DECEPTION IS STILL KING — Apple, iPad, And The Still Murky World Of Negotiation Ethics

 

Hi Mike.  Did you read where Apple is being sued for fraud in a trademark case over the name “iPad”?  The plaintiff, a company called Proview, claims that Apple created a dummy British corporation, used a negotiator with a fake name, and lied about its intended use of the mark, in order to negotiate the purchase of the trademark “iPad” in various countries.  Is this unethical negotiating behavior?  Or is it fair to hide the identity of the real buyer so the seller doesn’t get too greedy once it finds out the buyer is a gigantic corporation?  What’s the scoop?

– Honest Negotiator –

 

Dear Honest!

I read that article in the L.A. Times and found it fascinating – at least from the Negotiation Geek Ethics point of view.  (You can find the article here (assuming the Times keeps its link alive.))

I see two ethical questions:  First, is there anything wrong with hiding the identity of the principal in a negotiation?  Can you go so far as to create dummy corporations, and use pseudonyms, to hide the true buyer’s (and the true negotiator’s) identities?  Or does this cloak and dagger stuff cross the line into “bad faith” negotiating – if there is such a thing.  Or worse, unethical or unlawful negotiating?

Second, even if you can use dummy companies and make up the names of the company’s key employees, do you cross the line when you lie about the purpose of your interest in the product being sold?

OK, this is all a little nebulous.  Let’s get a little background first.

THE “iPAD” TRADEMARK LAWSUIT

According to the complaint filed in Santa Clara Superior Court (click here if you want to see for yourself), Proview is a Taiwanese company that manufactured computer monitors.  In 2000, with the help of National Semiconductor, Proview began developing an “all-in-one internet terminal with a built-in 15-inch color monitor.”  Guess what they called this new-fangled device?  Yup, the iPad.

So, being the thorough company that it was, Proview registered the “iPad” trademark in various countries, including China, the European Union, Mexico, and various Asian countries.

From 2000 on, nothing much came of Proview’s iPad.  And then 2008 struck … with a vengeance.  You remember that year.  The bottom fell out of the world economy and we are all still swimming in the muck trying to reach the shore.  Proview lost its two biggest customers, Circuit City and Polaroid, and fell on hard times.  It was desperate for cash.

Now the story gets interesting.  According to the complaint, Apple was working on its latest revolutionary “must-have” overpriced device, the tablet computer.  Apple even had a clever name all picked out.  Unfortunately, what it didn’t have was the trademark for that clever name in China, the EU, Mexico, and various Asian countries.  It needed to acquire the trademark for “iPad” from Proview.

Now can you imagine the leverage Proview would have enjoyed had Apple come knocking on its door saying “Hello there.  We have invented the next revolutionary technological gadget that tens of millions of people around the world will have to buy at inflated prices, and we want to call it the ‘iPad.’  We’d like to buy the trademark from you.  How much will you charge us for the rights?”

How many zeros are there in a gajillion?

So clearly, Apple needed a different negotiating strategy, preferably one that did not involve “Apple,” “next it gadget,” or very many zeros.  It needed to hide its negative leverage.  And hide it, it did.

Again, according to the complaint, Apple created a dummy British corporation called IP Application Development Ltd.  And the initials of this company?  What a coincidence, it’s “IPAD.”  Apple then created a fake person, by the name of Jonathan Hargreaves, and had Mr. Hargreaves contact Proview to open discussions for the purchase of the iPad trademark rights.

“Mr. Hargreaves” did his job dutifully and opened the dialogue.  Proview, which, don’t forget, was in dire financial straits at the time, was interested and a negotiation ensued.

Here is where the second ethics question comes in.  Proview wasn’t going to sell its trademark to just anyone; and was particularly concerned about selling to a competitor.  So it asked “Mr. Hargreaves” to describe IP Application Development Ltd., and to explain why the company wanted the trademark.

