Many business people, from both start-ups and major multinational corporations, often question the value or reasoning behind the trademark advice they receive from their lawyers. For instance, business people often ask “do we really need to do this?” – after being told that extensive trademark searching must be done to find a potential brand name that is legally available. Oftentimes the cost of careful trademark work seems to outweigh its benefits and seems too speculative – too far in the future to really worry about today.
Will a mark that looks like a problem in a trademark search really be a problem when the brand is launched? Are trademark registrations and enforcement really needed? Does the chain of ownership for a trademark we want to acquire, or the way in which it is recorded with a foreign trademark office, really matter? In this era of tight budgets, willingness to accept more risk to quickly reach global markets, and lack of familiarity with foreign trademark law means that corners get cut.
It was recently reported that Apple paid $60 million to acquire the rights to the iPad trademark in China. Apple paid for a trademark that it thought it already owned for a simple reason: the chain of title was not properly recorded with the local trademark office. It was as if Apple moved into a house when the title search said another party was the owner.
Apple had good intentions and did the right thing to start – it obtained a valid assignment of the trademark rights in iPad in China from a company that earlier acquired the rights from the original owner. Here’s the wrinkle: Apple launched the iPad tablet in China when the trademark office records showed the rights were still owned by the third party.
A lawyer might say “the trademark registry is king.” This is especially true in countries like China. There, the party who is on record as the owner of a trademark – either because that party was the first to file a trademark application or because a change in the chain of title was not recorded – is considered the owner. All other users, even good-faith users like Apple, are infringers. Infringers have the choice to defend lawsuits or pay to settle. Apple may have decided to rush the iPad to market, knowing it could bear this type of risk with its deep pockets, or Apple may have just got caught by a technicality. Either way, the relatively low cost (i.e., less than $6,000) of ensuring a proper chain of title in the trademark registry turned into a $60 million payment that made news worldwide.
In the latest twist, the law firm for the original owner just asked a local court to seize the iPad trademark, since the firm has not been paid and the owner is now bankrupt. In light of this, the final cost to Apple could conceivably be even higher than $60 million.