Danone Gives Wahaha A Hard Trademark Lesson

In a story I wrote in Feb about how to profit from China's one-child Policy, I recommended Groupe Danone (DA), a French food company with multiple joint ventures set up in China selling consumer products from fruit juice, dairy products to bottled water. All of Danone's JV partners are Chinese market leading brands.

One such joint venture was formed with's leading domestic beverage producer. Danone owns 51% of the JV and with the founder of Wahaha Mr. Zong Qinghou the second largest shareholder.

Recently the relationship turned sour and Danone is accusing Wahaha of trademark infringement in manufacturing and marketing beverage products under the same Wahaha brand outside of the joint venture which has exclusive right to such trademark.

In a very high profile press conference held yesterday, Danone Asia President Mr. Emmanuel Faber showed to the press the original joint venture agreement signed with Wahaha in 1996. One of the major terms of the agreement was that Wahaha has agreed to exclusively assign all rights in the Wahaha trademarks to the joint venture company, with such assignment even Wahaha would not be allowed to market beverage products under the Wahaha brand in -- all such activities must go through the JV company exclusively.

In a separate equally high profile public appearance, Wahaha founder Mr. Zong said that the JV agreement was a trap and he was not aware of the trademark assignment consequence when he put his name on the agreement. Danone is giving 30 days to Wahaha to remedy the situation or it will resolve it through legal action.

In return, Mr. Zong has organized a national PR campaign asking the Chinese government to protect this well known national Chinese brand from foreign invasion, and has asked all the Wahaha employee and distributors to act together to protect this Chinese company.

The outcome is still remain to be seen, however, this is a very important lesson to all Chinese enterprises about the importance of protecting their own intellectual properties and the commercial consequences of accepting such intellectual property related clauses in the agreement.

As an investor it’s a potential opportunity to buy Danone if it finally succeeded in acquiring full control of Wahaha and became a dominant player in the huge Chinese beverage market. On the other hand, being a Chinese myself it’s sad to see Wahaha learned this lesson a hard way.

It’s high time all Chinese enterprises woke up and learn the basics in intellectual property protection, not only in respecting other's IP, but also developing and protecting their own.

Comments

[Lei Yang:]

Whether Danone gets the Wahaha brand or not is not as important as how it gets. Given the nationalistic sensitivity of the matter, I fear Danone will have a huge PR problem if both parties can not settle the matter benignly. Legal action might deliver Danone the brand, but as well an excellent excuse for a media campaign against it and all its products to Zong. I sure hope Danone has a longer term perspective on Chinese market and keeps the eye on the bigger picture.

2007 Apr 13 09:32 AM

[huangjin:]

Sometimes there may be a legitimate case, perhaps in this one, but it seems everytime there is a dispute between a foreign company and a domestic company, the Chinese side will try to whip up ultra-nationalist sentiment. But in fact, the only ones who benefit are the owners of the company, just like the manufacturers in the U.S. who try to keep out Chinese imports. And let's not forget that Wahaha is a state-owned company, even if private management makes the decisions.

2007 Apr 13 03:26 PM

[All Roads L...:]

Siwei,

Well written piece.

I myself am very surprised that Wahaha would have signed away their rights on the naming/ branding issue. It is something that I would have thought would have been a very hot issue when the contract was being negotiated. Did he really miss that?

This surely could become a lesson in reading the fine print, however I suspect that Danone is in a lose-lose position either way as Wahaha has already massed the employees against Danone and Danone would have a rough time managing that

Anyone remember the Red Star story in Mr. China?

2007 Apr 16 12:11 AM

[Siwei Zhong:]

it will be a dilemma to the Chinese authority too.

In the 11th 5-year plan, developing self-owned intellectual property is a top priority for the country, China understands it can never move to the next level of economic development if it is still doing those low value added labour intensive OEM type of manufacturing. Personally I've seen how the government is promoting IPR aggressively, China is not only doing that just for the sake of comforting the US government, but also for its own economic sustainability.

However, before it can develop such an atmosphere to promote local IPR, the first thing they need to do is to educate the Chinese enterprises to respect law and IPR. If the Wahaha trademark was assigned to Danone, China/Wahaha has to let go the nationalist sentiment.

Though the end result is remain to be seen, I bet it will end up settled outside the court.

I do believe the Wahaha founder Mr. Zong didn't realize what he signed up in 1996. I recently have an experience to negotiate an intellectual property related contract with a leading Chinese network equipment company, I was almost shocked to see the standard of the contract they drafted...

2007 Apr 16 11:05 AM

[Lei Yang:]

A couple of hard lessons to the Chinese business community and the country on the whole is probably a good medicine to take for the long term benefit. I think China needs to take the medicine sooner rather than later.

2007 Apr 19 09:48 AM