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.
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