Apple's China Syndrome

Jessica Seah

Corporate Counsel

06-01-2012

As Apple Inc. and Shenzhen-based Proview International Holdings Limited battle over the iPad trademark in China, the lawyering involved in the 2009 trademark deal between the two companies has also become a hotly debated point of contention.

Proview's lawyers have been making the case recently, both in public and in Chinese courts, that Apple's lawyers failed to perform adequate due diligence before the company paid $55,000 for the iPad trademarks held by Proview's Taiwan subsidiary. Though Apple claims the trademarks that it purchased include rights in China, Proview says they do not. So far, a court in Shenzhen has agreed with Proview, though Apple is appealing that decision in a higher court in Guangzhou.

"The fact is that Apple's former lawyer made a silly mistake," Proview lawyer Xiao Caiyuan of Guangzhou's Guanghe Law Firm told The Wall Street Journal .

For its part, Apple says Proview is blowing smoke with such claims. In a statement issued in March, the Cupertino, California–based company said: "Proview is misleading Chinese courts and customers with claims that the iPad trademarks cannot be transferred, or that mistakes were made in handling the transaction."

Stan Abrams, an independent Beijing IP lawyer who has posted extensively about the case on his China Hearsay legal blog, says that according to his own examination of the court records, Apple's lawyers may have failed to require proof of the mark's assignment at closing.

If there was a mistake in Apple's lawyering, it's not clear exactly who made it. Several sources involved in the matter say that Baker & McKenzie worked on the Proview deal. The firm has long taken the lead on IP matters for Apple in Asia. But one lawyer who was involved in the Proview deal says that although the firm worked on the deal, Baker did not perform the due diligence in the matter. Another lawyer, Helen Zhang, an IP partner at Zhong Lun Law Firm in Shanghai, who has been on the opposite side of deals involving Apple, says that the company is known for using less expensive local firms along with Baker & McKenzie on IP matters.

Apple spokeswoman Carolyn Wu declined to comment about the work of the lawyers who negotiated the deal with Proview. Baker & McKenzie, which (along with other firms) continues to advise Apple on the matter, also declined to comment. Paul Schmidt, who worked on the Proview deal as a Baker & McKenzie partner but has since joined Beijing-based Jun He Law Offices, declined to comment on the matter except to say that the issues are a lot more complex than the way they're portrayed in the media.

Cases like this may be straightforward, yet still lead to many mistakes. That's the view of Benjamin Bai, a Shanghai-based IP partner at Allen & Overy. When a company buys a trademark in China, Bai points out, it must then register the assignment agreement with Chinese authorities before it's considered the mark's rightful owner. "Many international companies make that mistake," says Bai. "They buy an IP thinking that it automatically belongs to them after acquisition, as it would in most Western jurisdictions, but it doesn't—not until their registration gets approved."

Abrams says he appreciates that due diligence in multiple Asian countries is challenging. "The lawyers needed to be well versed in all jurisdictions, and that's not easy, so mistakes like that are common," says the blogger. "But are you going to hire a local lawyer in every jurisdiction?"

Some argue that that's not a bad idea. Ray Mai, now a partner at Chinese IP boutique HongWei Intellectual Property Law Office, signed the 2009 agreement on behalf of Proview. Apple has argued in court that he signed it as GC for the whole company, while Proview maintains that he was responsible only for Taiwan. Mai claims he's forgotten many details, including which firm corresponded with him on Apple's behalf. But he says that a lot of the IP issues that international companies face arise because their lawyers aren't as familiar with the Chinese IP system as they are with their home markets.

"The problem with international law firms is that they are arrogant," Mai says. "They assume they know how everything works, and they refuse to admit their mistakes and short­comings."

There's also a home court advantage. Zhong Lun's Zhang says Chinese law firms tend to have closer relationships with Chinese courts and government agencies than the international firms because they are allowed to have direct contact with them. Chinese law obligates foreign law firms to appoint a local firm as an intermediary when submitting a trademark application.

But Chinese firms have their own shortcomings. "They often find it hard to communicate and interact with their international clients," says Schmidt. "They have a hard time explaining what is truly wrong with a client's IP, and clients get frustrated."

Schmidt argues that the best representation combines the two. "Each side has something to bring to the table," he says. "The optimum team is embracing a right mix."