“Mr. Hargreaves” was “less than entirely forthcoming” (to quote my favorite line from the ABA’s Ethics Opinion 06-439 (April 12, 2006)  “Lawyer’s Obligation of Truthfulness When Representing a Client in Negotiation”).  In reply, “Mr. H.” stated the company was new, but intended to be “in the computer field.”  However, “Mr. H.” continued, “since we have only just incorporated, it is premature to disclose more than that.”  Nonetheless, “Mr. H.” did go out of the way to reassure Proview that “we will not be competing with your company.”

Thereafter, according to the complaint, Proview asked again why IP Application Development wanted the trademark, and followed that with what was probably a negotiating strategic blunder by asking “how much IP Application Development was willing to pay” for the trademark.  (Why was this a blunder?  This is probably a situation where the seller should set the bidding range…after doing a lot more due diligence!)

In an ethically questionable response, Apple’s fictitious Mr. Hargreaves is alleged to have written in an email (copied in the complaint) that it wanted the trademark because “IPAD is an abbreviation for the company name IP Application Development Limited. This is a newly formed company, and I’m sure you can understand that we are not yet ready to publicize what the company’s business is, since we have not yet made any public announcements.”  Mr. Hargreaves then again affirmed that the company “will not compete with Proview.”

To create a little positive leverage of its own, Mr. Hargreaves then allegedly took advantage of Proview’s financial destitution and “threatened to initiate legal action to cancel Proview’s trademarks…if Proview did not agree to sell them.”

Proview eventually sold its trademark for all of £35,000 (or about $55,000).

THE MYSTERIOUS MR. HARGREAVES REVEALED

According to the complaint, Apple later revealed in a Hong Kong affidavit that “Jonathan Hargreaves” was an “alias” for someone named Graham Robinson.  (“Alias,” “pretexting,” “lying,” it’s all in the spin.)  A quick Google search turned up a Graham Robinson at the national law firm of Wilmer and Hale, where Mr. Robinson is listed as the head of the firm’s Corporate practice.  Wilmer and Hale, according to its website, has done significant IP work for Apple, including obtaining “a significant win for Apple in an ITC action in which Nokia had accused Apple’s iPhone, iPad, iPod and MacBook products of infringing seven Nokia patents.”  (I’m not saying this is the same “Graham Robinson” who pretended to be Johathan Hargreaves in the Proview negotiations…I’m just saying….)

SO ABOUT THE ETHICS

So what’s wrong, if anything, with the way Apple negotiated?  Well, let’s look at it in smaller bites.

1)  The Undisclosed Principal

As noted, Apple wanted to buy the iPad trademark, and knew that if it was open and honest about it (“Hi, I’m Apple, and I would like to buy your trademark for our next big thing”), the seller would have held out for an exorbitant sum.  Thus, Apple looked for a way to buy the trademark without identifying the fact that it was Apple that was buying it.

Apple could have simply utilized an agent to buy the mark for it.  And if asked, the agent could have honestly stated:  “I’m sorry, I can’t identify the principal I’m working for.”  This probably would have made the seller suspicious, and possibly even increased the sales price, but it would have been an honest transaction.

Indeed, there is a long history of lawyers negotiating deals on behalf of undisclosed principals for the very reason at issue here – that if the seller knew the true identity of the buyer, the seller could increase the price and the buyer would have to pay more to get what it wanted. Apparently, it’s common in real estate deals where developers want to buy up numerous parcels, but don’t want the last seller to hold out for an inflated price.  (San Diego mediator Extraordinaire Scott Markus shared with me the great example of how Disney bought up Orlando, Florida through a series of dummy companies.  Similarly, Pepperdine’s Director of the Straus Institute for Dispute Resolution, Tom Stipanowich reminded me of the Controversial Los Angeles water rights acquisition when the City used agents to purchase water rights under the guise that it was for cattle operations.  Remember the movie Chinatown?)   (See also the fine paper by New Mexico attorney Catherine Goldberg which looks at this very issue.)

