Wang Lao Ji Trademark License and Red Can Trade Dress Ownership

2020/6/51
Wang Laoji Trademark License and
Red Can Trade Dress Ownership
Dr. Hongjun (Nick) Yao
+86 152 0199 2590
hongjunyao@126.com

2020/6/5
Dr. Hongjun (Nick) Yao
1. A Lawyer with 15 years of demonstrable
professional experience in IP licensing and
transfer, M&A, Patent, Trademark, Copyright,
Contract and legal compliance
2. Initiated and won trademark “MLGB” invalidation,
which has been listed as the third in the Ten Most
Influential Intellectual Property Cases of 2019 by
the Supreme People’s Court of China
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2020/6/5hongjunyao@126.com 15201992590
3
Same Brand, Different Packages

2020/6/5
Cases
1. Trademark license between Guangzhou
Pharmaceutical Group (GPG) and Hong
Kong HongDao Group Limited (“HongDao
Group”)
2. Trade dress ownership and infringement
3. Trademark infringement
hongjunyao@126.com 15201992590
4

2020/6/5
The Trademark
 Guangzhou Pharmaceutical Group
(GPG), a state-owned company, is the
registrant of Wang Laoji trademark (“王
老吉”, No. 626155) registered for non-
alcoholic beverages of class 32
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2020/6/5
1. The Trademark License
 On March 28, 1995, GPg and Hong Kong Hongdao
Group Limited (“Hongdao Group”) entered into a
Trademark Licensing Agreement (“Agreement 1995”).
 It is a sole license to use the trademark in mainland
China. Sublicensing is permitted.
 They also agreed that Hongdao Group use color red on
the packaging, and GPG must use different color and
design on its packaging.
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2020/6/5
The Extension of the License
 On May 2, 2000, the Licensing Agreement
was extended to May 2, 2010.
 In 2002, the two parties signed a
supplementary agreement, which extended
the licensing to May 1, 2020.
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2020/6/5
Invalidation of Extensions
 In September 2005, Li Yimin (李益民), the CEO of
GPG was sentenced to prison by Guangdong
Higher Court in the second instance for bribery
during the negotiations of the 2002 extension
 On May 9, the 2012 extension agreement was
invalidated by China International Economic and
Trade Arbitration Commission (CIETAC)
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2020/6/5
Legal Basis for Invalidation
 Paragraph 2 of Article 52 of China Contract
Law:
A contract is invalid if there is malicious
conspiracy causing damage to the interests
of the State, a collective or a third party
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2020/6/5
Questions
 Legal: What if the interest Hongdao Group,
a private company, is damaged by the
extension agreements?
 Factual: Is there any damage to the state?
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2020/6/5
Any Damage to the State?
 License fee in Agreement 1995 (1995.9-2003.1): The first
year 600,000 RMB, an annual increase of 20%.
 Agreement 2000 (2000-2010): The first and second
years, 4.5 million RMB per year, the third to sixth years,
4.725 m/y, the seventh to tenth years, 4.914 m/y.
 Agreement 2002 (2000-2020): The 20-year licensing
period is divided into six periods, and the licensing fee
increases from 4.5 m/y to 5.37 m/y.
11

2020/6/5
2. Trade dress
Infringement
 On July 6, 2012, Guangdong Jiaduobao Beverage
and Food Co., Ltd. (JDB), a former sub-licensee,
sued Guangzhou Wanglaoji Great Health Industry
Co., Ltd. (WLJ Great Health), a current licensee, for
trade dress infringement of the “Red Can”.
 On the same day, GPG sued JDB for trade dress
infringement of the “Red Can”.
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2020/6/5
The Two Trade Dress
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2020/6/5
JDB’s Reasons
 It is Hongdao Group that had the trade dress
designed.
 GPG had no right to use red can during the
license.
 Red Can and Wang Laoji are two separate
marks, and the Red Can trade dress does not
include the wordmark as a constituent element.
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2020/6/5
GPG’s Reasons
 Trade dress is protected as the package
design of a well-known product in Anti-
unfair Competition Law, and the well-known
product has been Wang Laoji herbal tea
from the very start.
 The mark Wang Laoji has been a necessary
and essential part of the Red Can.
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2020/6/5
The Ruling of the First Instance
Guangdong Higher Court:
 JDB’s reasons were rejected, and its claims
denied
 GPG’s reasons were accepted and its
claims approved, 150 M RMB was awarded
as damage
16

2020/6/5
The Ruling of the Second Instance
The Supreme Court:
 The famous product was Wang Laoji herbal tea, and
the Red Can trade dress should include the
characters Wang Laoji
 JDB’s use made the trade dress famous
Conclusion: The Red Can is co-owned, and either
party has been infringing, so all claims in the two
cases were denied
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2020/6/5
Questions
 Who has the right to decide on which trade
dress to make the claims and what elements it
includes?
 Is it necessary to identify a well-known product
before identifying the trade dress at issue?
 What is the consequence of the ruling to e
trademark Wang Laoji?
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2020/6/5
3. Trademark Infringement Case
 Case filed on May 7, 2014, by GPG against
JDB
– Claim A. to recover 2.93Billion RMB as the profit
of infringement from May 2, 2010, to May 19,
2012.
– Claim B. 1 million as litigation cost
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2020/6/5
Legal Basis
 Article 58 of China Contract Law: After a contract
becomes invalid or is rescinded, any property
obtained under the contract shall be returned. If it is
impossible or unnecessary to return the property,
compensation shall be made at an estimated price.
The party at fault shall compensate the other party for
the loss caused by the fault. If both parties have
faults, they shall bear their respective responsibilities.
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2020/6/5
Ruling of the 1st instance
 On July 6, 2018, Guangdong Higher Court ruled
that:
 After the expiration of the 2000 agreement, the
defendant’s use of Wang Laoji has neither a legal
basis nor a contractual basis.
 JDB’s profit was 2.9 billion from May 2, 2010, to
May 12, 2012 (No infringement was found for May
13, 2012, to May 19, 2012).
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2020/6/5
Ruling of 1st instance
 For GPG issued several certificates to the government
during 2008 and 2009 claiming that the trademark
licensing period was up to January 19, 2013, GPG has
some faults for the infringement, so 50% should be
deducted, and 1.45 B should be awarded.
 680 K litigation cost shall be recovered.
 10.1228 M paid license fee shall be deducted.
 In total: 1440.5572 M is awarded.
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2020/6/5
Is There an Infringement?
 What is the consequence when an
agreement is invalidated?
 What does GPG’s statements to the
government tell?
 What about the received license fee?
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2020/6/5
Who Is the Eligible Plaintiff?
 Article 59 of China Contract Law:
If the parties impair by malicious conspiracy
the interests of the State, of the collective or
of a third party, the property they have thus
obtained shall be returned to the State, the
collective or the third party.
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