It was a farewell ceremony which delighted many but upset one. After years of conflicts, Guangzhou Pharmaceutical Holdings Ltd. (GPC) finally got rid of the Hong Kong Jiaduobao Group (JDB). From the moment the China International Economic and Trade Arbitration Commission (CIETAC) declared its arbitration decision, JDB had to cease using the Wong Lo Kat (WLK) trademark. It also meant that all the recognition of the brand would be taken by GPC, who was more than glad to have the No.1 Chinese trademark which is worth 108 billion yuan.

GPC repudiated the WLK trademark license

The WLK trademark was filed by GPC over herbal tea on November 30th, 1987 and was granted by the Trademark Office of The State Administration for Industry & Commerce of the People’s Republic of China. In I995, it was licensed to the Hong Kong Hung To Group Co., Ltd. (Hung To Group) which further authorized the trademark to its subsidiary corporation JDB to be applied on JDB’s herbal tea sold in the Chinese mainland. Since that time there have been two WLKs on the market: the red canned variety which was produced by JDB, and the green paper packaged variety made by GPC.

As the original trademark licensing contract expired, the two companies extended the contract term through supplementary agreements. The license term of the WLK trademark was extended to 2020. However, allegations that Li Yimin, the Former Vice President of GPC, accepted numerous bribes from Chan Hung To, the President of the Hung To Group, led to challenges regarding the validity of the agreements. Lacking any other solutions, GPC submitted the agreements to the CIETAC and asked it to invalidate them.

On May 11^th, 2012, GPC received CIETAC’s ruling: both the Supplementary Agreement on the Licensing of the WLK Trademark and the Supplementary Agreement to the Licensing Contract over the WLK Trademark between GPC and JDB were invalid; JDB was ordered to cease using the trademark. JDB appealed to the Beijing First Intermediate People’s Court, requesting that the arbitration be overruled.

On May 28^th, GPC hosted a trademark licensing ceremony to exclusively license five of its registered trademarks in China to its subsidiary Wong Lo Kat Health (WLKH), among which four belonged to the WLK series. WLKH was authorized to produce and sell red canned and red bottled herbal tea under these marks in the Chinese mainland.

Moreover, according to the Vice General Manager of GPC’s Sales Center Ni Yidong, market surveys and statistics gathered from some of GPC’s closest suppliers indicated that as of May 2nd, 2010, JDB had earned an illicit income of over 7.5 billion yuan through the sales of red canned and red bottled WLK herbal tea; GPC therefore sought compensations based on these numbers.

The rewards for the valued WLK trademark, which had been cultivated by JDB through huge investments, have been reaped by GPC. The tremendous goodwill surrounding the brand appears to have been taken by GPC as well.

GPC tried to suppress JDB

After a temporary lull, June 3rd witnessed a grand ceremony held by GPC on the Great Wall which unveiled the brand new packaging of its WLK herbal tea. A model Great Wall was built by the newly designed red canned herbal tea of GPC. When comparing GPC’s red can with JDB’s, it seems as if the only change GPC made was to remove the word JDB from the label. However, according to Ni Yidong, “GPC has applied for a patent for the red canned package of the WLK herbal tea.”

In response, JDB released “A Solemn Statement” which emphasized that the red can of GPC was extremely similar with JDB’s. Based on the criteria for infringement over the packaging and decoration of specific products, JDB asserts that the similarity has been misleading and therefore constitutes infringements. JDB’s consultant said that the company was preparing for litigation.

On July 4^th, GPC launched another attack towards JDB. It organized a trademark right protecting media conference in Guangzhou and declared that it would start combating the unauthorized WLK herbal tea that flooded the market. To date, many retailers involved have been sued for infringing on the trademark right of WLK; JDB was listed as the co-defendant in these cases.

