Sorry!! The article you are trying to read is not available now.

Apple Facing $1.6 Billion Shakedown in China

Print comment Post Comments

Like Fox News' (NWS) Shepard Smith claiming AT&T (T) is a bunch of lying crack dealers, Apple (AAPL) is getting shaken down for more money after a deal was already made.

Proview Techology, a Chinese tech firm on the verge of bankruptcy, claims that it still owns the trademark to the iPad name throughout Asia. The firm is pushing authorities to stop retailers from selling the device in about 20 cities in China, however local customs authorities are "unlikely to intervene," according to Reuters. As it's attempting to block sales, Proview is also seeking up to 10 billion yuan ($1.6 billion) in compensation, asserting that Apple has infringed on its trademark.

And while it sounds like a last-ditch effort from a company about to go out of business, Proview could actually win this dispute.

Last July, a Hong Kong judge ruled in favor of Apple and said Proview had breached its trademark agreement with Apple made several years ago. Judge Hon Poon wrote, "Proview Holdings, Proview Electronics and Proview Shenzhen, all clearly under [Proview CEO Yang Rongshan's] control, have refused to take any steps to ensure compliace with the agreement so that the China Trademarks are properly assigned or transferred to [Apple]." Poon added, "Instead, they attempt to exploit the situation as a business opportunity for the Proview Group by seeking an amount of US $10 million from Apple."

However, the legal battle wasn't over. A Shenzhen court in southern China ruled late last year that Proview owned the iPad trademark. Another hearing is scheduled for the end of this month.

Proview is claiming that the trademark agreement with Apple only applied to its Proview Electronics affiliate, which doesn't have any control over the iPad trademark in the Chinese market. According to the firm, its Proview Technology affiliate still owns the rights.

But as John Paczkowski at AllThingsD points out, Proview is desperate to pull itself out of a financial hole and could be "misinterpreting" the details of the agreement. In 2010, the company told the Financial Times, "It is arrogant of Apple to just ignore our rights and go ahead selling the iPad in this market, and we will oppose that. Besides that, we are in big financial trouble and the trademarks are a valuable asset that could help us sort out part of that trouble."

Considering Apple bought the trademark for roughly $55,104 in 2006 -- a modern-day equivalent to buying Manhattan Island for a couple of beaded necklaces -- Proview is presumably hoping for a little more compensation. Conversely, now that the iPad is losing heavy ground from the fleet of Android (GOOG) tablets, and the BlackBerry Playbook (RIMM) -- of all things -- is gaining market share, and future tablets running Windows 8 (MSFT) have tongues wagging, Apple really needs this win.

But Apple remains convinced that this is all a shakedown. Spokesperson Kristin Huguet told AllThingsD, "We bought Proview's worldwide rights to the iPad trademark in 10 different countries several years ago." Adding, "Proview refuses to honor their agreement with Apple in China, and a Hong Kong court has sided with Apple in this matter."

Hopefully, for Apple's sake, the court agrees with this view when it hears the case on February 29.

For an investment angle on these and many more tech stocks, take a FREE trial to the TechStrat Report by Sean Udall.
POSITION:  No positions in stocks mentioned.