Apple’s China Trademark Litigation: It’s Gonna Settle

Apple iPad Event (Photo credit: Wikipedia) Bloomberg News just came out with a story, China Court Encourages Apple, Proview to Settle Dispute [link no longer exists], describing the latest goings-on between Apple and Proview in their fight over the “iPad” name in China:

A Chinese court is mediating talks between Apple Inc. (AAPL) and Proview Technology (Shenzhen) Co. in a bid to get the companies to settle their dispute over the iPad trademark in the country.

“On the one hand, we are trying to process this case, and on the other, we are working on encouraging both sides to settle,” Zhao Le, an official at the foreign affairs office of the Higher People’s Court of Guangdong, said by telephone yesterday. Zhao said he had no further information on the effort.

On Feb. 29, the Guangdong court heard Apple’s appeal against a lower court ruling last year that Proview owned the iPad trademark in China. Proview, a failed maker of computer displays, has filed separate complaints alleging that Apple’s sale of iPad tablets in the country infringed intellectual- property laws.

“We started work, through the mediation of the court, on trying to get both sides to settle,” Roger Xie, a lawyer for Proview, said by phone. Before issuing rulings, Chinese courts typically initiate proceedings for litigants to settle, he said.

None of this is any surprise. My law firm’s international dispute resolution lawyers have overseen about a dozen Chinese litigation matters and all but one of those was fairly routine. The one that was not fairly routine was “sticky,” in that the law was clear but the law also would require the Chinese court to issue a ruling it clearly did not want to issue. The Apple-Proview case is what I would describe as a sticky case in that the law seems to favor Proview, but a ruling for Proview does not favor China. The court should rule one way, but it does not want to do so.

When I say the law seems to favor Proview, please understand that I am basing this strictly on media reports and there is a very real possibility I have it all wrong. But to put it simplistically, it seems Proview tricked Apple into believing Apple had purchased the iPad name in China from Proview when, in fact, under Chinese law, Apple had not. I am going to ask you to go with me on this and just assume that the law/facts favor Proview.

Because the politics and the economics certainly do not.

If Proview defeats Apple in their various Chinese lawsuits, the end result will almost certainly be that Proview will end up owning the iPad name in China. That would not be a good thing for China as it would cause the world to freak out even more about China’s IP protections and at least some foreign companies would cite this case to justify not going into China, not selling their product into China, not working with Chinese companies, and even not buying product from China. None of this would be good for China.

The second way in which a Proview court victory would hurt China is that it would probably lead to Apple moving its iPad manufacturing (or at least some large parts of it) out of China. If Proview is deemed to own the iPad name in China, Apple will not be able to use the iPad name at all in China unless it pays to license the use of that name from Proview. If the Chinese courts hold that Proview owns the iPad name in China, I do not believe Apple will pay Proview even one Yuan for the licensing rights to that name because doing so would set such bad precedent for Apple. A holding that Proview owns the iPad name would also mean Apple would not sell iPads (and other Apple products?) in China again. Note that Apple has yet to release its newest iPad in China. How do you think the lose of iPad related jobs will play among China’s masses? How do you think the loss of the iPad at retail will play among China’s elites?  I am quite certain the Chinese government is thinking about these things.

So what can the Chinese government do? A lot.

Back to the “sticky” case we had in China. Every China case we had before that sticky case either settled or was ruled on shockingly quickly. But our sticky case just languished. Six months at a time would go by with nothing. Then when we would ask the court what was happening on our case, the court would say that we needed to settle. The other side was being told the same thing. Between the lower court and the appellate court, this went on for more than three years. The courts eventually did rule, but of course our case had nowhere near the significance of the Apple-Proview one.

So what is going to happen in the Apple-Proview case? It has to settle. It just has to. There are certain cases where not settling could be so horrible for one or more sides that settlement has to happen. Picture two people fighting at the edge of a cliff. There are times where both parties go off the cliff, but that becomes less likely when you have a powerful and self-interested third party moderating.

The Chinese government is that third party in the Apple-Proview case and you should just assume that the courts are taking their direction straight from Beijing’s highest echelons.

The problem with my firm’s sticky case was that both sides knew a compromise court ruling was extremely unlikely; either one side or the other would win big. We were representing a foreign plaintiff and the amount at stake was large enough so that any settlement might prove devastating to the Chinese defendant. This made settlement all the more difficult.

Since Apple has One Hundred Billion Dollars cash on hand it can easily afford to pay to resolve the Proview case. It just does not want to do so, and certainly not in a way that will make it appear to be admitting defeat. The Chinese government is going to need to come up with a face-saving solution for Apple that will involve Apple maybe indirectly paying off Proview while receiving some sort of major bone from the Chinese government. Something that will give Proview money and yet still allow Apple to claim an overall victory.

This case just has to settle and it will.

Bet on it.