Chinese IP awareness, sown by West, bruises Apple

July 4, 2012

By Wei Gu

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Apple just got gently bruised in China. The U.S. gadget-making giant can easily afford the settlement it has agreed to use the iPad name in China. And a new lawsuit over Snow Leopard poses little threat. Still, the Middle Kingdom is increasingly alert to such things as trademarks and patents. Western multinationals wanted that, but Apple’s experience shows it may increasingly cut both ways.

The $60 million settlement with Proview Technology (Shenzhen) is a rounding error for Apple, which had $110 billion of cash at the end of March. Yet it is significant by Chinese standards. Already, Apple is facing another suit from Jiangsu Snow Leopard Everyday Chemicals over the use of part of its name for Apple’s operating system, according to China Business News. The Chinese firm is only asking for $80,000 in damages, but it’s a trend that might eventually get expensive – or at least annoying – for Apple and other Western firms.

China accounted for a fifth of Apple’s sales in its latest reported quarter. It hardly registered a few years back when the spat with Proview started. That might explain why the Silicon Valley firm wasn’t perhaps as thorough as it might have been in making certain it had dealt with the right Proview group company and fully secured the iPad name.

The irony in the situation is that Western firms, including the likes of Microsoft, are the ones that pushed hard for China to toughen up its intellectual property rules. It seems they have unleashed something of a beast, though as yet nothing on the scale of the litigiousness of the United States. The country saw the fastest growth in the number of international patent filings last year, up by 33 percent, according to World Intellectual Property Organisation. Chinese telecommunications company ZTE overtook Japan’s Panasonic to become the world’s top filer of international patents in 2011.

All that said, China remains a haven for piracy despite having strengthened its laws to comply with World Trade Organisation rules. The U.S. government claims that, on average, 20 percent of consumer products in the Chinese market are still counterfeit, and American companies lose more than $1 billion a year to piracy. That means there’s plenty of room for Western firms to benefit from tougher enforcement. But Apple’s settlement is a reminder that they need to do their homework to make sure they aren’t too often on the receiving end.

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