In fact, it is such a recognized negotiation tactic that the ABA Model Rules of Professional Conduct seem to condone it.  For instance, ABA Model Rule 4.1 forbids attorneys from making false statements of material facts.  However, the Comments to the Rule then clarify that “[u]nder generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact,” such as “the existence of an undisclosed principal except where nondisclosure of the principal would constitute fraud.”

In other words, one way to read this Comment is that it has become so common, and hence now “generally accepted,” in negotiations to bargain on behalf of an undisclosed principal, that an attorney would not be violating his or her ethical obligations by misrepresenting the existence of an undisclosed principal…unless, of course, such misrepresentation (or failure to disclose) would constitute fraud.  (Fraud, of course, requires a misstatement of a material fact; but the ABA Comment says this is not material…unless it constitutes fraud, in which case it is material…ohhh my head hurts.)

Strange rule, if you think about it.  By saying that a statement about an undisclosed principal is not a “statement of material fact,” the Bar has adopted a rule that says essentially that it’s o.k. for lawyers to lie about who they are negotiating for…so long as that does not constitute fraud.

The Goldberg article mentioned above tried to find where that line is between permissible lying about the identity of one’s principal and fraudulent (and hence impermissible) lying about the identity of one’s principal.  It was a valiant effort…but I’m not sure the distinction was entirely satisfying.

(See also the short article by Thomas Joseph of the Price & Adams firm in Pennsylvania which cites to some cases and commentators acknowledging the “common and ethical practice in the IP community” to negotiate on behalf of undisclosed principals.)

2)  The Shill Corporation

But even accepting that one can, under non-fraudulent circumstances, negotiate on behalf of an undisclosed principal, is that what happened here?  Did Mr. Robinson, assuming he is a U.S. attorney, merely negotiate on behalf of an undisclosed principal?  Or did he and Apple go further?

They went further.  According to the complaint, Apple formed a shill British company and had the British company purchase the trademark.

So what?  Is this really any different than the “undisclosed principal” situation where the agent says “I can’t disclose who I’m buying this mark for?”  Actually, yes!  Setting up a dummy company is hiding the very existence of the principal.  By deceiving the seller into thinking there is no hidden principal, the true principal is making an effort to avoid even the moderate increase in price that would likely be associated with a purchase by an agent of a known, but unidentified, principal.

Looked at another way, if “Apple” is the buyer, the sales price for the trademark will be astronomical.  If “an undisclosed principal” is the buyer, the sales price may not be astronomical, but may still be high to reflect the possibility that a mysterious large company is buying the mark.  However, if there is no undisclosed principal at all, and the buyer is by all appearances a small startup computer company, then the sales price might be relatively low.  Hiding the existence of a principal by using a dummy buyer is the first step in the deception of the seller designed to lower the sales price.

And yet, no untruth has yet been uttered.  Deception?  Yes, since the eventual owner of the mark, and the entity allegedly orchestrating the entire operation, is Apple.  But untruthful?  No.  The shill company with the convenient name was in fact buying the trademark.

Was the company obligated to affirmatively inform the seller that it intended to assign the mark to Apple once the transaction was done?  Not according to the standards of ethics governing U.S. attorneys.  According to Comment 1 to ABA Model Rule 4.1, “A lawyer … generally has no affirmative duty to inform an opposing party of relevant facts.”  So being silent seems to be o.k., placing the burden of investigation and education squarely on the shoulders of the seller.

3)  The Fake Negotiator

But Apple didn’t stop with simply setting up the dummy company.  According to the complaint, Apple then had its negotiator, Mr. Robinson, create a fictitious identity, Jonathan Hargreaves, to further the subterfuge, just in case Proview thought to run a Google search on the individual.  Is there anything wrong with negotiating under a pseudonym?  Well, assuming the negotiator’s name is not a material fact, then maybe not.  Using a fake name does not became fraud if it is not a misstatement of a material fact.

