Monday, June 18, 2007

Wahaha v. Danone: My Arbitration is Better Than Yours

Ok, this is getting really interesting!

Remember that Danone submitted the whole dispute to the Stockholm Institute of Arbitration on May 9, 2007? The arbitration is pending there in Sweden.

Remember that Wahaha also applied to have the Wahaha trademark transfer portion of the dispute with Danone arbitrated in the Hangzhou Arbitration Commission (“HAC”) on June 13, 2007?

In my last post, I was not sure whether HAC would take the case since the matter, on a bigger scale, is pending in Sweden.

But, surprise!! HAC accepted the petition for arbitration the very next day on June 14, 2007.

According to a report, Wahaha wants the HAC to determine whether the trademark transfer agreement, as a matter of law, is void since the Chinese Trademark Law requires such transfer to be approved by the China Trademark Office at the time of transfer (1996).

My hunch is that this might be Wahaha’s strongest argument. Wahaha Group in fact competed against Wahaha-Danone joint ventures; Wahaha Group actually used the trademark without the approval of the joint venture pursuant to the joint venture agreement. Therefore, without attacking the legality of the contract, Wahaha will have a very tough job in convincing the tribunals or a jury.

The next question that I anticipate to be raised after the “verdict” on the transfer issue is whether the contract in its entirety will be held as void. In my previous post, I discussed that Chinese Contract Law allows per se illegal clauses to be stricken in an otherwise enforceable contract. Assuming that the trademark transfer agreement is held as void by the HAC, will the original joint venture agreement (“Original Agreement”) survive the ordeal?

From a legal perspective, the rest of the Original Agreement should stand and continue to be effective given Article 56 of the Chinese Contract Law. But the really issue is what good is there for Danone if the Trademark transfer portion of the contract is void. Without the right to the Wahaha trademark, Danone’s joint ventures in China would only be a shell without its core value with which the Chinese consumers identify. Of course, Danone can rely on its own trademarks acquired elsewhere, but that is the topic of another day.

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