Kairon Gnothi

In a former post I commented that Wahaha is playing a card named nationalism or nationalistic sympathy in its action of anti-Danone’s acquisition. Up to now all the messages in Chinese I read- including news, expert analysis and web-surfers’ comments can be grouped into standpoints as below:

1. Support Wahaha and criticize Danone

• Wahaha is the pride of Chinese and China and should be protected by the government.
• Danone set unfair terms in the contract and Wahaha fell victim.
• Danone did not contribute much in Wahaha’s development and thus did not deserve ownership of the brand.
• Danone’s ambition is to control the drink / milk industry and gains monopoly in the market, and thus should be stopped From open the door by owning Wahaha.

2. Sympathize Wahaha but insist on following business rules and laws

• Follow the contract, the agreement, the rules and the law, however painful it is, do what a company in modern market economy should do.
• Chinese companies, and the government as well, should learn From this lesson. (well, this is seen as a lesson :P )

I used to agree with point 2, of course, as point 1 stands neither logic or law. That is why I said in the former post that “China would move another great step forward on the way to market economy, if Danone won this game”.

The game, however, is not so simple, as I found out after reading some news in English as supplement.

1. Firstly, what are Danone and Wahaha fighting about? The acquisiton?

• Not really. Zong’s story is that he is threatened by Danone on acquisition. The fuse is the name and trademark of “Wahaha”, and actually this has been and will be the only true trophy that the two parties are fighting for. Danone’s accusal against Wahaha is also about illegal trade mark usage.

2. Secondly, who owns the trademark?

• According to this expert analysis From pure sense of law, over ten years ago, Wahaha did sign an agreement with Danone, according to which Wahaha licensing all rights to its name and other trademarks to the Danone-Wahaha joint venture. Thus, seemingly, Zong has no rights to use “Wahaha” in branch companies controlled by his family.
• On the other hand, Zong also mentioned that the agreement need recording with the Chinese government to be effective in law, according to related government regulations. This step, however, somehow, failed. The government did not record the agreement, and thus it is invalid.
• In conclusion, there is an agreement stating the trademark belongs to the joint-venture, neither Zong or Danone alone. But this agreement is invalid in law. Thus, none owns the trademark. (WOW~~)

3. Who trapped who?

• Did Danone ever realized the necessity of the recording process? Was the failure of recording a coincidence or an intention?
• Or the requirement of recording is not a must in law? Or Danone has a backup plan for this?
• What is the lesson, and which side should learn From it?

The complexity of this case is that standers-by (like you and me) cannot get any clear information. On the internet, the news and messages in Chinese are all talking about rights and wrongs of nationalism, monopoly and industry protection. I just wonder. This is a LAW issue, isn’t it? It is about facts and rules, isn’t it? But few media in China take this point of view. The core question is whether the agreement without government approval is effective in law. Let’s wait and see.

Finally, I recommend this blog (and all the linked posts in it) as supplement reading on this case.

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More information (by Kitty, July 16, 2007)

The following information is From here (Wall Street journal in Chinese) . Seemingly though the trademark agreement in 1996 was not registered, Danone did notice the issue and sighed another contract with Wahaha to transfer the ownership of the “Wahaha” trademark From Wahaha Group to the Wahaha joint venture.

OK. Now, who trapped who?