On the other hand, ABA Model Rule 4.3 does forbid a member of the bar from dealing with unrepresented parties under certain circumstances:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested.  When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

Mr. Robinson (assuming he is a U.S. attorney) may argue he was not acting as a lawyer when he was negotiating for the British company in England with a non-attorney in China,  and hence these Rules of Professional Conduct won’t apply to him.  I know this is a running debate among attorneys working in a business capacity, and I don’t know the answer.  However, I do hope all involved did their research.

4)  The Affirmative Representation

Maybe Apple could have set up the shill, utilized the alias, and hidden its role as ultimate buyer of the trademark and still remained above the amorphous ethical line.  Probably.  But Apple went one step further still, according to the complaint.  And this may be where Apple fell below the line (assuming the allegations in the complaint are true).

When asked why the shill company wanted to acquire the trademark, Hargreaves/Robinson affirmatively represented in writing that it was because it “is an abbreviation for the company name, IP Application Development Limited.”

Hargreaves/Robinson didn’t say “we choose not to respond to that question,” or “we reserve the right to use it for any lawful purpose.  We don’t want to limit ourselves at this time.”  He didn’t remain silent.  He didn’t redirect the question.  Instead, he responded with what appears to this untrained eye to be a flat out lie.

The fact that “iPad” was the abbreviation for the shill company was not the real reason Hargreaves/Robinson/IP Application Development/Apple wanted the trademark.  They were not looking to trademark the abbreviation for the company; rather, it seems clear they selected the company name to match the trademark they wanted.  But is this a lie that crosses the line and renders the negotiation unethical?  Or is this one of those lies, like the negotiator’s name, that is not material.

Looked at another way, is the buyer’s intended use of the IP a material fact?  Clearly Proview will say it is.   And they will point to the great lengths Apple went to in order to avoid disclosing what its true intent was!  Indeed, I think we can all agree that the buyer’s intended use had an impact on the price.

But that doesn’t seem to be the test of “materiality.”  The buyer’s purpose in buying the mark would have an impact on price only because Apple was going to invest untold zillions in creating a product that would have a worldwide demand.  So it would be Apple’s investment and efforts in creating the product, and linking that “must have” product to the iPad mark, that would make the mark valuable.  Why should the seller get to capitalize on any of that effort?  Apple’s desire for the mark is negative leverage in the negotiation, and why shouldn’t Apple be able to conceal its negative leverage?

It can.  But can it lie in order to conceal?  I think ultimately that is the question.

CONCLUSION

So the answer is, as is usually the case with ethical conundrums … I dunno???  Some of Apple’s conduct seems to be pretty well accepted in today’s (and yesterday’) negotiation world.  But the misrepresentation seems to be flying a little closer to the gutter.

In the long run, regardless of whether the conduct was ethical or not, after the dust of the Chinese and U.S. lawsuits and legal fees have settled, I wonder if it might not have been cheaper to negotiate at a little higher ethical altitude.  When you play at the cutting edge of the ethical line, you are bound to get cut now and again.

WHAT DO YOU THINK?  PLEASE LEAVE A COMMENT.

15 Responses to DECEPTION IS STILL KING — Apple, iPad, And The Still Murky World Of Negotiation Ethics

  1. FascinatedByEthic says:

    Fascinating. I read the entire complaint and will noodle this while Mike (undoubtedly) writes his next article giving us the answer. BTW, I believe that trademarks are routinely acquired by shell companies precisely because revealing the principal would result in a higher payment. The fun question, aside from what the rules say, is whether concealing the principal results in the “true price” being paid or an artificially low one. It depends on what you think is the starting point — if a trademark has an objective value no matter who purchases it, then no reason for a larger company to pay more. If the trademark price or value turns on the amount that actual market participants are willing to pay, then the value is artificially suppressed when negotiators pretend to be small, insignificant and likely poor market participants.

