The JDB Group (JDB), a Hong Kong-based beverage producer that uses the Wong Lo Kat (WLK) brand, is getting heated up over a fight between the drink in red and green cans. Their respective owners, JDB and Guangzhou Pharmaceutical Holding Limited (Guangzhou Pharm), might go different ways as the brand value skyrocketed and the licensing contract between the two is drawing to an end, and most importantly, Guangzhou Pharm has openly started to solicit new global partners.
Squabbles over the brand
On November 10, 2010, Guangzhou Pharm announced at a press conference that its brand “Wong Lo Kat” was worth a little over 108 billion Yuan, according to authoritative estimates, making it the most valuable brand in China. Besides, 2008 figures from the State Statistics Bureau showed that WLK had become China’s top brand in the canned drinks market. An AC Nielson survey also showed that since the latter half of 2007, WLK had long surpassed all carbonate drink brands in sales. From 2002 to 2009 WLK grew at an average annual rate of 96 percent.
For the owner of WLK, such performance would be a source of great pride. But it has also been the cause of open “account-settling”. Two days after the press conference, JDB, producer of red-can WLK, responded by announcing in its official website, “red-can WLK is produced and sold by JDB in the Chinese mainland under Hung To Development (China) Limited, a privately-run enterprise founded in Hong Kong. There are no subordinating relations whatsoever between Guangzhou Pharm and Hung To or JDB, nor any investment relations including any form of share holding or controlling.”
JDB also expressed “deep regret” for Guangzhou Pharm’s repeated mentioning of its 100-million-Yuan donation to the people affected by the Wenchuan earthquake in 2008, its unauthorized use of red-can WLK picture and the household advertisement, “A can of Wong Lo Kat a day keeps heat away!”
However, customers saw no difference. “Aren’t they all just Wong Lo Kat except in different packages?” a customer asked a China IP reporter.
The Past and Future Relations Between the Two Sides
The verbal fight confused many. Most consumers simply considered both a homemade drink that put out “internal fire” and couldn’t see any difference between the products in red and green cans.
The story behind the red-can and green-can tea began 13 years ago. In 1997, Wong Lo Kat Food and Beverage, a company under Guangzhou Pharm, signed an agreement with HK’s Hung To. The agreement gave Hung To the right of exclusive use of the WLK trademark to produce and sell red-can herbal tea. The agreement was for 15 years and is set to expire on December 31, 2011. The agreement also permitted Guangzhou Wong Lo Kat Pharmaceutical Co Ltd, another company under Guangzhou Pharm, to independently produce and sell such drink in green cans.
In 2002, JDB, a mainland company under Hung To, repositioned the brand, invested heavily on it and developed the market rapidly. According to open statistics, JDB’s sales rose from no more than 200 million Yuan in 2002 to 600 million Yuan in 2003, and then soared to more than 5 billion Yuan in 2007. The brand name reached its peak with a generous 100-million-Yuan donation to earthquake-affected areas in Sichuan province in 2008, which later led to record sales of 14 billion Yuan that year.
In early November, Guangzhou Pharm announced at a press conference that WLK had become the top Chinese brand with a value of over 108 billion Yuan (far more than Haier’s previous record of 85.5 billion Yuan) and openly solicited new partners from worldwide. Seeing Guangzhou Pharm openly showed red-can WLK products and sales statistics at its website in the name of “WLK brand owner”, JDB, which still held business operation right of red-can WLK, went uneasy.
Judging from the above messages, it is fair to say that Guangzhou Pharm exclusively owns the WLK trademark at the domestic market. As the licencing agreement between Guangzhou Pharm and Hung To is coming to a close and the brand value skyrocketed, it seems Guangzhou Pharm intends to seek new partners disregarding high costs.
At a press conference addressing marketing activities at the Guangzhou Asian Games, market ing general manager Yang Aixing of JDB answered journalists’ questions. “in a statement on November 12, JDB has made it clear that JDB has no subordinating relations whatsoever with Guangzhou Pharm, nor any investment relations including share holding or controlling. Red-can WLK is independently produced and sold by JDB.” He said.
Responding to concerns about the terms of using the WLK brand, Yang said, “our heavy investment in WLK during the Games has testified to our commitment to the brand. We have always focused, and will continue to focus, on this herbal tea. We not only regard it as a brand, but a piece of traditional culture, and we have striven to turn it from a regional brand into a national one. We will finally develop it into a real world-class brand and do a constructive, meaningful thing for our country and people.”
Distinction Between Trademark Right and Brand Value
As reporter learned, “Wong Lo Kat” is a trademark registered by Guangzhou Pharm, which authorized JDB to use it in the form of common license. Therefore, both JDB and Guangzhou Pharm, the right holder, can use the trademark.
Wu Pengbin, attorney from Shanghai-based DeBund Law Firm, believes that JDB contributed to the popularity of “Wong Lo Kat.” However, unless otherwise agreed, JDB should return the trademark to its holder upon termination of the agreement. A more complicated matter is the advertising slogan, “A can of Wong Lo Kat a day keeps heat away!” If JDB created the jingle and customer brand association of the term with it’s brand of tea, Guangzhou Pharm should not be permitted to use it after the agreement expires to avoid charges of unfair competition. However, the “unfair competition” excuse can also be disputed on the basis that the advertisement is telling a function of the drink.
Most online comments took side with JDB, wet nurse of the brand, saying Guangzhou Pharm is kicking down the ladder. Attorney Wu explained, “Since there is no such notion of ‘brand’ in law, it should be a concept consisting of trademark, shop name and other elements. Trademarks are simple: they include registered and unregistered trademarks and are protected by the Trademark Law. But there is no single law that protects brand. So a brand must be split into trademark, shop name and so on to be protected by different laws. When two parties take different ways upon termination of their agreement, they should follow whatever subsequent terms were previously agreed to in the contract. Without such terms, JDB will have no right to continue using the ‘Wong Lo Kat’ trademark, hence having nothing to do with its brand value.”
A Similar Case
The Wong Lo Kat’ dispute is not the first case of its kind. The same problem appeared in the cooperation between Wahaha and Danone. The two companies first agreed on a joint venture, with Wahaha giving out its trademark. But the deal changed to a trademark licensing, with Wahaha owning the trademark while Danone using it. Upon the termination of agreement Wahaha took back the trademark, together with the attached value.
(Translated by Li Heng)
