Apple Inc (AAPL) recently settled its “iPad” trademark lawsuit in China. According to Bloomberg, Apple paid $60.0 million to Shenzhen-based Proview Technology; a division of now-bankrupt Proview International Holdings. Higher people’s court of Guangdong province acted as the mediator in the settlement process.
The legal dispute encircled the “iPad” trademark whose worldwide rights in 10 different countries (including China) were bought by Apple several years ago from Proview’s Taiwan unit. However, Proview claimed that the sale did not cover the trademark used in China, and its Shenzhen unit owns the iPad name in China.
Apple sued Proview’s Shenzhen unit in 2010, but lost the case in December last year. Proview successfully argued that it holds the trademark in China and several other countries since 2001, and had intended to use it for a web-capable hand-held device. However, the project was eventually scrapped.
Hong Kong-based Proview filed another lawsuit against Apple in Shanghai. The company also asked Chinese authorities in more than 20 Chinese cities to block the sale of Apple’s iPad following the ruling. In May this year, Proview tried to sue Apple in the United States, but the case was immediately dismissed by the court.
Although the settlement amount is much less than Proview’s initial demand (the company had asked for as much as $1.57 billion), we believe that it will be of substantial help for the already bankrupt company. We believe that the meagre settlement amount reflects Apple’s superior bargaining power and strong brand value in China.
We believe that the settlement will help overcome a major obstacle in Apple’s growth path in China. China is one of the fastest growing markets for Apple and a lingering trade dispute, which prevented it from selling its iconic tablet, could have hurt its competitive edge against Lenovo, Samsung and Amazon (AMZN) going forward.
Currently, iPad dominates China’s tablet market with more than 70% market share. According to market research firm IDC, from the date of its launch, Apple has shipped more than 6 million iPads in China. Apple’s another core product iPhone continues to generate strong sales in China.
In the second quarter of 2012, Apple reported that iPhone sales in Greater China tripled to $7.9 billion (faster growth than any other region), based on the iPhone 4S release and the addition of China Telecom (CHA) as an iPhone carrier. Apple also stated that it has sold five times as many iPhones in China as it did in the year-ago quarter.
We continue to believe that Apple’s ability to innovate and grow in China, where the market is more cost-sensitive, will determine the company’s fortunes over the long term. We expect Apple to continue to forge partnerships with local telecom providers in order to increase its penetration in the Asia-Pacific region going forward. The partnerships will help it to provide devices compatible with local 3G and 4G networks, thereby boosting its subscriber base going forward.
We maintain our Outperform recommendation over the long term (6-12 months). Currently, Apple has a Zacks #3 Rank, which implies a Hold rating in the near term.
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