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High stakes for China iPad dispute

A man walks past an advertisement of Apple's iPad 2 on Feb. 28 in Shanghai, China. Proview Electronics said it is now seeking to regain worldwide rights to the iPad name and is suing Apple Inc. for alleged fraud and unfair competition, hoping to have a 2009 sale of the trademark ruled void.

BEIJING – Apple’s recent market valuation of over $500 billion has invited countless comparisons, even inspiring a website that gleefully chronicles the places and things the tech giant is now valued more than.

Among other things, Apple is now worth more than the entire GDP of Poland, all the gold in the U.S. Federal Reserve Bank of New York and America’s entire aircraft carrier fleet.

But is that enough to take the sting out of the $1.6 billion in compensation Proview Technology (Shenzhen) is rumored to be demanding in exchange for settling the thorny dispute over ownership of the iPad trademark in China

Last Wednesday, Guangdong’s Higher People’s Court heard an appeal from Apple after a lower court ruled in favor of Proview and declared them the actual owner of the iPad name in China. 

The significance of the case has not been lost in Chinese. Both local and foreign media were said to be staked outside the courtroom. In response to greater calls for transparency from the government, Wednesday’s legal proceedings before the three-judge panel were actually live-blogged by the court on a twitter-like service called Tencent Weibo.

The court now has almost 80,000 followers – but their decision has not been announced yet. According to Chinese law, the time limit for ruling on an appeal is three months. 

The stakes are high for everyone involved: Apple, Proview, the Chinese government and other Western investors.

High stakes
China is Apple’s second largest market behind the United States. It is also where most of its products are made –  including the highly anticipated iPad 3 which some tech-watchers are speculating may be released as soon as tomorrow
This court is typically the final word on legal proceedings in China, although Apple could still appeal to the Supreme People’s Court in Beijing. A loss would leave two undesirable options: An appeal to a Supreme Court that is not known for overturning many decisions of its lower court; or settling with the cash-strapped Proview. 

Alvin Chan / Reuters

Reporters wait outside the Higher People's Court of Guangdong in Guangzhou on Feb. 29 for Apple's appeal to the higher court in the Proview case.

For Proview, a company that at one time was an industry leader in the manufacturing of computer displays before falling on hard times, a win or an out-of-court settlement could set the stage for a dramatic revitalization of a company that now counts the Bank of China and China Banking Corp. as creditors. 

According to a Chinese-language report out last Friday, Proview’s consortium of creditors are said to be seeking $400 million from the cash-strapped company.

A settlement with Proview may be anathema to Apple; effectively inviting similar copycat suits against them in other jurisdictions, but the alternative of changing the name of a product they’ve already sold 32 million of worldwide is an equally bitter pill to swallow.

A warning for Western investors?
The need to legally resolve this issue is also uncomfortable for the Chinese government, which stands to lose politically regardless of who wins the case. 

Should Proview prevail and receive control of the trademark in China, it would stir up a certain crisis-of-faith among the foreign business community, whose concerns about intellectual property have become louder in recent years.

Sixty-six percent of respondents to the American Chamber of Commerce’s 2011 China Business Climate Survey said intellectual property rights protection is “very” or “critically” important to their business.

One U.S. businessman, who declined to be named for this piece, noted that while Apple’s spat with Proview is over the sale of a trademark and not the legal standing of the trademark itself, he would nevertheless be concerned about the strength of his company’s own trademarks in China should Apple lose. 

“Remember that line from the movie, ‘The Social Network,’ ‘You better lawyer up!’? You bet we have our lawyers looking closely now at all our company’s legal arrangements.”

It’s an example of corporate skepticism of the legal system here and a growing sentiment among the foreign business community of economic inequality between foreign and domestic companies.

That’s a sentiment that China’s ruling Communist Party wishes to avoid at all cost. In recent years the government has worked hard to improve intellectual property rights law in the country. They touted them as the Guangdong Higher People’s Court did on its Weibo feed of the court proceedings, inviting China’s web sphere to “witness the progress of intellectual property right protection in China.”

Ironically, the enforcement of those laws could potentially unravel the goodwill they were intended to build with foreign companies and investors.

Best for all? Out-of-court settlement
An Apple victory may mollify Western companies. It will also likely draw the ire of a more nationalist section of the population here that may view it as an example of China serving foreign interests before those of its own companies.

As unlikely as it may seem that a decision in Apple’s favor could lead to any mass resentment towards the government, in this sensitive time leading up to China’s leadership transition later this year, the Party is hyper-attuned to perceived public discontent.

So in the meantime, China’s government is quietly pushing through the court’s judges their dream solution to this dispute: out-of-court settlement. At the end of the hearing on Wednesday, the judge apparently gently urged Apple and Proview to consider a private settlement.

The financial motivations are there for both parties to come to the bargaining table, but Apple’s participation will either require a dramatic change of heart by the company which has refused to come to the table so far or a more pessimistic analysis of their chances in court.

Either way, you can bet the Apple CEO Tim Cook is thinking twice about his bold earlier statement last month that the company “has more money than it needs.”