Wahaha gets the last laugh – for now

20 October 2008

Ai-Leen Lim

In the latest instalment of the battle between Danone Group and Wahaha Group over the WAHAHA trademark in China, the Hangzhou Intermediate People’s Court has ruled that the WAHAHA trademark belonged to Wahaha (July 30 2008).

The cooperation between Danone and Wahaha, China's largest soft drink maker, was thought to be a successful model of a Sino-foreign joint venture. The Danone-Wahaha joint ventures were set up in 1996, with Danone taking up a 51% stake. The two parties signed a trademark transfer agreement which purported to transfer the WAHAHA mark, among others, from Wahaha to the joint venture vehicle. The China Trademark Office refused to record the transfer on the grounds that WAHAHA was a well-known mark that belonged to a state-owned enterprise. Therefore, the trademark transfer was never legally effected.

Instead, in 1999 the parties entered into an exclusive licensing agreement for the use of the WAHAHA mark. The pro forma licence was recorded with the office. Business continued as usual despite the fact that the relevant trademarks (including WAHAHA) were never transferred to the joint venture.

In April 2007 the joint ventures started to encounter problems. Danone accused Wahaha of setting up independent companies and selling goods identical to those sold by the joint venture companies. Moreover, Danone alleged that Wahaha had failed to transfer the WAHAHA mark to the joint ventures as required by the joint venture agreement. Danone subsequently demanded a 51% stake in the non-joint venture companies held by Wahaha. Unsurprisingly, Wahaha refused to comply. Both parties reacted by filing countless complaints and lawsuits against each other in various countries.

In December 2007 the Hangzhou Arbitration Commission ruled that the WAHAHA trademark belonged to Wahaha and not to the joint ventures. The commission held that the trademark transfer agreement under which Wahaha was to transfer the mark to the joint ventures expired in 1999 when the office refused to record the assignment (for further details please see "Danone fails to obtain transfer of WAHAHA trademark"). In July 2008 the Hangzhou Intermediate People’s Court upheld the decision of the Hangzhou Arbitration Commission.

In light of the decision, trademark owners should take the following elements into account:
Companies intending to set up a joint venture are advised to transfer all relevant rights before commencing the joint venture.

The parties should also be mindful of any peculiarities of the national laws and practices. For instance, in China, it is prohibited to register trademarks that contradict public morality. However, the law is silent with regard to trademark transfers. 

Before entering into a joint venture, it is advised to perform due diligence on the IP rights of the counterparty in order to ascertain the ownership of these rights and ensure that they are transferable. It remains to be seen how the dispute over the WAHAHA mark will be resolved in other jurisdictions.

This article was first published by World Trademark Report on 18 September 2008