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Taiwanese lessons from Apple v. Proview

by Michael Fahey and Catalina Paz Arévalo Ossandón

The Apple-Proview dispute now being litigated in China is an excellent opportunity to share some fundamental lessons regarding trademark and commercial practice from Taiwan that apply in a general way to China. While China and Taiwan are completely independent legal jurisdictions in which you need separate and qualified legal counsel, Taiwan in many ways serves as the best test case available for how legal issues may be viewed and even resolved in China. In addition to linguistic and cultural affinities, China and Taiwan also share a common civil law legal heritage and, until 20 years ago, Taiwan was also a one party state that did not brook judicial independence. The result was a significant disjunction between legal conservatism and commercial practice in a rapidly changing society. While the sheer size of China and its ideological commitment to socialism, and authoritarian politics make it very different from Taiwan, Taiwan is the best laboratory we have for thinking about how China’s legal system might develop. Moreover, the presence of so many Taiwanese companies like Proview operating in China means that these Taiwanese lessons may also be helpful in understanding these important business partners and potential competitors.

Register Your Trademarks

In 2001, Proview Technology (Shenzhen) Co., Ltd.   registered two “IPAD” trademarks in China back in 2001 (the China Marks). The periods of exclusivity for the China Marks has been renewed for another ten years until 2021.
Like China, Taiwan is a first-to-file jurisdiction. The person who files first and obtains a trademark registration obtains very important rights and bargaining power as the Proview litigation in China is now demonstrating. In many cases, people who first came to Taiwan to source goods never planned to sell their trademarked goods here and therefore never registered their trademarks. This was shortsighted not only because plans change, but also because people in Taiwan became of aware of even very obscure brands in specialized fields through Taiwan’s highly diversified manufacturing sector. As a result, there was a rush in the 1980s and 1990s as Taiwan’s economy quickly internationalized to register foreign trademarks and later domain names. Compared to the relatively low cost of registering trademarks, the cost of not doing so is often very high indeed.  While Apple could not have registered first in this case, this first lesson from Taiwan is so important that it bears repeating once again.

Deal with the Right Entity

Proview Shenzhen is the current registered trademark owner of the China Marks  as can be easily verified by a search for ‘IPAD’ on the China Trademark Website.

Nonetheless, according to documents released  by Apple, a Proview Shenzhen employee told Apple’s agents that  “…Mr. Ray Mai and I are located in Shenzhen. But the trademark is not belong to Shenzhen company but Taiwan company.” This representation apparently led Apple’s Agent to enter into an agreement with Proview Electronics Co., Ltd. (Proview Taiwan) in which Proview Taiwan agreed to transfer ten marks including the 2 China Marks (the Transfer Agreement).

In Taiwan, the representation that the trademark belonged to the Taiwan company should have been checked on the Taiwan Intellectual Property Office’s online trademark database.

Of course, even if Proview Taiwan were the registered owner of the two China Marks, it would have registered these marks in China, not Taiwan. But the Taiwan lesson applies. A simple search on the China Trademark Website’s English-language interface shows that Proview Shenzhen is the registered owner of the two marks and has been since 2000.
In Taiwan, it is essential to identify the entity registered as the owner of trademarks because the doctrines that would disregard the separate legal identities such as piercing the corporate veil, reverse piercing, or group enterprise liability are either not available or work differently than they do in other jurisdictions. Our Taiwanese lawyer colleagues are very surprised to hear that anyone would simply assume that an agreement entered into by Proview Taiwan could be enforced against Proview Shenzhen on a theory that Proview Taiwan and Proview Shenzhen are alter egos of the Proview Group’s principals.  In proceedings brought by Apple in Hong Kong seeking interlocutory injunctions, Judge Pon noted that   “Proview Holdings [a Bermuda-registered holding company listed in Hong Kong, Proview Electronics, and Proview Shenzhen, all clearly under  [Proview Holdings Chairman] Yang’s control, have refused to take any steps to ensure compliance with the agreement… Mr. Yang… as the chairman and chief executive officer of Proview Holdings and the responsible person and director of Proview Electronics [Proview Taiwan] as the legal representative, general manager and chairman of Proview Shenzhen…he had at the material time management and control over them.”  It would be much more difficult to persuade a Taiwanese court that Proview Holdings, Proview Electronics, and Proview Shenzhen are all merely alter egos of the same entity under Mr. Yang’s control. Hence entering an agreement with any entity other than the registered trademark owner will cause serious problems if enforcement becomes necessary.

Right Person

The Trademark Assignment Agreement was signed on behalf of Proview Taiwan by Mai Shih Hung in his capacity as “Legal General Counsel.” Did Mr. Mai have the authority to bind Proview Electronics?

In Taiwan, perhaps not. Consequently, a prudent business person would be unwise to rely on this form of execution. As in other jurisdictions, a Taiwanese board of directors can delegate authority to corporate officers. However, in practice most corporate officers with the exception of the General Manager do not have the power to bind the corporation.

Moreover, in-house legal counsel, despite English-language titles such as ‘General Counsel’, is rarely deemed to be a corporate officer. As a result, even very senior in-house counsel rarely has significant authority over any corporate decisions in Taiwan and generally acts in strictly advisory role. As a result, it is not at all surprising that Proview has since argued that Mr. Mai lacked authority to sign the Transfer Agreement.

Right Formalities

Fortunately, there is a much simpler way to ensure that the entity you are dealing with is bound by your agreement. Although signatures are a valid method of executing a contract, the gold standard is to have the counterparty execute the contract by using the registered corporate seals. In Taiwan there are two of these: the registered seal of the corporation (often referred to as the ‘Great Seal’)   and the registered seal of the corporation’s Chairman (often referred to as the ‘Lesser Seal’). The first step is again to go online to check Department of Commerce’s online database for the corporation’s Chairman. In the case of Proview Taiwan, the Chairman is a Yang Yun-cai (楊運財).

Both Proview Taiwan and Mr. Yang’s seals can be verified by using public records at the New Taipei City Department of Commerce, where Proview Taiwan is registered. The advantage of using corporate seals is that their use bypasses the whole question of whether a given person such as Mr. Mai is authorized to bind the company since the seals are prima facie evidence of actual authority to bind and in practice it is very difficult to overcome the presumption that the use of seals was authorized except in cases of egregious fraud.

While we understand that verification of seals in China is much more difficult (see this excellent discussion by Steve Dickinson over on the China Law Blog), the general outlines of this Taiwanese lesson also apply in China.

Although Taiwan and China are independent jurisdictions, their legal systems share many commonalties such as having a first-to-file registration system and the use of registered seals to execute agreements. In both jurisdictions, common law legal doctrines such as group enterprise liability may not be recognized by the courts or may be understood differently. In both jurisdictions, corporate personality is not easily disregarded even where failing to do so might promote injustice.

 

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