Wahaha's China arbitration request granted despite pendency of Swedish and U.S. lawsuits

Brad Luo's articles have illustrated the escalation of the trademark dispute between China's beverage giant, Wahaha, and the French company, Danone. The dispute centers around the ownership of trademarks used by 39 joint ventures which have evolved contractually between the companies since 1996. Danone claims that Wahaha has been using the trademark to unfairly compete with Danone and the joint ventures; Wahaha claims that the trademark transfer contracts, under which the joint ventures operate, was never approved by China's trademark authority and are void.

Choice of venue issues are complex in multi-national lawsuits and there is no great statutory relief in certain venues which will protect parties from multi-venue fights. This has proven to be a problem for foreign companies contracting with Chinese entities, in particular. An example is the case of China National Metal Products Import/Export Company vs. Apex Digital, 379 F.3d 796 (9th Circuit 2004). Apex Digital (Apex) is a California corporation that imports consumer electronic goods from China which it sells under its own brand name to retailers in the United States. In 2000, Apex entered into a series of contracts to purchase DVD Players from China National Metal Products Import/Export Company (Metal). Each of the contracts contained the following identical arbitration clause:

All disputes from or in connection with this Contract shall be submitted to the China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration which shall be conducted by the Commission in Beijing or by its Shenzhen Sub-Commission in Shenzhen or by its Shanghai Sub-commission in Shanghai at the Claimant's option in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.

In March 2001, Apex filed a Statement of Claims concerning nine (9) of the purchase orders at the Shanghai sub-commission and the case was accepted. A week later, Metal decided that Beijing would be a better venue and filed a Statement of Claims concerning eight (8) of the purchase orders with CIETAC in Beijing.

Not surprisingly, Apex objected and requested consolidation of all claims into the already commenced Shanghai arbitration. CIETAC rejected Apex's objection and held that CIETAC could entertain both arbitrations at the same time, in different forums because the arbitrations were not "entirely the same." The difference? The Shanghai arbitration involved one additional contract.

The Beijing arbitration panel, unsurprisingly, ruled in favor of Metal as it had predicted. Metal sought enforcement in the United States. The United States District Court held, and the Ninth District affirmed, that the United States had to defer to CIETAC's internal rules to determine the validity of arbitral awards and had to enforce the Beijing decision.

Given the fact that the Wahaha/Danone dispute has been filed in three global forums, it raises serious questions: What do the joint venture contracts say about dispute resolution, venue selection, consolidation of disputes (if anything)? What happens if the Chinese tribunal rules in favor of Wahaha (that the IP transfer wasn't approved by the China Trademark Office) - will it void the contract in full or just negate the trademark transfer issues?

The Apex case exemplifies the impact of the dispute resolution clauses on the relationship and mechanisms to resolve disagreements. The agreement should always specify one institution for dispute resolution and, moreover, the issue of case consolidation should be taken into consideration when drafting contracts between multi-national parties. In Apex, CIETAC was asked to consolidate cases but refused to do so. Such refusal to consolidate cases is not improper in China. Thus, the only protection in these type of disputes is either to include a clause in the initial contract which expressly agrees to the consolidation of any cases concerning the transaction or the parties; or the warring entities can find a way to agree to consolidate the cases after a dispute arises.


In the Wahaha/Danone case, it is unlikely that Wahaha is going to agree to consolidate the cases in any venue other than Hangzhou. Hangzhou is the capital of China's eastern Zhejiang province and is home turf for Wahaha and Zong Qinghou. As the former chairman and founder of Wahaha (in the late 1980's), Zong has been the target of the allegations made by Danone and the primary catalyst for the escalated battle between the companies in the past 2 months.

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

The Wahaha and Danone dispute appears to have been kicked into high gear.

Following Danone’s lawsuit in California state court against a subsidiary company of Wahaha, the former board director of the Danon-Wahaha Joint Venture, Zong Qinghou, announced on June 13, 2007 in a press conference that he would submit the dispute between Wahaha and Danone to arbitration in China. Specifically, the dispute involves a trademark transfer agreement Wahaha and Danone. The venue of arbitration is the Hangzhou Arbitration Commission.

In order to follow the development of dispute, which has gone global literally, it is better grasp the chronology of the relationship between Wahaha and Danone.

First, the occasion warrants a brief intro of the players. Danone is currently one of the world’s leading global corporations in fresh dairy products and bottled water, and its production and sales spans around the world. Wahaha is a bit more complicated. Wahaha Group consists of three large blocks of corporate entities. The first is the original Wahaha Group Ltd., and the City of Hangzhou owns 46% of the stock, and the rest of stocks of the company are unevenly distributed among Mr. Zong, the management, and employees (before 2000, Wahaha Group was a solely state-owned enterprise). The second one is the Wahaha-Danone Joint Equity Venture Group. Wahaha Group Ltd. Controls 49% of the shares, and Danone holds 51%. The third bunch is a host of non-joint venture companies established and operated in essence by Wahaha Group Ltd. and Hangzhou Wahaha Food Products Ltd.

Second, the following is the chronology of the relationship between Danone and Wahaha.

1. 02/29/1996-----Joint Venture Agreement between Wahaha Group Ltd. and Danone, including trademark transfer agreement, non-compete agreement, and confidentiality agreement

2. 03/28/1996-----Wahaha Group Ltd., Danone, and a Hong Kong enterprise agreed to form five joint ventures in China.

3. 04/1996-----Mr. Zong became the chairman of board of directors of the said five joint ventures.

4. From 1996—2007, the original five joint ventures evolved into 39 joint ventures, and everybody made a ton of money.

5. Problems began to surface in 2000 after the reorganization of Wahaha Group Ltd., which became a private entity with the Hangzhou government holding 46% of its stocks. The reorganized Wahaha Group Ltd. began to establish its own joint ventures and separate subsidiary entities, which totaled 17 entities in a span of six years. Apparently, Wahaha Group Ltd. used the Wahaha-related trademark in violation of the Wahaha-Danone Joint Venture Agreement.

6. Danone kept quiet with respect to Wahaha Group’s use of the trademark and apparent breach of the non-compete agreement inherent in the Joint Venture Agreement.

7. In late 2006, Danone initiated an offer to buy all of Wahaha Group Ltd.’s companies which are developed outside of the Joint Venture Agreement, and Wahaha Group Ltd. rejected the offer. The dispute went public in early 2007, escalating into a full blown fight over the ownership and usage of the Wahaha trademark.

8. 05/09/2007, Danone Asia submitted the disputes with Wahaha Group Ltd. with respect to the Joint Venture Agreement to the Stockholm Arbitration Institute.

9. 06/04/2007, Danone sued, in the Superior Court of Los Angeles County, Ever Maple Trading, a company based in the British Virgin Islands, and Hangzhou Hongsheng Beverage, as well as two individuals related to these companies. The two companies are believed to have ties with Wahaha Group Ltd. and Mr. Zong.

10. 06/05/2007, Mr. Zong tendered his resignation as the chairman of the board of directors of the Wahaha-Daone Joint Venture.

11. 06/13/2007, Mr. Zong announced his plan to submit the trademark dispute arising out of the Joint Venture Agreement to the Hangzhou Arbitration Commission.

As can be seen, the facts of this dispute are complicated and convoluted, and both parties are engaging in interesting tactics to gain procedural advantages. I am trying to get my hands on the Joint Venture Agreement to see exactly what they agreed to in 1996. Tomorrow, I will blog about the thrust of both parties’ contentions in their respective arbitration, trial proceedings.