Lawyers for Apple Inc. argued for its right to use the iPad trademark in China on Wednesday, as a higher court began a crucial hearing that could result in sales of the wildly popular tablet computer being halted throughout the Chinese mainland.
The Higher People's Court of Guangzhou is hearing an appeal by the U.S. firm after a lower court ruled in favor of debt-laden Chinese tech company Proview Technology (Shenzhen), which says it owns the trademark in China.
The value of iPad's trademark rocketed after Apple launched the tablet computer in January 2010, a lawyer for Apple told the court. In the eyes of the consumer, iPad is associated with Apple. If the court decides that Proview wins the case, then this will confuse consumers and hurt their interests.
The verdict of the higher court -- which is not expected immediately -- is usually final under Chinese law, and will set a precedent for other cases in lower courts around China.
Theoretically, there is still a final 'appeal' to the Supreme People's Court to apply for a retrial but the success rate of such applications is extremely low, said Kenny Wong, a partner and head of the intellectual property practice at law firm Mayer Brown JSM in Hong Kong.
If Apple lost before the Guangdong court they will either have to reach a settlement with Proview Shenzhen regarding the rights in the iPad marks or change the name of their tablet to something not similar to iPad.
A week ago, a Shanghai court rejected a request by Proview Technology (Shenzhen), a subsidiary of near-bankrupt Hong Kong-listed Proview International Holdings Ltd, to block Apple from selling iPads in China's richest city, saying that it would depend on the ruling of the Guangzhou high court.
The case moved to the high court after the Intermediate People's Court in Shenzhen rejected Apple's complaint against Proview Technology over the infringement case. Guangzhou and Shenzhen are in the booming southern province of Guangdong.
The legal tussle has crimped some sales of the iPad and also spread to the United States, where Proview International Holdings Ltd's Taiwan subsidiary has brought a lawsuit accusing the world's most valuable technology company of using deception to acquire the iPad trademark.
The legal battle has been simmering for years.
Apple says it bought ownership of the trademark in various countries from Proview, once a global monitor maker, but the Chinese company argues that the U.S. firm dealt with only one unit of Proview and it retains rights to the iPad name in China.
Apple meticulously formed a band of lawyers to buy the trademark, but the transacted amount was given to Taiwan's Proview, not Shenzhen's Proview, Roger Xie, Proview's lawyer, told the court.
The financially troubled technology company has already petitioned Chinese customs to stop shipments of the iPad in and out of China, although the authorities have indicated that such a ban would be difficult to impose.
Mayer Brown JSM's Wong said if the Guangzhou court found that Apple had infringed Proview's trademark, anyone dealing in iPads could also be deemed an infringer, although he added that the position was not entirely clear in China.
Proview Technology (Shenzhen) Chairman Yang Long-san told Reuters earlier this month that it would favor an out-of-court settlement. Some analysts said financial compensation from Apple would help rescue the debt-laden company.
After the hearing, Ma Dongxiao, another member of Proview's legal team, said the question of settlement had been raised.
Apple's lawyers told us they will discuss with Apple about this, Ma said. Of course it will affect iPad sales if Proview wins the case because Apple has infringed the rights.
China is Apple's second-biggest market and a major production base for its products, including the iPhone, iPad and iPod.
The iPad dominates the tablet PC market with a 76 percent market share in China. There are three Apple retail stores in Shanghai and two in Beijing.
Apple is expected to unveil the third incarnation of the iPad at a media event in California next week.
A delay in an outcome of the court case could impact sales of the iPad in China, with consumers turning to devices smuggled from neighboring Hong Kong as some stores take iPads off the shelf.
Over the past few weeks, Proview's efforts have borne fruit as local media reported that some cities had started enforcing Proview's request to remove iPads.
Lawyers said a final decision by the high court could take weeks, if not months.
If this case drags on without a verdict, it might leave a bigger space for both sides to look into a settlement, said Jeremy Zhou, a partner at Joinway Law Firm in Shanghai.
(Additional reporting by Royston Chan in Guangzhou and Artemisia Ng from Asian Legal Business in Hong Kong; Writing by Alex Richardson)