    The real question gets down to when it is okay to hide the principal and then, if it is okay to hide it and refuse to reveal it, whether that extends to some right to affirmatively misrepresent it. If not, then the question is whether what this guy did was or was not a misrepresentation. He said he was buying for IP App Dev, which was true. His statement that it was needed to match the company name was false, and in fact, the company name was no doubt contrived to create the false impression that the name was needed for a new/small venture. The statement that the company would not compete is probably also false in a broad sense, given what it seems Proviews had disclosed about its business. Hard to prove “non-intent to compete” as false, though … I think Proviews’ best hook is the false implication that the name was needed for IP App Dev rather than for immediate assignment.

  2. NegotiationRules? says:

    Taking the last point first, I think that the ethics rules must broadly cover attorneys when they negotiate. Any exception to the contrary would swallow the rule and create lots of grey in what is otherwise a black-and-white set of rules. And the presence or absence of privilege is, I think, not relevant here. As we know, ethical duties arise from a different source than privilege rules (ethics codes versus rules of procedure / evidence), and are not coextensive (as the closest example, the duty of confidence is broader than privilege, as it prohibits an attorney from disclosing negative information about a client, even if that information is not acquired in a privileged context).

    On the main topic, I think I agree that the lawyer here went a step too far. I have no problem with the idea of shell corporations or undisclosed principals – there is an entire body of agency law related to “undisclosed principal’ and, as Mike notes, the ethical rules to go along with it. But I think the way this is typically done is through third-party intermediaries who simply are who they are, and don’t have to create a made-up name or line of business – they just don’t disclose on whose behalf they are negotiating.

    Here, I think it’s probably OK that the attorney said he was representing the IPAD company – provided, of course, that it actually existed. He didn’t make any affirmative statement about what the company would or would not do in the future, except to say that it wouldn’t complete with the seller. That is also technically, it seems to me, a true statement since apparently the company’s only business (again, assuming it exists) was to acquire and license the TM to Apple. So I think this boils down to the question of whether the lawyer’s statements fell into the fraud-by-non-disclosure camp – i.e., did they create a false impression such that the lawyer had a duty to disclose? (Or is that even the right question to be asking in the context of an ethical discussion?)

    This sidesteps the question, but I also think (or think I think) that Apple should have chosen someone other than an attorney to serve as the principal of the shell corporation. Whether or not there’s a prohibition on the attorney dealing with the “unrepresented party” here, there’s a different cast to the negotiation and misrepresentation if it’s a lay third party undertaking the negotiation. I’m guessing that Apple didn’t trust the standard third-party services to take care of this one, given its importance.

  3. FascinatedByEthics says:

    Yes, ethical rules apply to attorneys when they negotiate. That’s why there are lots of rules about how far lawyers can go when negotiating. But it seems odd that lawyers get the burdens of the ethical rules (imposing higher standards on them) when negotiating but none of the benefits (e.g., privilege). I understand these are not co-extensive in fact, but my point is more normative: should they be, at least in this case? Or maybe a distinction should be drawn between lawyers who just happen to be negotiating as part of their lawyer jobs (like a real estate lawyer doing a transaction) versus a business person with a legal background doing a business deal. I am a member of the Bar, but does that end the inquiry? Should it? I know this is a tangent, but one I think about a lot.

    Back to the Apple thing … I think it’s all about burdens.

    1. A buyer says, “I work for ABC Company and I want to buy your trademark.” I think this is completely fine, because no duty to disclose the intended use of the trademark or the identity of the intended assignee of the mark. Burden shifts to the seller to inquire further and, absent further inquiry, seems to me the buyer is stuck selling to an unknown buyer for an unknown purpose. The seller can choose to price the mark to incorporate the risk that the buyer actually intends to assign the mark to a huge company for a major new product release.

