The Californian computer company is facing a 10 billion yuan (£1billion) court case for trademark infringement and a possible ban on selling iPads in two Chinese cities.
The iPad is wildly popular in China and Apple sold more than a million of the devices between April and June, holding almost three-quarters of the market, according to Analysys International, a Chinese research company.
Tim Cook, Apple's chief executive, recently told investors that China was key to the company's success, remarking: "China – the sky's the limit there!" Apple's four official stores in China are some of its highest-grossing outlets in the world.
However, a Chinese court has ruled that Apple slipped up when buying up the rights to the iPad name in 2006.
The "IPAD" name had already been registered in 2000 by Proview, a struggling computer monitor manufacturer which flirted with the idea of selling its own tablet computers.
Proview Electronics, in Taiwan, one arm of the group, claimed to have the rights in eight regions, including China, South Korea and the European Union, and agreed to sell them to an agent secretly working for Apple in 2006 for just £35,000.
Paul Schmidt, a lawyer for Baker & Mackenzie, which is representing Apple, explained that because Apple products are subject to so much hype the firm had to use a third party to maintain confidentiality.
"Apple faces the dual challenges of maintaining the confidentiality of the product [ ...] and ensuring that upon its launch the product can be marketed under the name selected for it," he wrote, in an affidavit to a court in Hong Kong.
"In order to meet the second challenge, Apple buys up global rights to its product names, but uses a "special purpose vehicle", he added. However, Apple's lawyers appear not to have noticed that the rights to the name in China were not actually held by Proview Electronics in Taiwan.
Instead, to comply with Chinese law, the company had registered the rights with its arm on the mainland, Proview Shenzhen. All trademarks in China have to be registered with a China-based company.
When Apple asked for the rights to be transferred, Proview became aware that it was dealing with a giant, cash-rich, company and promptly demanded $10 million (£6.4 million). Apple refused and sued in a court in Shenzhen, but lost, with the court ruling that it was Apple's responsibility to do its due diligence.
"Apple was quite deceptive when it first approached Proview to buy the name," said Xiao Caiyuan, the head of the Guangdong Guanghe law firm, which is representing Proview. "They had lawyers in Europe, Hong Kong and Taiwan to look through the paperwork, but they failed to spot that the trademark was registered elsewhere. They tried to claim in court this was because they could not read Chinese!" he said.
Mr Xiao said there had been negligence on both sides, since Proview in Taiwan should have realised that it did not have the right to sell the name. However, he said that Apple had subsequently shown "no interest in mediation". He said he was unsure what would happen next, but expected that there would now be a court case for damages in Guangzhou.
Proview has meanwhile applied to block iPad sales in Shenzhen and Huizhou and its lawyers said it would extend the ban nationwide if successful. Apple declined to comment on the situation.
