Wahaha & Danone Dispute: “The Good, The Bad, and The Ugly”

To my fellow Texans, “the good, the bad, and the ugly” may mean the University of Texas at Austin, the Texas A & M University at College Station, and the University of Oklahoma, depending on where your loyalty lies.

To those following Danone’s dispute with Wahaha Group, this unique expression bears extraterritorial meaning.

Back in 1996, the Danone + Wahaha joint venture (“Marriage” as the Chinese media puts it) seemed rosy, promising, and “good”. Danone had the capital, international management know-how, a world renowned brand name, and much more; Wahaha Group, on the other hand, had an evolving Chinese brand, the local market, and Zong Qinghou, Wahaha’s charismatic chief. As expected, the joint venture grew into something quite respectable, 39 sub-joint ventures and controlling market share in China’s beverage business.

A lot of “bad” surfaced ever since early spring 2007. Arbitration claims have been filed by both sides in China and Sweden; Danone sued Wahaha in a state court in Los Angeles. In response to attacks from Danone on both sides, Danone threatened to sue three foreign board members on the joint venture board, alleging breach of fiduciary duty.

The “ugly” is coming in like waves in this growing international show of will and force. First, responding to Wahaha’s arbitration petitions in the Hangzhou Arbitration Commission, Danone has filed counter claims. [full report here] According to Danone’s attorney Randal Lewis, so far
“there has been no circumstance or event that is sufficient to result in the termination of the rights and obligations of the parties under the Trademark Transfer Agreement.”

Second, Danone’s litigation lawyer in the case pending in Los Angeles, which is against Ever Maple Trading and Hangzhou Hongsheng Beverage Co, said that Danone has a witness who can testify against Zong. [full report here.] The witness, named Chen Zhonghua, claims that Zong forged Chen’s signature to set up companies overseas that compete against the Danone-Wahaha joint venture. If the “marriage” metaphor about the joint venture has any merits, this would the stage of the divorce where parties dig out as much dirt as possible against each other. [by the way, as of July 13, 2007 based on this Chinese report, Zong’s wife and daughter sued individually in L.A. have refused service of process.] Boy, this is getting ugly or what.

Third, Wahaha has joined forces with another party in another lawsuit against Mr. Qin Peng of Danone in the Intermediate People’s Court in Shenyang, Liaoning Province. [read about it here.] Wahaha Beverage Ltd. and Shenyang Lingdong Shiye Development, Ltd., respective shareholders of Wahaha Group, filed derivative suit against Qin Peng for breaching his fiduciary duty by serving on the board of other companies competing against the joint venture. They base their complaint on Article 149 and 152 of the Company Law of the P. R. China (2005), which provides shareholders a right to file a derivative suit against board members for breaching their fiduciary duty to the company.

More dirt out there?

Wikipedia has a pretty good entry on this dispute.

Hepatitis B Carriers: Will Chinese Law Protect Your Job & Dignity?

Hepatitis B is the nemesis of more than 100 million people in China. Having this disease often means you face blatant discrimination in your job, career, and education. Due to the large number of people affected by the disease and the “disgrace” associated with it, more and more people have begun to speak out against discrimination of Hepatitis B carriers in China. Thus, on May 18, 2007, the Ministry of Labor & Social Security and the Ministry of Public Health jointly issued an administrative document. Bearing the title, Opinions on the Employment Rights of Hepatitis B Carriers, this document represents the first step taken by the Chinese government in protecting the rights of more than 100 million of its own people. (Applaud!)

This opinion provides that:

Employer shall not refuse to employ or cease to employ a worker for being Hepatitis B positive except for fields of employment as provided in the laws, administrative regulations, and mandates issues by the Ministry of Public Health.

国家法律、行政法规和卫生部规定禁止从事的易使乙肝扩散的工作外，用人单位不得以劳动者携带乙肝表面抗原为由，拒绝招用或辞退乙肝表面抗原携带者。

It also gives the employees a right to privacy and employers even though it recognizes that employers have the right to conduct physical exams.

Overall, this opinion is a feeble measure in light of the magnitude of the problem. For those 100 million plus Chinese folks, it is not just the torture of the disease itself that wears them down; what is worse is the stigma associated with Hepatitis. And the worse of all, their livelihood is in jeopardy just because they have the disease. Stronger and more comprehensive legislation must be introduced to protect the rights of more about 1/10 of the Chinese population.

Currently, a new law, Employment Enhancement Act (Draft) (《就业促进法》（草案)）(Chinese only), which is under debate and consideration in the National People’s Congress, does contain prospective measures aimed at employment discrimination in Article Five:

Employees shall not be discriminated on the basis of nationality, race, sex, religion, age, and physical disability.

草案第五条第二款规定：“劳动者就业，不因民族、种族、性别、宗教信仰、年龄、身体残疾等因素而受歧视。”

Prominently missing from protection under this proposed law is discrimination of people with Hepatitis B.

These 100 million strong people deserve equal treatment, a right to employment, a right to a decent livelihood, and most importantly social dignity which often flows from employment, education, and a decent livelihood.

Besides ending with a plea for protection for these folks, I also want to recount one of my personal encounters with a Hepatitis B carrier. It is one that I shall never forget.

She [to protect her identity, I will not reveal her identity] was my best friend’s girlfriend. Young, pretty, diligent, and smart. After years of study, and after passing the grueling Chinese college entrance exams, she made it into her dream college in the wondrous city of Wuhan, Hubei Province.

One day, I got an emergency phone call from my best friend, who was in a state of shock and panic. He pleaded for help for her girl friend, who just arrived in Wuhan for official enrollment. When she got to Wuhan, the school notified her that she had to go through a physical exam. That notice was like lightening out of the blue, or in Chinese, a bucket of cold water over her head that chilled her burning desires to embark on a path to a bright future for a country girl. The notice had put her hopes, dreams, and the possibility of a decent life in jeopardy because she is a Hepatitis B carrier. If the physical revealed her little secret, her acceptance to the college would be revoked.

In China, when your best friend calls for help, you do whatever you can to help. As simple as that. I had to find a solution for my best friend’s girlfriend. [Before I proceed further, I plead 5th Amendment protection. ] Someone came up with the brilliant idea of finding someone that looks like my best friend’s girlfriend, and let the look-alike go for the Hepatitis B part of the physical…

Yes, you guessed it. A replacement was found and my best friend’s girlfriend kept her little secret and a chance to a better future.

Years have passed since the date of that physical exam. I have always struggled with that incident. Something seemed wrong and out of place. She should not have to hide a medical condition probably caused by an incompetent doctor or nurse. She should not be robbed of a chance to a better life if she had not committed fraud.

So, will the Chinese law protect people like her in their employment and safeguard their sense of dignity?

It should. But I don’t know.