    2. The burden having shifted to the seller to make further inquiry, what if the Seller says, “What for?” or “For Whom?” and the buyer’s attorney says, “I really can’t say.” Seems to me that if it is okay not to volunteer the information on intended use, then expressly refusing to provide it puts the buyer’s attorney in an even better position (ethically) because he has been very clear about what he is not disclosing. His client is in a worse position, because the “can’t say” response is going to arouse suspicion and likely raise the price. A little conflict between lawyer and client here — lawyer wants to be ethical, client wants the price low — and lawyer wants business from the client, so he may feel stuck for a moment.

    3. Okay, same situation except instead of refusing to answer, the lawyer buyer says, “I am buying the trademark for my Aunt Suzie for her cat-sitting business, and she will not be assigning it to anyone.” Only the truth is that the lawyer is buying it to assign to Apple for the iPad. I think this is clearly a misrepresentation of material fact. An easy case of wrongdoing.

    So where does this situation fit? The lawyer misrepresented his identity, which probably raises a whole host of separate issues. Not sure you can tie that to damages, but think about why he changed his name: to prevent the seller from knowing that he was a high-priced lawyer at a big law firm who would likely be acting for a major player … as that would impact the price. If the lawyer buyer did not think that was the case, why bother making up a name? Next, he said the mark was being bought for IP Application Development. Technically true, but misleading because the company was set up solely to buy the trademark and immediately assign it to Apple. I think one could argue that this statement alone was fraudulent, because the only reason for setting up the IP App Dev company was to be able to mislead the seller into thinking it was selling to a different company. But NegotiationRules? is right that the statement was technically correct. Finally, he commented about not competing with the company. I think the lawyer is charged with a reasonable amount of diligence, and the statement about not competing at least implies some familiarity with what ProViews does (i.e., computers). I think this statement could be fraud as well.

    Ultimately, this strikes me as a good example of when a series of individual representations combine to mislead the other party. Perhaps we can justify each of the buyer lawyer’s actions, but taking them together (as we must), it seems pretty clear that his actions were designed to (and did) mislead the seller and that the price was therefore lower than it might have been. We can argue over whether big companies should or should not have to pay more, but even if we accept that big companies should not have to pay more than little companies, I don’t think that means that they have a right to misrepresent their principals etc. Even though responding to questions about the principal with “I can’t say” is going to be tantamount to “someone very big,” it seems very dangerous to say that this warrants making affirmative misrepresentations.

  4. Gary Furlong says:

    Mike:

    Lovely scenario! So, my question is, what does what I’m planning to do with the item I’m buying from you have to do with its price? If I’m buying a car from you to commute to work, should it cost more than if I’m buying it for recreational purposes? Does it matter at all what I plan to do with it, relative to the price?

    Gary
    Agree Dispute Resolution
    Toronto, Canada

  5. Mike Young says:

    Gary, I think that’s a very important question, and certainly one Apple should raise. Why is the buyer’s intent at all material? And yet, it clearly has an impact on price or else Apple wouldn’t have gone to such great lengths to deceive the seller.

    If there were an objective standard by which we could measure the “value” of trademark rights, then the intended use is unimportant. But I think IP rights, unlike used cars, do not have intrinsic “values.” The value is measured by the demand, or by the product associated with the mark. So the value of the mark will be linked to the buyer’s use. However, it will be THE BUYER who is creating the value of that mark, not the seller. So I would presume Apple will argue that the seller should not get the benefit of the value that the buyer creates…hence the cloak and dagger is necessary.

    Leverage is leverage. It impacts price, but is not necessarily linked to intrinsic value of the item. It’s why I don’t let my wife go with me to buy a car. Once the salesperson knows how much she wants that very car, I lose some negotiating strength. So I leave her at home to hide my negative leverage of desire. Is Apple doing anything significantly different here?

  6. Gary Furlong says:

    Great point, Mike, I agree, the issue of value, and where/who provides it is in play.