JDB quickly replied that although the arbitration ruled that it must stop using the WLK trademark, it did not mean that the herbal tea produced and sold before the delivery of the verdict infringed upon GPC’s trademark rights. JDB further explained that the herbal tea with the WLK trademark that it was selling had been produced before the verdict went into effect. Since JDB had paid license fees to GPC to sell that tea, its actions were legal. JDB also argued that according to international conventions and domestic laws, if there were no specific agreements in place between the licensor and the licensee, the licensee will be normally allowed of a grace period of 6 to 12 months to sell out its inventories. It highlighted that since the arbitration result had been appealed to the court, GPC should wait for a final verdict and “maintain the hard-earned thriving market of the herbal tea industry.”

On July 9^th, GPC released another public announcement claiming that as its unique packaging and decoration, the right to the red can of GPC’s WLK was infringed by JDB and that it had filed a lawsuit with the court which had been accepted for hearing. GPC’s legal counsel remarked that since the red canned WLK was a well-known product, there was an innate connection between the fame of the trademark and the product. Therefore, the WLK trademark and the packaging of the herbal tea were an inseparable organic as a whole, both of them belonged to GPC—the trademark holder, and need not be registered as an industrial design separately. The red can has become the unique package of the well-known beverage WLK; GPC’s right to it was exclusive. Thus, if any unit or person adopted an identical or similar design without licensing, it would constitute infringement.

However, JDB said that the design right of the red can had always belonged to JDB. As demonstrated in the materials provided by JDB, the design right to the red can was judged as belonging to JDB in a verdict delivered in 2003 by the Foshan Intermediate People’s Court of Guangdong Province. According to that judgment, JDB undoubtedly owned the design right to the packaging of the red canned WLK herbal tea. Therefore, GPC was misleading the consumers by claiming the right and publicizing its own product via this event.

In addition to its efforts to suppress sales of JDB’s WLK herbal tea and suing JDB for design infringement, GPC also planned to hinder JDB’s attempts at publicity to prevent the latter from transferring the goodwill of the red canned WLK to JDB.

GPC’s legal counsel has currently sent out declarations to mainstream media all over China, saying: “Recently, some enterprise published untruthful advertisements through certain media channels, claiming that ‘The red canned herbal tea leading in national sales has been renamed,’ or ‘Red canned herbal tea renamed,’ etc. ‘WLK’ has never changed its name, and the red canned WLK produced by GPC has been unveiled on June 3rd on the Great Wall and is now being rolled out across China. Any attempt to distort the facts through media ads in order to confuse the consumers and damage the reputation of WLK should be deemed as infringing upon the legal rights of GPC.”

JDB presents new evidence

During its July 13^th press conference, JDB presented a Trademark License Contract (Contract) which had never been made public before. signed between GPC and JDB in May 2003, the Contract stipulated that GPC licensed the right of using, producing and selling red canned and bottled WLK herbal tea to the Hung To Group, the parent company of JDB, from January 20th 2003 to January 19th 2013. The materials provided by JDB stated that the Contract was submitted to the Trademark Office of the State Administration for Industry and Commerce for record by GPC in September 2003. In addition on two occasions, June 11th 2008 and June 23rd 2009, GPC had offered testimonials to the governmental department to prove that the Hung To Group owned the exclusive right of the red canned and bottled WLK before January 19th 2013.

Given that it is common knowledge that JDB has consistently been in an unfavorable position in the battle with GPC for two years, why didn’t it show the Contract earlier? What is its next step? The JDB spokesman said: “We have called on all relevant parties to show restraint and maintain the hard-earned developing situation of the herbal tea industry in joint effort. However, our counterparty disregarded our appeals and kept hurting the industry. We can put up with their neglect to the 108 billion yuan value that JDB had brought to the WLK mark, forgive their neglect of the licensing period, which should have been eight years, and stand their deliberate interference on the normal operation of JDB and their launching of the red canned WLK which resembled our design. However, we can not tolerate the fact that they are not only ignoring the valid and legal agreement between us, but also trying to take our red can design which has been used for 17 years and our slogan which has been publicized for 10 years. We hereby reiterate: based on the above mentioned Contract, the WLK herbal tea produced by JDB are all legal. The Contract exists separately, which means that it is valid for the period preceding the judicial determination. If the counterparty claims that it is invalid now, why did they testify to its validity to the government for two times in 2008 and 2009? Isn’t this contradictory? We will take legal actions to protect our legal interests whenever any unit or person complains or files lawsuits against us, or checks and detains our product illegally.”

