Print 49 comment(s) - last by Cheesew1z69.. on Feb 9 at 11:37 AM

Apple will have to pay $38M USD and likely be forced to pay new licensing fees unless it can win its appeal

Apple, Inc. (AAPL) is in hot water over its use of the trademarked name "iPad".  In fact, appeals pending, a lawsuit loss has put it at risk of a complete sales ban in the world's largest consumer electronics market -- China.  

Chinese holding company Proview International Holdings ltd. (HKG:0334) sold Apple the Chinese market rights to use the trademark for a mere $55K USD in 2006, via an Apple subsidiary IP Application Development.  Apple has increasingly turned to using shell companies to sue people and buy patents, a traditional method of the patent troll.

Of course Proview, ostensibly had no idea that it was really dealing with Apple, or that Apple would use the trademark towards a billion dollar product.  Of course Apple did exactly that, and today the tablet is a much-coveted piece of electronics in the world's largest nation -- one that some people would (literally) trade a kidney for.

Proview looked to settle with Apple out of court, but Apple's lawyers apparently did not take the company's threats seriously.  So Proview called Apple's bluff and sued it in Shenzhen Intermediate People's Court over the trademarks iPAD (China Trademark No. 1682310)  and IPAD (China Trademark No. 1590557).  Proview sought 10B yuan (RMB) ($1.586B USD) in damages [source].

The iPad 2 launched in China for a whopping 3.688K yuan (RMB) (~$585 USD) for the 16 GB Wi-Fi version [source], $85 USD more than its U.S. retail price.  This is actually slightly lower than the even more inflated price points of the first generation model.  The iPad has suffered slightly from its incompatibility with local 3G standards.  Internationally, the iPad (first gen.) sold 15 million units in 2010.  The iPad 2 sold 40 million units in 2011 [1][2][3][4], keeping Apple far ahead of would-be Android tablet competitors. 

China iPad
The iPad is the hottest tablet in China. [Image Source: EPA/Diego Azubel]

The crux of Proview's argument is that it sold the rights to IP Application Development -- not Apple.

Apple argued that Proview was in the wrong and that it fully owned the trademark, via a transfer.  It sought 4M yuan (RMB) ($634.5K USD) in legal fees, for what it says was a defense against false claims.

But the local court did not see Apple's logic, ruling it to be in infringement.  It is on the verge of ordering a 240M yuan (RMB) ($38.07M USD) fine [source].  Emboldened, Proview has filed more lawsuits against Apple's retail partners, including one that will be heard in court in the Pudong district of Shanghai later this month.

Proview Shenzhen's lawyer Xie Xianghui demands that in addition to paying the fine leveled by the Shenzhen court, Apple must either pay a licensing fee or stop selling the product.  And it wants an apology, for what it sees as Apple trampling its IP rights.

States Mr. Xie in the China Daily, "We ask the court to stop selling and marketing for Apple's iPad in China. We also demand an apology."

Xiao Caiyuan, another lawyer, told the China Daily, "We have prepared well for a long-term legal battle."

But Proview may need outside cash from another Chinese firm or venture capitalists in order to fuel a successful IP war against Apple.  The holdings company, which owns some display manufacturing capacity in Taiwan, appears to have listed its website for for sale.

Proview site for sale
Proview's webpage appears to be for sale -- which could be a sign of cash troubles.

For those who fear the Shenzhen court may be favoring the local firm, consider that Shenzhen is far more reliant monetarily on Apple than on Proview, so the ruling indicates that Proview must have a very strong case.  

Apple is indirectly one of the biggest employers in Shenzhen, using the majority of the manufacturing capacity of the local electronics mega-factory complex -- owned Hon Hai Precision Industry Co Ltd. (2317) subsidiary Foxconn -- to produce its iPhones and iPads.  Apple has been criticized for reportedly ignoring poor labor conditions at the factory, whose employees describe it as a "hellish" sweatshop.  Apple disputes these claims.

Apple assembly
Workers assemble electronics at a Foxconn factory. [Image Source: Kotaku]

One thing is for sure -- the Proview case illustrates the danger of firms dealing with holding companies, as you never know who you're dealing with.  As an IP firm you would expect that would be something Proview would be aware of, given that IP-heavy firms are among the biggest abusers of shell companies.

As this is an oft-occurring headache in the tech industry, the real question his how to stop shell company obfuscation.  

The answer seems simple; just limit the number of subsidiaries that any one corporation can hold.  This would go a long way to preventing this kind of potential abuse and reduce these "he-said-she-said" legal spats.

Sources: China Daily, Global Times, Mondaq

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Silly precedent
By tayb on 2/7/2012 12:54:05 PM , Rating: 4
So this company was willing to part with the name iPad but now that they realize who they were dealing with they have sellers remorse and want more?

