Court rules against Danone in Wahaha battle

A spokesperson for Danone said that the company was "shocked" by the the Hangzhou Arbitration Commission's (HZAC) decision, which it says ignored fundamental facts of a previous ruling.

Though an increasing number of food and beverage groups are working with local partners to expand into new markets like China, the strategy is not without its problems for some manufacturers.

Danone in particular has been engaged in a number of legal disputes with various joint venture partners in China, India and South America over the last year, relating to how its brands are marketed and produced.

Danone and Wahaha have worked under an agreement since 1996 regarding a number of locally-based joint ventures, of which Danone holds a 51 per cent stake.

Wahaha has previously criticised this partnership for preventing the company from manufacturing goods that compete directly with products released through the joint venture.

The latest decision will be a major setback for Danone in its ongoing saga with Wahaha though, after it last month successfully froze the assets of offshore companies linked to the Chinese manufacturer.

Wahaha launched the arbitration request on 13 June this year in a bid to bring to an end a "Trademark Transfer Agreement" (TTA), which meant its brands were exclusively tied to the joint venture companies, according to Danone.

The company claims that Wahaha's evidence in the arbitration, which is a letter issued to the State Trademark Office (STO) claiming that the TTA was rejected and therefore never validated, was not valid in the court.

With the STO already stating in legal papers released in September that Wahaha's 1996 and 1997 submissions for the TTA were never duly made, the evidence could not therefore be counted as a formal agreement, according to Danone.

"[Therefore] the STO had no ground to either 'approve' or 'reject it'," the Danone spokesperson stated.

"Based on these facts, it is very clear whose position is right in the arbitration. "

The spokesperson alleged that the HZAC had "totally ignored" these developments in its decision that the TTA was terminated.

The HZAC ruled additionally that Danone's request for Wahaha to continue to honour their joint venture agreement was barred by the statute of limitation, which limits commencing an action over a contract dispute to two years.

However, Danone rejected this further ruling saying that it has only been aware of Wahaha's desire to terminate the TTA when the company filed for arbitration in June this year.

Danone argued therefore that it calls for the company to continue the joint venture, were not barred by the statute of limitation.

"If a decision raises no timing issue on one party's request in 2007 to terminate the TTA , but rejects on timing ground the other party's request made about the same time…then isn't the decision clearly self contradictory?"

the spokesperson added.

Press sources have suggested that Danone will be allowed to appeal the decision, though the company was unavailable to comment on its intentions at the time of publishing.

Danone's immediate future in the country remains unclear though, with the group, which is the leading worldwide producer of diary products, finding expansion in some emerging markets anything but plain sailing.

In June, the Indian government informed Danone that it needed permission from local partner the Wadia group before it could sell its brands separately within the country.

The government referred to Press Note 1, a piece of legislation relating to foreign companies that work with an Indian group in a joint venture.

Foreign operators must get permission before operating independently, according to the Business Standard.

The decision came on top of a number of disagreements between the two parties over Danone's investment in local nutraceuticals company, Avesthagen, and some royalty payments relating to other ventures.