Apple Says Allowing China’s Proview to Use IPad Brand Would Harm Consumers

Apple Inc. (AAPL) urged a court in southern China to deliver a “fair and just” ruling in its dispute with the local unit of Proview International Holdings Ltd. (334) over ownership of the iPad trademark in the country.

Lawyers for both companies presented arguments for almost six hours at the Higher People’s Court of Guangdong in Guangzhou yesterday before being asked by the three-judge panel if they wished to settle. Attorneys for Apple and Proview said they would consult their clients and the hearing was adjourned without a new court date or a timeframe for a ruling.

Apple appealed a November ruling by a lower court that its 2009 contract to buy rights to the iPad name in China was invalid because Proview’s Shenzhen unit that owned them wasn’t a party to the agreement. A loss in court would subject Apple to lawsuits seeking damages and enable a nationwide ban on iPad sales in the company’s biggest market outside the U.S. That would be “unfair” given Apple’s pioneering role in the tablet market that now gives the mark its worth, Apple’s attorney said.

“Who created the value of the iPad trademark,” Apple’s attorney Shi Yusheng said in closing remarks yesterday. “I think everybody knows the answer.”

Photographer: Nelson Ching/Bloomberg

The Apple Inc. logo is displayed on the back of an iPad in Beijing, China. Close

The Apple Inc. logo is displayed on the back of an iPad in Beijing, China.

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Photographer: Nelson Ching/Bloomberg

The Apple Inc. logo is displayed on the back of an iPad in Beijing, China.

‘Multiple Roles’

The dispute centers on whether Proview’s Taiwan unit, which Apple paid 35,000 British pounds ($55,780) to use the iPad name in mainland China, had the right to sell it or whether that rested with the Shenzhen unit and its creditors, including Bank of China Ltd. (601988) and China Minsheng Banking Corp. (1988)

Lawyers for Proview’s Shenzhen unit said yesterday the company’s employees didn’t represent it in the negotiations and were acting on behalf of the Taiwanese division.

“Personnel may have multiple roles or titles within the group, but the question is in what capacity were they acting?” Xiao Caiyuan, representing Proview, said during the hearing. “The agreement makes it clear they were acting on behalf of Proview Taiwan.”

At least three employees of Proview’s Shenzhen unit participated in negotiations leading to the agreement to sell the iPad name to Apple, lawyers for the Cupertino, California- based company said.

Apple Witness

The trademark negotiations were authorized by Rowell Yang, chairman of the Shenzhen unit, and the agreement was signed by Ray Mai, who led the Shenzhen unit’s legal department, the lawyers said in court.

Apple sued Proview Shenzhen in 2010, claiming ownership of the iPad trademark in China on the basis of a December 2009 contract that the U.S. company says gave it global rights to the name in 10 countries.

No one in Shenzhen, a city neighboring Hong Kong, knew the Taiwan unit signed away the China trademarks, Yang said in an interview last month.

The Shenzhen Intermediate People’s Court rejected Apple’s claims on Nov. 17. The court said the purchase agreement was signed in the name of Proview’s Taipei-based subsidiary, Proview Electronics Co., which failed to demonstrate that the transfer was approved by the Shenzhen unit that owned the mark.

The only witness called by Apple yesterday was its intellectual property investigator, Graham Robinson, who exchanged e-mails with Proview employees in 2009. Robinson testified that a November 2009 e-mail from a legal-department employee named Yuan Hui showed that Proview agreed to sell all of its iPad trademarks, including two in China, to Apple.

Proview Sales

When asked whether Yuan represented Proview’s Shenzhen or Taiwan divisions, Robinson said, “During all our negotiations, I assumed Hui Yuan represented the interests of the entire Proview group.”

Proview’s wholly owned subsidiary, Proview Technology (Shenzhen) Co., obtained the iPad trademark in China in 2001, according to a Feb. 3, 2010, regulatory filing with the Hong Kong stock exchange. The mark was obtained for a desktop terminal with touch-screen display called the Internet Personal Access Device, or IPAD, that the company developed starting in 1998.

About 20,000 of the devices were sold over more than 10 years, according to Yang.

Sales of Apple’s iPads topped 32 million worldwide last year, earning revenue of $20.4 billion. In less than two years, the device has become the company’s second-best selling product by revenue, behind the iPhone.

“Consumers in China have come to associate this trademark with Apple’s tablet computer,” Shi said during the hearing. “Allowing Proview to use the brand to make their own products would cause confusion and harm consumer interests.”

Revenue Quadrupled

Apple quadrupled revenue in China last year after adding stores and expanding online distribution of its products. The company has distribution deals for the iPhone with two of China’s three biggest carriers.

Proview has also applied to China’s Customs Bureau to block exports and imports of iPads. Last week, the company asked a court in California to stop Apple from using iPad trademarks.

“It’s not really trademark law, it’s about whether the trademark was legally transferred or not,” Dan Harris, a Seattle-based lawyer with Harris & Moure who handles cases on intellectual property in China, said before the hearing. “Proview Taiwan agreed to sign over the trademark, but Proview Taiwan didn’t own the trademark.”

The Proview Group was founded by Yang in Taiwan in 1989 as a maker of televisions and computer displays, and went public eight years later in Hong Kong. By September 1999, it was among the world’s 10 biggest makers of computer monitors.

Shares Suspended

Sales expanded 10-fold from 1997 to 2008, when the U.S. subprime mortgage crisis expanded into a global slowdown. Proview’s sales plunged 74 percent to HK$4.46 billion ($575 million) in 2009, when it had a loss of HK$2.91 billion.

As falling sales eroded cash flow, Proview units defaulted on payments to suppliers and creditors, the company said in its annual report that year.

After Proview Technology (Shenzhen) Co. defaulted on loans, the Shenzhen Intermediate People’s Court in March 2009 appointed Bank of China and Minsheng to lead a reorganization of the company, Yang, who remains chairman of the unit, said in a Feb. 21 interview.

Proview’s Hong Kong shares have been suspended since Aug. 2, 2010. The Hong Kong stock exchange on Dec. 30 gave Proview a third and final warning that it will be removed from the bourse by June 29 if it fails to publish earnings and demonstrate sufficient working capital for 12 months.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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