“Wahaha” Ain’t French, and It Belongs to China. (Republish)

Major news came out of the Danone v. Wahaha lawsuit saga, and it is again bad for Danone.

On July 30, 2008, the Hangzhou Intermediate People’s Court ruled that the “Wahaha” trademark belongs to the Wahaha Co. , not the joint venture between Danone and Wahaha, of which Danone is the majority shareholder.

Because this ruling affirms that of the Hangzhou Arbitration Commission  of December 2007 regarding this matter, the decision is not appealable, according to this report (in Chinese).

I will restate the facts briefly.  In 1996, the two parties signed a trademark agreement, transferring the “Wahaha” trademark from the Wahaha Co. to the then newly formed joint venture.  However, the Trademark Office of China disapproved this transfer.  So in the eyes of Chinese law, the transfer was never consummated, and there was no deal to speak of in terms of an IP transfer.

In 1999, the parties got creative about the trademark “transfer.”  Instead of calling it a “transfer,” they signed another agreement, titling it “Trademark Use Agreement.”  And of course, this deal was done under the table, irrespective of Chinese law.  Things went along smoothly and well for seven years, until 2006 when Danone found that it was not getting all the money that it should, and that its Chinese partner was competing against the JV.  To end all the “trickery,” Danone decided to buy out the Chinese partner, Zong Qinghou, but only to be rejected.

Hence, the lawsuits, all over the world, and all over China.

Now, the final gavel has fallen against Danone, to nobody but Danone’s surprise.  In China, the 1996 trademark transfer has been referred to the “Yang” contract, while the 1999 trademark “use” agreement the “Yin” contract.  It is pretty obvious what happened there.  Danone could not resist walking away from a guy as powerful and resourceful as Zong Qinghou, and certainly could not step away from the unbelievable profits to be made from the JV.  The “Wahaha” trademark would just be another pretty flower on the beautiful wreath that came into the JV.  However, it did not think about the consequences of doing things not in accordance with Chinese law even though it knew that the transfer was illegal in 1996.  If it is illegal done on the table, it is probably still so if done under the table.  I guess Danone pretended that there would be no problem, or even if there were a problem, its Chinese partner would take care of it.

Now, that mistake has come back to haunt Danone, for a long time.

The biggest “takeaway” from this is to follow the law no matter what your Chinese partner says, and regardless of the amount at stake.

Check out my previous posts for background information if you care about this stuff:

Wahaha v. Danone: Who Will Have the Last Laugh?

Wahaha v. Danone: Partnership at Grace’s End

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