That would be like me dressing up like a poor man (not hard for me) and going to a dealership to buy a car. I bargain them down to invoice and pay cash for the car. Later they realize I was actually Bill Gates and come after me because they could have gotten more money out of it. They sue me.

I don't see much of a difference. They sold the rights to the patent to an Apple subsidiary. Regardless of my feelings on Apple I find this suit, the ruling, and the potential licensing fees to be outrageous.

RE: Silly precedent
By Theoz on 2/7/2012 1:29:05 PM , Rating: 2
Agree. This suit has no legs anywhere else in the world. This is just more evidence that Chinese litigation is often not fair. When dealing with local companies vs. big western interests they usually side with the locals regardless of the facts.

Also, there is a Cosby show episode where he dresses up like a bum to buy a used car so that the dealer doesn't realize he is a well-to-do doctor. Of course, hilarity ensues.

RE: Silly precedent
By yomamafor1 on 2/7/2012 1:56:19 PM , Rating: 2
Well, this is Chinese government we're talking about. They will do anything to get a leg up on their domestic manufacturers over the foreign ones.

BMW recently lost in a lawsuit against a Chinese company that made X5 clone.

I mean, seriously, anyone with half an eye can tell that it is a direct rip off.

RE: Silly precedent
By Gondor on 2/7/2012 4:27:23 PM , Rating: 2
Your "recent" article dates back into 2008. As in: more than 3 years ago.

What is even more concerning is the rest of the nonsense you posted - it is the likes of you with statements along the liens of "seriously, anyone with half an eye can tell that it is a direct rip off" that fuel Apple's litigation machine which is bent on exterminating all competing black minimalistic rectangles from the market.

RE: Silly precedent
By testerguy on 2/9/2012 10:14:48 AM , Rating: 2
It's people like you, who deny the painfully obvious, who encourage people to rip off other devices with no thought or effort put into coming up with their own designs, leading to small manufacturers being unable to protect their innovative designs from the hands of greedy corporates.

Design rights are there for a reason, don't be so ignorant. Recent is also entirely subjective.

And no device was ever banned for being minimalist or a rectangle. The Galaxy Tab was banned for being too similar to the iPad. The revised tab (which is also minimalist and rectangular) was deemed OK as it had at least some semblance of originality.

RE: Silly precedent
By Cheesew1z69 on 2/9/2012 11:33:29 AM , Rating: 2
don't be so ignorant
Good advice, perhaps you should heed it as well.

The Samsung, in yours and Apples perception , was to similar, in reality it wasn't no matter how many times you or Apple claim it. They even TRIED to get the NEW tablet banned.

So many differences it's not even funny.

RE: Silly precedent
By theapparition on 2/7/2012 1:53:58 PM , Rating: 5
The actual indictment reads a bit clearer.

As I understand it, Company X sells rights to Company Y for use of Trademark. Company Y then licenses it to Company Z.

Company X gets royalties for the name for products sold by Company Y, but Company Y didn't actually sell anything, so no royalties need to be paid. Company Z can profit off the name and never have to pay royalties. It's a common tactic using shell companies to get around paying royalties. Technically, its all legal since the contract usually has a transfer clause, but is very specific on when royalties get paid.

Just because a contract gets signed, however, doesn't mean it's binding. Most US courts took this into account 30 years ago and consider the intent to deceive the other party. In this case, if Apple wasn't trying to skip out on royalties, why did they negotiate this with a shell?

It was only last year I started dealing with a company that I found out to be a shell for a foreign entity. At that I broke off the contract and reported it.

Still, its a bit more complicated than the situation you described above.

RE: Silly precedent
By tayb on 2/7/2012 6:12:02 PM , Rating: 2
It isn't really more complicated, though.

Company X owns trademark to the name iPad. Company Z wants to use the name and uses an affiliate named Company Y to secure the rights and then transfer the rights to Company Z. The sequence goes X -> Y -> Z.

Who has the leverage in this instance? If X didn't want a large company such as Apple using the name 'iPad' (without paying, at least) it could have easily inserted language that barred any company from transferring ownership or inserted language that ensured royalties after a transfer. They didn't.

Is it a bit underhanded and predatory by Apple? Sure. This is the business world though, not the Boy Scouts of America. There's a popular saying and I don't know who coined it but it goes along the lines of "Don't interrupt your enemy while they are making a mistake."

