Apple v Proview – “one country, two systems”

The epic battle over the iPad trade mark between the pioneering American multinational and the bankrupt Proview Group has been the subject of much media attention. As the dispute escalates, it has been reported that Proview is taking the fight to the US by filing a lawsuit against Apple in California, accusing Apple of fraud and unfair competition.

The History

• 2000 – Proview Electronics Co Ltd (??????????) (“Proview Electronics” – a Taiwanese company) applies to register the name 'iPad' in several countries/territories;
• 2001 – Proview Technology (Shenzhen) Co Ltd (????(??)????) (“Proview Shenzhen” – a Shenzhen company which is part of the Proview Group of companies) is registered as the proprietor of 2 iPad trade marks in the PRC;
• 2009 – Proview Electronics sells its global rights to the iPad trade marks for GBP35,000 (US$55,000) to “IP Application Development Limited” (“IP Application” – a special purpose company set up and used by Apple to acquire trade marks related to “iPad“) which in turn, sells the 'iPad' trade marks to Apple;
• 2010 – Apple launches the iPad tablet computer which is phenomenally successful but discovers that the PRC trade marks were in fact registered in the name of Proview Shenzhen.  Apple demands that the PRC marks are transferred to them.  Proview refuses and requests US$10 million for the PRC marks;
• 2011 – The Shenzhen Intermediate People's Court rejects Apple's request to transfer the PRC marks, ruling that Apple does not own the iPad trade mark in China. Apple has appealed to the Guangdong Provincial High Court;
• 2011 – The Hong Kong High Court grants an injunction in favour of Apple IP Application against Proview Electronics and Proview Shenzhen, amongst others, prohibiting them from dealing with the PRC ipad trade marks;
• 2012 – A Shanghai court rejects Proview's request for a preliminary injunction against the sale of Apple's iPad, saying it would suspend proceedings to await the results of Apple's appeal. At the time of writing, the Guangdong court has not yet issued a decision.

In the meantime, Proview has sent complaints to various AIC's across the PRC and it has been reported in the Chinese press that Apple's iPads have been taken off the shelves in some cities. There is also concern that, since all iPads are currently built in the PRC, Proview could request PRC Customs to block exports of Apple's iPads from the PRC, which could result in a global stoppage of sales (although it appears that Proview has not yet applied to record the two iPad trade mark registrations with Customs).

One country, two systems

The dispute has highlighted important differences between the law in the PRC and Hong Kong. The Hong Kong decision relies on common law concepts that do not exist under PRC law. More interestingly, there appear to be inconsistencies in the factual conclusions of the Hong Kong and Shenzhen Courts.

Hong Kong decision

In Hong Kong, Apple and IP Application filed an application with the High Court against various companies within the Proview Group (including Proview Electronics and Proview Technology) and against Yang Long San, a Taiwanese national and the founder of the Proview Group, who was also at all material times, the responsible person and director of Proview Electronics. He was also the legal representative, general manager and chairman of Proview Shenzhen. The Hong Kong court granted an interlocutory injunction in favour of Apple and IP Application restraining the defendants from assisting, procuring or authorizing the co-defendants to deal in the PRC trade marks.

According to the Hong Kong judgment, negotiations between an agent engaged by Apple and IP Application and Proview Group's representatives took place in December 2009. IP Application, Proview Holdings, Proview Electronics and Proview Shenzhen (“the Contracting Parties”) entered into a written agreement in December 2009 agreeing to sell, transfer and assign all the iPad trade marks to IP Application for £35,000 (US$55,000) (“the Agreement”). IP Application in turn, sells the iPad trade marks to Apple.

Further, the Hong Kong judgement reports that according to Apple and IP Application:

• In the process of drawing up the formal written agreement (“the Written Agreement”) and the assignments (“the Country Assignments”) to give effect to the Agreement, the representatives of the Contracting Parties represented and led IP Application to believe that the all iPad trade marks in 8 territories, including the PRC trade marks, were owned by and registered in the name of Proview Electronics.
• The Written Agreement and the Country Assignments executed on 23 December 2009 expressly stated that Proview Electronics was the proprietor of all the trade marks, including the PRC trade marks, and that Proview Electronics warranted that it was the unencumbered sole owner of all the trade marks, including the PRC trade marks.
• The Country Assignment relating to the PRC trade marks also stated in the recitals that Proview Electronics was the proprietor of the PRC trade marks.

The court held that there was a serious question to be tried on the issue of breach of contract and conspiracy to induce a breach of contract. The Court found that the Proview Group, which included Proview Holdings, Proview Electronics and Proview Shenzhen, were all clearly under the control of Yang Long San. The parties had refused to take any steps to ensure compliance with the Agreement so that the PRC trade marks are properly assigned or transferred to IP Application. Instead, they attempted to exploit the situation as a business opportunity for the Proview Group by seeking US$10 million from Apple. The conduct of all the defendants demonstrated that they had combined together with the common intention of injuring Apple and IP Application, by acting in breach of the signed Agreement.

The judge also held that IP Application had paid £35,000 for the iPad marks (including the PRC trade marks) and it is plainly arguable that the circumstances of the case are such that the court may order specific performance if IP Application succeeds in its claim for breach of contract. There was a serious question to be tried that Proview Shenzhen holds the PRC trade marks on trust for Apple and IP Application and that Proview Shenzhen had acted in breach of trust by reason of its refusal to transfer and assign the PRC trade marks and that the other defendants had dishonestly induced and/or assisted in Proview Shenzhen's breach.

Shenzhen decision

However, according to the Shenzhen Court, there were 3 relevant documents: 1) an agreement to transfer Proview's worldwide iPad trade marks for £35,000 entered into on 17 December 2009; 2) a formal assignment agreement entered into on 23 December 2009 and 3) an assignment of the PRC trade marks (which is likely to be an assignment recordal application which is not a formal agreement or contract in the PRC).

Although the PRC trade marks were referred to in these documents, Proview Shenzhen, the owner of the PRC trade marks, was not a signatory of any of these documents. Nor was there any evidence to show that Proview Shenzhen had any intention to be added as a party to any of these documents after their execution.

The decision focused on whether Taiwan-based Proview Electronics had the right to represent Shenzhen-based Proview Technology to sell the PRC iPad trade marks. The court concluded that Proview Electronics and Proview Technology are independent companies. The PRC trade mark registrations are in the name of Proview Technology and, since the relevant documents were signed between Proview Electronics and IP Application only, they were ineffective to transfer the PRC trade marks.

Whether Proview Shenzhen was in fact a signatory to any of the relevant documents is a critical question. It is puzzling that the Hong Kong and Shenzhen Courts appear have come to such different conclusions on this issue. It remains to be seen whether the Guangdong Provincial High Court will confirm the decision of the lower court, or whether the parties will find a way to settle this politically charged case.

It will also be interesting to see if the Californian court will rule on Proview's claim that Apple's use of a special purpose vehicle for the purpose purchasing the iPad trade marks was fraudulent. This is standard practice for trade mark owners who wish to remain anonymous when dealing with potential cybersquatters.

The case is an illustration that the principle of “one country, two systems” is alive and well, and has important implications for intellectual property.