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Could China Control Apple in 10 Years?

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Everyone wants a slice of Apple (NASDAQ: AAPL). China wants the whole pie.

It may be the company's fastest-growing market, but China is proving to be a difficult nation for many tech companies.

Google (NASDAQ: GOOG) famously pulled out of the nation in 2010 after a lengthy battle over censorship. At that time, the message was clear: if China makes it too difficult for American enterprises to do business in the country, they might walk away. But in January 2012, Google all but reversed its decision and came back to China.

This week it was revealed that Apple paid $60 million to settle a dispute with a Chinese company regarding the ownership of the iPad name. Experts told the Wall Street Journal that Apple got off easy, in part because the Mac maker could have been forced to pay as much as $400 million.

But Apple should not have been forced to pay anything, let alone several hundred million. The company legally purchased the iPad name from an affiliate of Proview, which previously owned the trademark, in 2009. After the iPad achieved worldwide success, Proview cried foul and claimed that the trademark sale did not include China. A Chinese court agreed.

Now the iPhone maker stands to lose several thousand more in a battle against a Chinese chemical company, Jiangsu Xeubao. According to M.I.C. Gadget (via The Next Web), Jiangsu Xeubao insists that it trademarked the Chinese equivalent to "Snow Leopard," which just happens to be the latter half of Jiangsu Xeubao's name.

The company will have its day in court during a hearing on July 10. Jiangsu Xeubao is seeking $80,645, as well as an apology.

Critics will surely dismiss the suit as a nuisance claim that could not possibly have a negative impact on Apple. The Next Web referred to it as a "simple piggyback lawsuit that is attempting to cash in on whatever negative sentiment there is toward Apple with the Proview settlement."

That could be an accurate assessment. And that is exactly why Apple should take this lawsuit as seriously as a multi-billion-dollar patent dispute.

China is an enormous country. There is virtually no limit to the number of Chinese companies that could have legitimate claims against Apple trademarks. What will happen when they hear about these lawsuits? Will they contemplate the value in going after Apple for what some would refer to as a small amount of money? Or will these firms ignore the value and go after Apple just to make a quick buck?

Jiangsu Xeubao may very well be a piggyback suit. But it may also be valid. According to the aforementioned M.I.C. Gadget report, the Chinese trademark office rejected Apple's attempt to register Xeubao in China. If that is true, what recourse does Apple have? Jiangsu Xeubao has every right to sue -- and the Chinese legal system has every right to rule against Apple.

In the previous case, however, Apple was not guilty. Apple purchased the iPad name in preparation for the device's worldwide launch. If the seller duped Apple, then that company (a Proview affiliate) should be liable. Instead, Apple had to pay $60 million for a trademark that originally cost $55,000.

This may not sound like much money. But what if 10 more companies rise up and ask for $60 million? What if Apple is forced to pay each of those firms in order to keep doing business in China? In that case, Apple would have lost $600 million.

Again, that might not sound like much -- especially for a corporation with more than $100 billion on hand. But investors would be foolish to ignore the value of $600 million, or even $60 million. Just think of how many cool experiments and concept devices Apple could produce with that kind of money.

In the worst-case scenario, the legal battles in China could escalate to an ongoing war that could last more than 10 years. If that happens, Chinese firms will continue extorting Apple until they own the company or until Apple decides to leave the nation -- whichever comes first.

Follow me @LouisBedigianBZ

Posted-In: Apple China iPad Jiangsu Xeubao ProviewTech Best of Benzinga


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