Apple (AAPL) traders are rejoicing today and for good reason: the company settled its iPad trademark dispute in China for $60 million, a relative pittance-at least when you consider how many iPads may soon fly off of Chinese shelves.
But there may be a larger issue at play. The legal system in China is largely unformed and unknown. The next trader with a good bead on just what to expect in Chinese courts will be the first. You think the Obamacare ruling was a shocker in the United States? China's system, for its part, is caught somewhere between one of communist government favoritism and a modern American mess of lawsuits run amock.
That hardly narrows it down and is long-term worrisome. That's why it's worth pausing during today's celebration to keep in mind that for companies like Apple, and Intel (INTC) and Microsoft (MSFT) that do considerable business in China, as well as consumer product companies like Nike (NKE) Procter & Gamble (PG), Pepsi (PEP), Coke (KO), Starbucks (SBUX) and General Motors (GM), getting snagged on lawsuits that cause product delays or regular payouts to the latest troubled Chinese company looking for some easy cash might prove a consistently bothersome cost of doing business.
The suits could get settled…or linger. They could be settled for comparative chump change, as in this case, or maybe big bucks, once word is out that there are easy paydays to be had.
The point is: we do not know. The Chinese legal system is a court of mystery.
That's why traders should celebrate the Apple ruling today. Over the short haul, it's clearly good news for Apple. Just make certain the dancing doesn't get too happy and fast that it shakes the chandelier loose.
Going forward: if you hold a company that does a considerable business in China, monitor pending lawsuits as you do quarterly earnings. From Apple to Procter & Gamble, aggrieved parties might come out of the woodwork now and there is no way to get a definite sense on how Chinese courts roll.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
