Apple (NASDAQ:AAPL) is in a very difficult situation and one it has never found itself in before. A recent court ruling has found that Apple can't sell any product using the iPad trademark in China. This is because Proview Technology, a Hong Kong company and, through a subsidiary, the owner of the “IPAD” trademark in mainland China, registered the trademark several years before Apple started selling the device under the same name.
China has been a very big market for Apple. This market accounted for 16% of Apple's sales, which amounts to about $4.5 billion in the fourth quarter alone. China is one of a few markets that have a fast growing middle class that actually aspires to buy Apple products. Apple recently opened its first store in Hong Kong and has about 5 stores in Mainland China.
Proview has already filed cases to block the sale of iPads in the southern Chinese cities of Shenzhen and Huizhou. The Shenzhen Futian District Court is due to start hearing one case on December 30, and the Huizhou Intermediate People’s Court has scheduled a hearing in the other for January 7. Apple's growth could be hampered if Proview were to succeed in its lawsuit.
Proview recently stated that it will seek about $1.6 billion in damages from Apple for copyright infringement. Unfortunately, I believe that Apple will ultimately have to pay up. I believe a settlement will likely be reached around the $1 billion mark, as the Chinese market is too important for Apple to lose and I don't foresee the company changing the iPad name.
At the end of the day I don't expect this to have a big affect on Apple's business. Apple has more than enough money to settle and continue with its business. I'm still bullish on Apple and view pullbacks as opportunities to buy. The company should have a stronger than expected quarter this holiday season, mainly due to the launch of the iPhone 4S as well as the addition of Sprint (NYSE:S) to its list of US carriers.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.