China’s Red-Canned Beverage IP Dispute – Guangdong JDB vs. Guangzhou Wanglaoji

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(Author: ZHANG Lei; Source: Lifang & Partners)

On 16th August 2017, in Beijing, China, the Supreme People’s Court issued verdicts in the two cases concerning the disputes between Guangdong JDB Beverage and Food Co., Ltd. (JDB) and Guangzhou Wanglaoji Health Industry Co. Ltd. (Wong Lo Kat), a subsidiary of Guangzhou Pharmaceutical Holdings Limited (GPHL).

The Packaging of JDB and Wong Lo Kat

The court ruled that as both GPHL and JDB had made important contributions to the formation of the packaging and decoration of the “red Wong Lo Kat herbal tea cans” (the “packaging and decoration rights”), both sides may, without prejudice to the legitimate interests of others, share the use of the red can design.

The two cases are central to a series of disputes between the parties relating to the ownership of the packaging and decoration rights. The cases were both separately filed on 6th July 2012, by each of the parties respectively, with each party claiming the rights to the packaging and decoration of the famous “red Wong Lo Kat herbal tea cans” and claiming that the production and sales of herbal tea by the other party using the red can design constituted infringement.

At first instance, the Guangdong High People’s Court ruled that the packaging and decoration rights belonged to Wong Lo Kat. They ruled that, as JDB did not enjoy the rights and interests involved in the packaging and decoration, the production and sale of canned herbal tea with 1) “Wong Lo Kat” on one side and “JDB” on the other side of a red can; or 2) “JDB” on both sides of a red can; constituted infringement.

The court of first instance then ordered JDB to stop infringement, publish a statement to eliminate the influences of their infringement and compensate Wang Lo Kat for economic losses of RMB 150 million along with reasonable expenses of RMB 260,000.

Unsatisfied with the first instance verdicts, JDB appealed to the Supreme People’s Court in Beijing. The court decided that the well-known trademark, in this case, was the “red Wong Lo Kat herbal tea can” comprised of the words “Wong Lo Kat in yellow text on a red back- ground, certain patterns and their arrangement” on the canned tea products.

GPHL, as the exclusive rights holder and the Licensor of the registered trademark “Wong Lo Kat” had argued that as the “Wong Lo Kat” trademark packaging and decoration formed an integral part of and played a significant role in indicating the source of goods, consumers would certainly relate red Wong Lo Kat herbal tea cans with the rights holder of the trademark “Wong Lo Kat” – GPHL. It was also argued that recipe or taste would not affect the consumer’s identification and judgment of goods.

JDB, the actual party producing the Wong Lo Kat herbal tea in red cans, argued that the rights to the packaging and decoration of the red cans were independent of the trademark rights. Therefore ownerships of the trademark right to “Wong Lo Kat” should not be affected by the right to the packaging and decoration. They also claimed that, as the red can design was used by JDB in combination with a specific recipe, which consumers “loved”, the relevant packaging and decorating rights should belong to JDB.

The Supreme People’s Court, after considering the history and development of red Wong Lo Kat herbal tea cans, the background of past cooperation between the two sides, consumer awareness and the principles of fairness, decided that both GPHL and JDB contributed to the formation, development and goodwill of the packaging and decoration rights. They considered that it would be unfair to either party if the packaging and decoration rights were solely awarded to one of them. The Court ruled that, under the principle of good faith, respect for consumer awareness and upholding the legitimate rights and interests of others, the packaging and decoration rights should be shared between GPHL and JDB. On this basis, the claims of both parties were rejected.

In its judgment, the Supreme People’s Court also stated that:

The legal framework for intellectual property law was created to protect and encourage innovation. The act of creating and contributing intellectual creations to the benefit of society with honesty and good faith is protected by law. The judicial protection of intellectual property involves maintaining an orderly, standardised, fair, competitive and energetic market that satisfies the principle of legal certainty. Intellectual property disputes often arise from a complex historical context. A division of interests and the balance of interests are often intertwined. Handling such disputes, we need to take full account of the historical causes and where possible respect the status quo. We must heed a variety of factors such as consumer awareness – in order to maintain good faith and respect for the basic principles of objective reality. When doing this we must strictly follow the guidelines of the law to reach a fair and reasonable solution.

The Supreme People’s Court confirmed that both sides, without prejudice to the legitimate interests of others, may share the packaging and decoration rights.

Both GPHL and JDB had positively contributed to the goodwill of the “Wong Lo Kat” brand and gained huge market shares while promoting corporate social responsibility. However, since the “Wong Lo Kat” trademark licensing relationship ended, the two sides continuously litigated against each other at great expense. The public showed concern and worry about this. The good faith of the corporations was damaged through their actions. Because of this, the two sides should, through mutual understanding and good faith, take steps to fulfil this ruling, act in accordance with the principles of corporate social responsibility, cherish their trading results and respect consumer trust. They should make more efforts to strengthen their national brands and provide better products to consumers.

Article IV of the Civil Law and Article VI of the forthcoming General Principles of Civil Law provide that a civil subject should follow the principle of fairness and the basic principles of civil law. Article II of the Anti-Unfair Competition Law also defines fair and honest business principles. In this case, the Supreme People’s Court decided based on the facts and principle of fairness, that the two sides had made joint business investments and therefore shared relevant interests. This judgment not only implements the basic principles of competition law but also take into account the interests of operators and consumers. At the same time, it provides a clear judicial guidance to businesses that:

They should act in accordance with the principles of corporate social responsibility, cherish business results and respect consumer trust. They should make more efforts to strengthen their national brands and to provide better products to consumers.