What Can Your Cash Surplus Do For You? Apple’s Eight-Figure Settlement to Obtain Chinese iPad Trademark

By: Stephen C. Pritchard *

China iPadApple is undeniably one of the most successful companies in the world and, as such, has surpassed its competitors over the last decade in nearly every category as the company has created a dominating formula for mixing innovation with consumer desires. The iPod, iPhone, and now the iPad have all been crucial to Apple’s rapid growth, and have resulted in a $100 billion cash surplus, allowing the company to wield enormous power at a time when debt and a stagnant economy are crippling so many others.

In recent years, China has become an essential market for Apple in terms of growth and opportunity, with Chinese sales accounting for two percent of total revenue in 2010, twelve percent in 2011, and in the most recent quarter of 2012, twenty percent of total revenue. Apple CEO Tim Cook has frequently noted that China is one of the biggest growth opportunities available to Apple, illustrating the company’s commitment to the region at the highest level. As China has become a crucial market for Apple, the company’s legal rights there have been thrust to the forefront, most particularly in a recent court-mediated settlement with Shenzhen Proview Technology (Proview).

Apple has been involved in litigation in China since 2010 over the ownership of the iPad trademark, which was registered in China by Proview in 2000. During early iPad development stages, Apple specifically created a company to buy up the global rights to the iPad name. That company in turn negotiated with a Taiwanese Proview affiliate to purchase such rights in several countries, purportedly including China, and eventually paid Proview $55,000 for those iPad rights in 2009. However, once Apple began selling iPads in China, Proview requested authorities remove the devices and prevent their sale in China.

PROVIEW LogoDespite the pre-existing agreement with Proview, a Chinese court held that Proview still held the iPad name in China, based on the argument that the transaction involving Proview’s affiliate did not include those rights in question. Chinese authorities also said that a transfer of the rights never occurred. Apple appealed that decision, which ended in mediation between the two companies, with CEO Tim Cook meeting with Chinese officials while visiting mainland Apple stores in Beijing. After negotiations, Apple finally agreed to pay Proview $60 million for the rights to the Chinese iPad trademark, which will go into an account for Proview’s creditors as the insolvent company is currently in bankruptcy proceedings.

Since releasing the iPad in April of 2010, Apple has seen its focus shifted by sheer consumer demand, as iPad sales surpassed those of Macs during the fourth quarter of that same year. The iPad is Apple’s fastest-growing business, and of particular relevance to the recent victory in China is the fact that the iPad holds more than seventy percent of the tablet market in China. The payment of $60 million for a trademark is a pittance to the company with a $100 billion cash hoard and the promise of increased growth in China. Delaying the release of the new iPad any longer or changing the name, which would have certainly devalued the device, simply outweighed the cost of purchasing the trademark. In the end, Apple has regained control in its second-largest market and will recoup the $60 million in no time, especially when one considers that Apple’s daily income in China is currently $87 million.

Another View:

Apple Settles iPad Trademark Dispute in China

* Stephen C. Pritchard is a rising second year law student at Wake Forest University School of Law. He holds a Bachelor of Science in Information Systems and Operations Management and minors in Economics and Political Science from the University of North Carolina at Greensboro. Upon graduation, he intends to practice corporate and entertainment law.