Saturday, November 24, 2007

Danone-Wahaha Dispute: No End in Sight

As the Danone-Wahaha dispute drags on, no end seems near for each party in their multi-country, multi-continent war. Lately, Danone has received some good news, whereas Wahaha is feeling the heat of loosing its original lawyers in the United States and some adverse judicial rulings against its off-shore assets.

By way of background, the following are the battle fronts:

1. Danone v. Wahaha in arbitration in Stockholm

2. Danone v. Wahaha, Zong Qinghou’s daughter and wife, Wahaha off-shore companies in a Los Angeles Superior court

3. Wahaha v. Danone in arbitration in Hangzhou, China

4. Danone v. Wahaha off-shore companies in a British Virgin Islands court

5. Danone v. Wahaha off-shore companies in an American Samoa court

6. Wahaha v. Danone in derivative action in Shenyang Intermediate People’s Court in China

Wahaha was shocked to learn that its litigation lawyers withdrew from the representation in the case pending in Los Angeles. Some speculate that Latham & Watkins withdrew because its client provided false testimony. In any international litigation, changing lawyers midstream always adds a strain to the case, in terms of finances, preparedness, and possibly momentum. Wahaha quickly found new lawyers for its case, and let’s hope that the new lawyers will get up to speed on the case for Wahaha. Because of the change, it will probably take more time for the parties to conduct discovery, thus pushing the trial to a later date if they do not settle.

Bad news also arrived for Wahaha from the courts in the British Virgin Islands and the American Samoa. Reportedly, both courts ruled in favor of Danone, freezing assets [in Chinese only] of Wahaha’s off-shore companies in both jurisdictions, respectively. The courts also appointed receivers for said companies. (I do not know Danone’s causes of action in these two courts, after some research.) Given the two rulings, Wahaha should be evaluating its overall strategies because it has been defending itself in multiple jurisdictions, with less than satisfactory results. It is unknown whether Wahaha will challenge these rulings.

In addition, final arbitral decisions are also pending in Stockholm and Hangzhou.

Overall, Wahaha has a pretty tough road ahead, while Danone is having the upper hand on the legal matters. Of course, Danone’s business prospect in China is a totally different matter, since winning in courts does not naturally and necessarily translate into winning consumers’ hearts in China. Wahaha is apparently preparing for the worse by using a brand new trademark—Qili 启力.

With no end in sight for this international dispute, both parties are probably feeling the battle fatigue, and the bite of their legal fees. Will they try to work things out with some kind of compromise on their own? Will they attempt to reach some kind of agreement with the French president as an intermediary (if he chose to intervene during his trip to China)? Or will they continue the knock-down, drag-out fight? As far as Danone is concerned, the last option seems most likely if Wahaha does not give up a few inches, because Danone currently stands in a very strong position.

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