RE: Silly precedent
By Theoz on 2/7/2012 6:25:42 PM , Rating: 2
There is no way that the situation you describe could happen without legal malpractice on an astronomical scale. Ignoring the fact that the article states that the rights were sold, i.e. not a royalty-bearing license agreement such as the type of agreement you are referring to, there is no way anyone is writing a license agreement that allows for someone to transfer/sublicense in the way you describe to skirt royalties to the licensor.

If the situation you describe actually occurred, which I highly doubt, the plaintiff is getting their money, just not from Apple. It will come from whatever malpractice insurance company the plaintiff's counsel used.

RE: Silly precedent
By FinanceExpert2012 on 2/7/12, Rating: 0
RE: Silly precedent
By Cheesew1z69 on 2/7/2012 4:46:03 PM , Rating: 2
And Fannie Mae has what to do with this post? Nothing? I thought so...

RE: Silly precedent
By nolisi on 2/7/2012 2:38:08 PM , Rating: 2
So this company was willing to part with the name iPad but now that they realize who they were dealing with they have sellers remorse and want more?

How much different is this from fraudulent financial scams (such as those that typically target the elderly)? In both cases you have misrepresentation of peoples true identites for reasons of monetary gain. Why should a shell company constitute an ok/legal form of misrepresentation while a person claiming they have an investment firm is not ok/legal? Is it because we paid the state to estabilish the shell company?

Fair trade and the free market ideals are based on buyers and sellers having good information, not being misled.

That being said- it was probably a bit shortsighted for the company to sell the iPad name; if only one company approaches me for the name iPad, and that company isn't Apple, I'd be a little curious.

RE: Silly precedent
By tayb on 2/7/2012 6:19:46 PM , Rating: 2
I would only call something a scam if one party benefited while the other party received nothing. In this instance the rights to the name were sold, not given away, therefore I do not consider this to be a scam.

Furthermore, the notion that Apple should protect another company from making a poor legal/financial/business decision is an odd one. Apple is not responsible for making certain Prevail International Holdings does not make a business mistake, that rests on Prevail. The contract language could have very easily been adjusted to forbid this very thing from happening. Why should Apple point this out?

RE: Silly precedent
By drycrust3 on 2/7/2012 3:26:06 PM , Rating: 2
Later they realize I was actually Bill Gates and come after me because they could have gotten more money out of it.

A better example would be if I, a non-American, went to the car yard to get a job and lied about my citizenship to get the job. The car yard may employ me, but if American immigration officials found out I wasn't an American and that I didn't have a work permit, then they may fine the car yard, and they in turn would want to sue me for lying when I applied for the job.
The same applies here: Apple's approach seems to have been intentionally to hide they were a foreign company. All countries have laws about foreign based companies, and China is no exception. It could easily be the procedure the trademark company followed for selling the trademark was wrong because of Apple's deception. This is a country where a businesses relationship with the government is very important, so if there was a failure to follow the right procedure, especially for such a high profile brand, then that could easily have consequences.

RE: Silly precedent
By tayb on 2/7/2012 6:15:40 PM , Rating: 2
Your conclusions aren't found in any materials I have read. I am not discounting your opinions but I would be interested to know what you've read so that I may read it myself.

RE: Silly precedent
By Trisped on 2/7/2012 6:46:38 PM , Rating: 2
From the article:
Chinese holding company Proview International Holdings ltd. (HKG:0334) sold Apple the Chinese market rights to use the trademark for a mere $55K USD in 2006, via an Apple subsidiary IP Application Development.

The right to use a name and ownership of that name are two different things. If Apple's shell only bought the right to use the name, it would not necessarily have the right to grant the use of the name to someone else (for example, Apple).

Of course all this is general conjecture, since most of us don't speak Chinese and understand Chinese laws, customs, or culture sufficient to explain the situation accurately.

RE: Silly precedent
By Tanclearas on 2/8/2012 10:51:08 AM , Rating: 2
How different would you feel if you sold a car to what you believe to be a non-profit organization only to find out they're selling the car to turn a profit?

How would Apple feel if it discovered a student buying products at the academic price and selling them for profit?

The selling price of many things is very often determined based upon who is buying. Just by having academic pricing, Apple is confessing that a sale price is dependent on the "buyer type or purpose", so they should absolutely be held accountable for their actions in this case.

RE: Silly precedent
By testerguy on 2/9/2012 10:21:23 AM , Rating: 2
Was the company who was sold the rights to use the iPad name claiming to be a non-profit? I HIGHLY doubt it.

If you sell anything to anybody, part of that assessment (in terms of how valuable it is) is how valuable it is to the new person in terms of re-sale value.

The terms of the student packages prohibit such selling for profit - so Apple would simply invalidate the product licenses.

The difference is, the terms of selling naming rights do NOT prohibit reselling, so both of the examples you gave are not at all comparable.

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