In 1996, Wahaha Group Corporation (Wahaha), Danone Group Corporation (Danone) and Peregrine Investments Holdings Limited (Peregrine) established a joint venture company with a respective shareholding ratio of 49 percent, 49 percent and 2 percent. During the Asian Financial Crisis, Peregrine assigned its shares to Danone, such that Danone held a controlling share of 51 percent. After a few years, Wahaha invested in the establishment of several non-joint venture companies on the Chinese mainland, and its total assets in 2006 reached the 5.6 billion RMB of which its profit was 1.04 billion RMB.

 

On April 3, 2007, Danone sought to obtain a 51 percent stake in these non-joint venture companies for the amount of 4 billion RMB. Qinghou Zong, the general manager of Wahaha, stated that Wahaha had fallen into a trap set by Danone. In his opinion, the terms of the joint venture contract prohibited non-joint venture companies of Wahaha from producing products that would compete with the joint-venture company, but did not set limits on Danone. Moreover, the trademark licensing contract was unreasonable for the Chinese side. In this regard, Wahaha’s employees and its distributors supported Qinghou Zong and resisted Danone’s merger and acquisition attempts.

 

On May 9, 2007, Danone brought a suit against Wahaha. Within two years, both sides entered into more than ten lawsuits at home and abroad. The lawsuits included but were not limited to followings: Danone Asia Pte Ltd. and its wholly-owned subsidiary applied for eight arbitrations at the Arbitration Institute of the Stockholm Chamber of Commerce; Danone brought an action against Ever Maple Trading Ltd. and Hangzhou Hongsheng Beverage Company Limited in the California Supreme Court; Wahaha applied for arbitration to the Hangzhou Arbitration Committee after Qinghou Zong resigned as chairman of the board of the joint-venture company; Wahaha and Shenyang Lingdong Development Corporation sued Danone in a Jilin local court and in a Shenyang local court, due to the fact that a few senior executives from Danone sent to joint venture companies in Jilin and in Shenyang undertook acts of unfair competition.

 

Over the course of the lawsuits, both sides consumed a large amount of money and manpower. This influenced their ability to remain competitive, especially in the areas of production and research for new products. Thus, the enterprises were significantly less effective than they would have been without the lawsuits. Furthermore, Danone’s brand image declined, and Wahaha was doubted by consumers and various other sides. After negotiating with each other, both sides reached a settlement agreement.

 

On the morning of September 30, 2009, Wahaha and Danone held a ceremony where they signed a settlement agreement at the Beijing Hilton Hotel. With the support of the Chinese and French governments, both sides were able to reach this agreement. As a part of the settlement agreement, Wahaha will terminate its relationship with the joint venture company. Danone agreed to assign its 51 percent stake in the joint venture company to Wahaha. With the execution of the settlement agreement, both sides will terminate all the legal procedures related to disputes between them.

 

The chairmen of the board of each corporation approved the settlement agreement. The chairman of the board of Danone said that in the future Danone Corporation would devote itself towards researching new products and towards business development in the Chinese market. The chairman of the board of Wahaha said that Wahaha Corporation was still willing to cooperate with world famous enterprises on the basis of equality and mutual benefit.

 

(Source: The Judicial Protection of Intellectual Property Right in China)