iPad case reveals some risks in domestic trademark acquisitions

The 2010-2012 iPad trademark dispute between Apple Corporation and Shenzhen Proview attracted a lot of attention. In that case, Apple came face to face with the legal risks involved in a trademark acquisition. As trademarks become an increasingly important method by which multinational corporations promote their brands, an in-depth review of the legal risks of domestic trademark acquisitions becomes more necessary.

According to reports, in 2000, Shenzhen Proview, a subsidiary of Proview Holdings, secured the exclusive right to use two trademarks – one consisting of the word “IPAD” and the other a combination of the word “iPAD” and a device. Between 2001 and 2004, Taiwan Proview, another subsidiary of Proview Holdings, secured the exclusive right to use eight iPad registered trademarks in the EU, South Korea and other countries.

In December 2009, the IP company established in the UK by Apple executed an agreement for the transfer of the entirety of the iPad trademarks with Taiwan Proview, under which Taiwan Proview transferred the 10 above-mentioned iPad registered trademarks to the IP company. Although the agreement was signed by Yang Rongshan, who was the legal representative of both Shenzhen Proview and Taiwan Proview, it did not expressly list Shenzhen Proview as a party to the agreement. On 3 April 2010, Apple’s iPad tablet went on sale in the US. On 7 April the same year, Apple acquired the 10 above-mentioned iPad registered trademarks from the IP company for the price of £10 (US$15).

In the second half of 2010, the first shots in the Apple and Shenzhen Proview iPad trademark dispute were officially fired. Apple lost at first instance, and at appeal it settled with Taiwan Proview, paying US$60 million to Shenzhen Proview to acquire ownership of the iPad trademarks.

Apple’s error

Evidence shows that Shenzhen Proview and Taiwan Proview are mutually independent enterprise legal parties, with Shenzhen Proview being the only party approved by the PRC Trademark Office with the exclusive right to use the two registered iPad trademarks, meaning that Taiwan Proview clearly had no right to transfer Shenzhen Proview’s registered trademarks. Even though Yang Rongshan simultaneously served as the legal representative of both Shenzhen Proview and Taiwan Proview, there was no participation in, or execution of, the transfer agreement by Shenzhen Proview, nor were there any means of proving that Yang Rongshan simultaneously executed the agreement as the representative of Shenzhen Proview. Accordingly, the court rejected Apple’s argument that “Yang Rongshan’s act constituted ‘agency by estoppel’”.

Apple’s error lies first in its failure to ascertain that Shenzhen Proview was the sole holder of the iPad trademarks registered in the PRC, and to demand that it participate in the execution of the agreement, and second in its failure to better understand PRC law. The Trademark Law specifies that a trademark transfer enters into effect on the date that it is approved and announced by the Trademark Office; accordingly, even if the transfer contract had been found to be valid by the court, at the time the case arose, Apple still had not secured the exclusive right to use the registered trademarks.

Acquisition risks

With respect to the risks that need to be guarded against when acquiring a trademark in the PRC, we set out some opinions and recommendations:

Governing law risk. First, the acquisition of trademarks registered in the PRC is governed by PRC trademark laws, and accordingly, an acquirer is required to have a good understanding of relevant PRC laws and regulations, including the Trademark Law, the Implementing Regulations for the Trademark Law, etc. Second, attention needs to be paid to the procedural provisions for trademark transfers of PRC laws, given that the ultimate objective of acquiring a trademark is securing the exclusive right to use the trademark. Article 39 of the Trademark Law specifies that a transfer of a registered trademark not only requires the parties to execute a transfer agreement, but also to jointly submit an application and pay a trademark transfer fee to the Trademark Office. Once the application for the transfer of the trademark is approved by the Trademark Office, it will be announced. The acquirer enjoys the exclusive right to use the trademark only from the announcement date.

Risks in the trademark itself. First, the circumstances of the approval of the registration of the trademark and its detailed information. It is possible that an application for registration of trademark has been formally filed, but registration has not yet been approved, and an opposition may be lodged during the announcement period. Special attention needs to be paid to such details as the scope of the goods or services for which use of the trademark has been approved and term of validity. If the scope of the goods or services for which use of the trademark registered in the PRC has been approved is completely unconnected with the acquirer’s products or services, consideration needs to be given as to whether the acquisition is necessary.

Second, whether ownership of the trademark is clear. Ownership of a trademark is unique, so attention also needs to be given as to whether the transaction counterparty has the right to dispose of the trademark. Whether the transferor has the right to dispose of the trademark can be ascertained by searching http://www.ctmo.gov.cn/ or by viewing the trademark registration certificate, trademark transfer contract or authorisation document.

Third, whether the trademark rights are free of defects and stable. An acquirer needs to understand whether the transferor’s trademark rights have been pledged, have been exclusively licensed to another, have not been used for three years in succession or could be vacated, whether the trademark is involved in an administrative action for confirmation of the rights, a civil infringement action or a criminal case, or whether it has been placed under seal or frozen by a court.

Finally, attention needs to be paid to the issue of the distinctiveness of the trademark. The more distinctive a trademark is, the greater is its scope of protection or exclusivity. Registration of certain not so distinctive trademarks may have been approved, and some trademarks that were originally highly distinctive may have become generic names over time. If a circumstance as mentioned above applies, it could easily lead to infringement disputes after the acquisition, and securing protection for the trademark could be impossible, so accordingly a careful review needs to be conducted.

Ma Liwen is a partner at Concord & Partners in Beijing