverage in its global patent war with Apple.

The lesson here, therefore, is to monitor competitors’ legal troubles in key countries. And  be prepared to seize the opportunity for one’s own competitive business advantage.

            Overall, in today’s global economy, IP practice has become increasingly multi-faceted and multi-national. Even if a dispute arises in one specific country, it might impact a company’s business elsewhere. Therefore, a company doing business globally should think about a global strategy for resolving localized disputes. There are many lessons that a company can learn from Apple’s “iPad” trademark dispute in China.

About the Author:

Lei Mei is the managing partner of Mei & Mark LLP, an Intellectual Property and Litigation law firm based in Washington, DC.  He is the author of a new book ConductingBusiness in China: An Intellectual Property Perspective (Oxford University Press 2012).

New Federal Circuit Opinions - Mar. 7, 2013

In re Hubbell, No. 2011-1547 (Fed. Cir. Mar. 7, 2013).

New Federal Circuit Opinions - Mar. 6, 2013

Radio Sys. Corp. v. Lalor, No. 2012-1233 (Fed. Cir. Mar. 6, 2013).

New Federal Circuit Opinions - Mar. 4, 2013

Move, Inc. v. Real Estate Alliance Ltd., No. 2012-1342 (Fed. Cir. Mar. 4, 2013).