On July 16^th, GPC announced that on July 13^th, the Beijing First Intermediate People’s Court rejected the appeals of JDB on revoking the arbitration result over the WLK trademark. Soon after, JDB announced that it had applied for arbitration with CIETAC based on the third independent Contract and the application was accepted. However, according to GPC, it had not received any notice on this matter.

As to how the Contract publicized by JDB will change the situation, a journalist of China IP magazine consulted Fu Gang, lawyer of the Shanghai Co-effort Law Firm. He said: “Currently, there are two possibilities: one is that the Contract is the subsidiary record contract to the Supplementary Agreement on the Licensing of the WLK Trademark (which prolonged the licensing period to 2013) that was just invalided by the CIETAC. The other is that the Contract exists independent from the invalided contracts.”

“If it falls into the first possibility, then as a subsidiary contract, the Contract is naturally invalid and JDB has no right to continue to use the WLK trademark. However, in the second situation, the new Contract will be valid, and as it stipulates, the license contract will not expire until January 29th, 2013 which means JDB still owns the exclusive right to produce and sell red canned herbal tea under the WLK trademark. Therefore, any unit or person who produces and sells the red canned WLK herbal tea infringes upon JDB’s rights and JDB may take legal actions against them. If this is the result, the series of legal actions taken by GPC against JDB will have been in vain.”

“Although no further evidence has been presented, I personally think that the second situation is unlikely. Otherwise, JDB would not be limiting its publicizing to negative events, such as when the company has encountered huge losses and been forced into a negative position. Even if the Contract is indeed independent, it is only half a year left before the Contract expires, which is barely enough time for JDB to sell out its inventory and transfer the goodwill of the WLK mark to JDB.”

“Even if the Contract is truly valid, it will not help JDB win the battle over the right to the red can. The press conference served only to eliminate bad influences generated by the verdict delivered by the Beijing First Intermediate People’s Court on July 13th which rejected its appeals, continue to draw the attention of media, consolidate the connection between JDB and its herbal tea and win more time to transfer the goodwill of WLK to JDB. From this perspective, all legal actions are components of its marketing strategy.”

Anxiety caused by WLK

The battles between GPC and JDB have confused the consumers. They can neither figure out the relationship between the two companies, nor understand what they are vying for, not to mention which WLK they should consume. Meanwhile, the litigations have also contributed to popularizing IP protection. Currently, GPC is anxious to win back its market shares while JDB is eager to educate the consumers that the JDB herbal tea is exactly the original red canned WLK.

It can be predicted that with the Contract as a powerful weapon, JDB will battle GPC again to keep media attention. The battle field will inevitably move from the trademark right to the packing and decoration right and the right to advertisement slogans. In Fu Gang’s opinion: “It is highly probable the red canned packaging will be deemed as ‘specific packaging and decoration of well-known commodity’ provided in the Law against Unfair Competition of the People’s Republic of China. To whom the right belongs has not been confirmed yet. However, under the current circumstances, I think it should be attributed to JDB. The odds are in JDB’s favor in the battle over the packaging.”

China IP magazine held a seminar to discuss the WLK trademark dispute. At that time, lawyer Yu Guofu of Shengfeng Lawyer expressed his opinions on issues concerning the goodwill of commodities. As the disputes develop, Yu Guofu expressed that at present the wisest choice for JDB is to lengthen the disputes with every effort and keep increasing advertisements to publicize the change of the name so as to transfer the goodwill of the WLK trademark to JDB to the fullest extent. From this aspect, GPC must want to conclude the cases as soon as possible while JDB prefers the opposite.

(Translated by Monica Zhang)