Danone Group and Wahaha Group are shareholders in a joint venture that is the largest beverage company in China. Recently a trademark dispute between them draws lots of attention. Therefore, it is necessary to give a detailed analysis of the case especially failures made by Danone and precious lessons learned from the dispute which is quite helpful to those foreign investors who are considering investment in China.
Case Brief:
Background Information:
The Wahaha Joint Venture was established by three original participants, Hangzhou Wahaha Food Group Co. Ltd, Danone Group and Bai Fu Qin Ltd. in 1996. When Asian financial storm broke out in 1997, Danone bought the interests of Bai Fu Qin and therefore got the legal control of the joint venture with 51% of the shares.
While the joint venture is entitled to use the Wahaha trademark, Mr. Zong and Wahaha Group set about creating a series of non-joint venture companies which sell the similar products as joint venture and at the same time use the Wahaha trademark in 2000. Danone Group is very indignant at such behavior and requested to purchase those non-joint venture companies.
In this case, there are four contracts or agreements concerning Wahaha trademark.
a. Agreement of Joint Venture
According to the agreement, Wahaha Group is given a 49% interest in the joint venture in exchange for its contribution of the trademark which is valued at 100,000,000 RMB, while the joint venture purchases the remnant value of the trademark at 50,000,000 RMB.
b. Agreement of trademark transfer
Based on the trademark transfer agreement, Wahaha Group shall not use the trademark “Wahaha” any more except for its enterprise name. Further, Wahaha Group cannot transfer any right of the trademark to any third party or license any person to enjoy the trademark right.
c. License agreement of trademark use
The agreement stipulates that Wahaha Group agrees to license the joint venture an exclusive and irrevocable right to use the trademark on the products sold in domestic and global market within the contractual term. Wahaha Group only can use “Wahaha” as its enterprises name. Both parties further agree to sign an additional simple license agreement of trademark use which is for the registration only. If the simple agreement conflicts with this agreement, this agreement prevails.
d. Simple license agreement of trademark use
The simple agreement is just for registration and there are no any exclusive articles.
Failures made by Danone and lessons learned from the disputes
According to Trademark Law of the People’s Republic of China, transfer of trademark must be registered with and approved by the PRC Trademark Office, otherwise such transfer would not be effective. It is obvious that Danone Group was not realized possible risk that the trademark transfer may not be approved and no necessary measures were taken to prevent such risks.
When the request for trademark transfer was rejected twice with no written legal documents issued by governmental institutions, Danone didn’t insist on requesting the formal answer made by the Trademark Office in written form or apply for reconsideration or proceedings, which puts them at a disadvantage position in the later trademark disputes as the refusal cannot be proved by any legal documents.
Faced with the failure of trademark transfer, Danone decided to work around the approval issue by entering into an exclusive license agreement for the trademark, which means that Danone Group gave up its request of trademark transfer and is also one of the main reasons of ruling made by Hangzhou arbitration committee that the agreement of trademark transfer is terminated.
In consideration of the relating laws and regulations, we can learn that it is a fault that Danone signed two license agreements of trademark use with Wahaha Group. According to article 40 of trademark law and article 43 of the implementing regulations of trademark law, the license agreement of trademark shall be filed in trademark office within 3 months since the agreement is signed. However, Danone didn’t pay attention to and understand such articles. Danone itself considered that when the two agreements conflicted, the simple agreement had no legal effect. However, this opinion violates the laws. Therefore, it is most likely that the court will decide the case in accordance with the simple agreement filed by the trademark office and Danone must be at a bad position. On the other hand, it is not good for Danone to choose the Hangzhou arbitration committee as the dispute settlement institution in the agreement. In fact, in consideration of the justice with no partiality, it is better for Danone to choose Hong Kong or other foreign arbitration institutions.
By James Zhou
Legal Assistant
Allen & John Law Firm
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