Beverage deals 'no threat' to economic safety

Editor's note: The stories of Huiyuan in 2008 as well as Wahaha in 2007 clearly reflect the important role performed by a brand in the current global economy. Is national economic safety threatened by international acquisition?

Ma Qiang, a partner attorney at law and trademark attorney at Unitalen, one of China's largest IP law firms with 450 attorneys around the country, provides some suggestions in this article. China Business Weekly will run the article in several issues. Below is the first part. The views expressed here are his own.

"Proprietors should nurture enterprises like their own sons, but sell them as pigs," replied Zhu Xinli, legend creator and CEO of the pure-juice beverage empire Huiyuan, when questioned by a reporter on why he decided to sell his well-established business as well as the well-known brand "Huiyuan" to world beverage leader Coca-Cola for HK$ 17.9 billion. This ever-brave assertion will surely be recorded in Chinese business textbooks and handed down from generation to generation.

Involving complicated business interests of different parties, news of this deal, the second-largest acquisition in Coca-Cola's history, aroused hard feelings among the Chinese public when released in September 2008. An online Sina survey showed that 82 percent of Chinese respondents objected to the acquisition.

Critics said another famous national brand would be lost and grasped in the "devil hand" of Coca-Cola. Yet as time went by, more people realized that this case is merely a common phenomenon in a global economy and there was no need to elevate it to conflicts of national and foreign interests.

The author is of the view that the brand stories of Huiyuan in 2008 as well as Wahaha in 2007 clearly reflect the important role performed by a brand in the current global economy, and would like to address this brand issue in the following regards.

Is national economic safety threatened by the acquisition?

Among the many criticisms of the Huiyuan sale, the opinion that the safety of the Chinese economy will be threatened is especially worth analyzing, and is subtly related to the support of Wahaha Group in its tough fight with Danone in 2007 on ownership of the "national" beverage brand Wahaha.

When Wahaha Group firmly declined Danone's demand to share the Wahaha non-joint-venture profits, their internal conflicts turned into worldwide legal battles, including ongoing arbitration before the Stockholm Arbitration Institute, a lawsuit before the California Supreme Court as well as much domestic litigation initiated by different parties.

According to the newly issued Anti-monopoly Law, the cases, wherein domestic enterprises are to be acquired by foreign investors or to be concentrated in other manners which may involve national security issues, besides being reviewed according to this law, shall also be subject to review from a national safety perspective according to other related regulations.

So it will be necessary to seek the answer to the question whether the national economic safety will be harmed, threatened or impacted in both the Huiyuan and Wahaha cases, by taking into consideration the specific industries in which the brands in question enjoy their reputations.

Obviously the answer should be negative.

This is because neither the Huiyuan-based pure-juice beverage nor Wahaha-rested bottled-water drink is related to any issue regarding national economic safety. Compared with traditional backbone industries such as mining, heavy machines or petroleum, the beverage industry is not so tightly related to the public interest of China and thus in this industry, the market, rather than the government, should play a decisive role in the acquisition decision-making process.

Therefore it is not necessary for the government to intervene in a market-oriented business transaction in the beverage industry. Unless there is clear evidence that the "concentration" incurred by the Huiyuan acquisition will have an adverse impact on the fair and efficient competition mechanism in the relevant market, this acquisition will no doubt pass the anti-monopoly review proceedings of the Ministry of Commerce.

It is noteworthy that the situations in the Wahaha case are a bit different from those in the proposed Huiyuan acquisition, as Danone has already obtained 51 percent shares of the joint-ventures established with Wahaha Group.

According to the initial cooperation agreements between the interested parties, the Wahaha brand has already been assigned to the joint venture, which means Danone is entitled to corresponding revenues, including the revenues generated from those non-joint ventures controlled by Wahaha Group but using the Wahaha brand.

Editor's note: The IPR Special is sponsored by the State Intellectual Property Office and published by China Business Weekly. To contact the Intellectual Property Office, the IPR Special hotlines are 8610-64995422 or 8610-64995826, and the e-mail address is ipr@chinadaily.com.cn.

(China Daily 03/09/2009 page11)