    It also is in the context. We live in a “caveat emptor” society. Within that context, Apple did nothing wrong. In addition, value is defined as what a willing buyer will pay. They were willing to sell. In this context, no problem. We prevent fraudulent misrepresentation, but I’m not sure misleading re: what I’m going to do with the item is material to the deal. And if it was, then the seller could have asked for restrictions on use. That, of course, is just the legal analysis. Was it unethical? Grey area, and probably in the same vein as “puffery”, which sellers engage in to enhance the value of their goods.

    My sense is that the seller is just mad that they could have gotten a better price. I don’t think they have much to stand on.

  7. Mike Young says:

    Thanks for the many comments, public and private.

    It seems to me the key issue is whether the statement by the buyer as to its purpose for wanting the mark (“I want it because it’s the abbreviation for the company name”) is a MATERIAL FACT. Let’s assume the statement was false (which it seems to have been; the true reason for wanting the mark was to deliver it to Apple to use on the next Big Thing). Is the reason for the buyer’s interest a material fact in the transaction? If it is a material fact, then it seems Apple intentionally misrepresented it, the seller appears to have relied on it, and the seller was injured (in the sense it would have held out for much more had it known the truth). Hence, fraud!

    But IS the statement a material fact? Should the buyer’s purpose be a factor in the valuation analysis? Is another party’s desire a material fact? (“How badly do you want this used car, sir?”) If it’s not, then a negotiator should be able to LIE about his desire and purpose all he wants without consequence. (Now there’s a great lesson to teach our kids.) Maybe all negotiators do that already?

    I understand this is not a discussion about Best Negotiating Practices. I think all of this can be done without lying. But it is interesting to explore where that amorphous line is between lawful/ethical and unlawful/unethical.

  8. Gary Furlong says:

    Mike;

    Did the seller disclose what they planned to do with the money? Would that not also be a material fact equal to the use, all other things being equal?

    Here, I don’t think the use of the IP is a material fact at all — and if it were for the buyer, they could have stipulated to use in the sale agreement, which they didn’t. I also don’t think lying is ethical, or the way to go here. But I don’t, by extension, think that the only ethical thing is full unilateral disclosure, either. I think the buyer can shield, defer, be vague, even refuse to disclose etc. all they want, without being unethical – until the other party makes it material. Then, if they lie, we know it’s fraud, or mis-representation.

    Gary

  9. Linda Bulmash says:

    I have enjoyed this discussion. My take is there is no ethical nor legal violation here.

    Apparently Proview had simply trademarked a name which it was not using as many companies do. The name had no intrinsic value nor market value. At that point in time iPad had no value other than to Apple to keep consistent with it’s other products. The i series of products were already in the marketplace and had Proview wanted to optimize the value of the trademark, it could have offered it to Apple before or even while negotiating with IP Application.

    Now iPad has value only because of Apple’s brilliant marketing. So Proview lost nothing other than speculative damages because who knows what Apple would have paid and at the time of sale. Proview received what Proview thought the mark was worth in the marketplace.

    Let’s try a different scenario: Proview offers to sell the name for $50k. Apple contacts Proview and offers to buy it at the asking price. Can Proview then raise the price because it is Apple (remember 1st year contracts) or do we have an enforceable contract?

    Linda Bulmash
    Mediator, Los Angeles

  10. Mike Young says:

    But what about the affirmative misrepresentation? It was designed to throw the seller off guard, and it worked. No problem with that?

  11. Linda Bulmash says:

    Yes, I get that and it may seem unethical on the surface, but nowhere in the fact pattern is there any reason to believe Proview is planning to manufacture and/or sell tablets so I don’t think this is a material misrepresentation. Further IP admitted it was in the computer business and said it would not compete with Proview. Proview never asked the buyer not to sell, or not to give the trademark to a company that might partner with it. Consequently I am not sure this was a material statement.

    Anyway, I return to the fact that the “iPad” name had no intrinsic value and the mere name is not what made iPad successful. Consequently no harm no foul.

    On another note, had Proview tried to use the trademark, Apple would have souught an injunction for trademark infringement because of all the “i” products that were already in the marketplace and solely associated with Apple. So maybe Proview averted a more costly lawsuit. Hmmmm!!!

    Linda Bulmash
    Mediator, Los Angeles

  12. Mike Young says:

    Actually…

    According to the complaint, back in 2000, Proview, with the help of National Semiconductor, began developing an “all-in-one internet terminal with a built-in 15-inch color monitor.” They called it the iPad (which is why Proview trademarked the name). So Proview HAD a prior computer-type product which it called iPad. This is probably also why Proview asked why the buyer was interested in the mark in the first place.

    Does that change your view?

  13. Gary Furlong says:

    So, if they were really planning to do this, why would they sell the IP rights? And this is 10 years later, 5 lifetimes in the tech world. On both counts, hard to rationalize that Proview was harmed in any way. Again, it could have put a restriction on the use of the IP if it was concerned…..

    Gary

  14. Ted Russell says:

    Mike, I think the “purpose” of the buyer wanting the mark is indistinguishable from what ABA Opinion 06-439 describes as the “goal” of the negotiation. And the opinion says that “statements regarding negotiating goals … ordinarily are not considered statements of material fact within the meaning of the Rule.” The Opinion was expressly limited to lawyer statements in caucused mediations, but I can think of no reason why this aspect would not apply generally to lawyer conduct under the rules.

  15. Mike Young says:

    Ted, that’s a great point. ABA Opinion 06-439 does address generally a lawyer’s obligations of truthfulness and honesty in the context of negotiations, and it does say:

    “statements regarding negotiating goals or willingness to compromise, whether in the civil or criminal context, ordinarily are not considered statements of material fact within the meaning of the Rules.”

    But I’m not sure “negotiating goals” are the same as “how I plan on using the thing I’m buying.” The former seems to address more the negotiating process itself (which may be why the Opinion links “negotiating goals” with “willingness to compromise”), whereas the latter I think looks more at what happens after the negotiations are concluded.

    For instance, the Ethics Opinion goes on to provide examples of “negotiating goals or willingness to compromise” as follows: “Thus, a lawyer may downplay a client’s willingness to compromise, or present a client’s bargaining position without disclosing the client’s “bottom line” position, in an effort to reach a more favorable resolution. Of the same nature are overstatements or understatements of the strengths or weaknesses of a client’s position in litigation or otherwise, or expressions of opinion as to the value or worth of the subject matter of the negotiation. Such statements generally are not considered material facts subject to Rule 4.1.18.”

    But I think that is different than responding to a seller’s question: “What do you intend to do with this product after you buy it?” Especially when the seller is concerned about competition and (presumably) is not interested in selling its trademark to a competitor who could use the mark against it. Under this hypothetical scenario, wouldn’t the buyer’s intent become a material fact since it was specifically inquired about by the seller and was a concern of the seller?

    But I understand the comments above that suggest that the buyer’s intended use of the mark is none of the seller’s business, and hence the seller should not be entitled to rely on whatever the buyer says on the subject, any more than the seller can rely on the statement “I don’t really need this trademark because I’ve got some others I’m looking at;” or “this mark isn’t worth more than $20,000 and I wont pay a penny more than that.”

    Nonetheless, isn’t there something more substantial to the question when the seller really does care about how the mark could be used in commerce to hurt the seller’s business? (I know, then put a provision in the sales contract….) How about the buyer simply saying: “I plan on using the mark for any lawful purpose,” rather than lying “I like it because it matches my company name?

    Regardless, good discussion!

    CHECK OUT THE USC IP INSTITUTE ON MARCH 14 2013 AT THE BEVERLY HILLS HOTEL WHEN THIS VERY TOPIC WILL BE DEBATED WITH LAW PROFESSORS, ETHICISTS, AND PRACTITIONERS!!!

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