The legal wrangle between French food giant Groupe Danone SA and the Hangzhou-based Wahaha has seemingly turned against Danone. Sources told Beijing Morning Post on Monday that Danone had to withdraw its lawsuit against the Trademark Office under the State Administration for Industry and Commerce (CTMO).

 

In August, Danone filed a lawsuit with the Beijing No.1 Intermediate People's Court against the CTMO because it rejected its application to transfer Wahaha brand ownership from the Chinese company to the joint ventures.

 

The lawsuit was a response to Wahaha Group's request several months ago for arbitration in Hangzhou seeking termination of a 1996 trademark transfer agreement it signed with joint venture partner Danone. Wahaha alleged the agreement failed to get approval from CTMO.

 

The court later held separate talks with Danone, CTMO and Wahaha for the details of the case. It said afterwards that Danone cannot sue the CTMO for its decision 11 years ago because the time limit for legal action has expired.

 

Furthermore, Danone cannot sue the CTMO over its reply to the Administration Bureau for Industry and Commerce of Zhejiang, which had confirmed the rejection of the trademark transfer in June. This is because the document is legally inadmissible as an official letter between government agencies.

 

Danone was left with no choice but to withdraw the lawsuit.

 

The withdrawal epitomizes Danone's awkward situation in China recently. Since August, Danone has suffered several setbacks in the legal dispute against Wahaha. However, Danone faces more headaches in yet another Chinese city.

 

Letter of impeachment

 

On October 15, Danone announced it would sell its entire 20.01 percent stake in the Shanghai-based Bright Dairy & Food Co Ltd to the company's two shareholders for 4.58 yuan (61 US cents) per share.

 

Danone said it made the deal because there was no hope for full control of the dairy company after its restructuring. Nonetheless, the low ball price triggered suspicions.

 

"Share price of Bright Dairy at the moment is around 14 to 15 yuan. There are almost no restrictions for Danone in selling its portion via the stock market," the paper quoted an industry insider as saying.

 

"Instead, Danone not only sold them at one-third of the market price, but also allocated 330 million yuan to cover Bright Dairy's expense on marketing and sales channels" the source said, suggesting it may have something to do with an impeachment letter against Danone.

 

The paper said the letter, written by a man named Li Su, accused Danone of illegally acquiring 2.5 million shares of Bright Dairy from the local State-owned assets operation company as early as 2003. Li had intended to send the letter to the local discipline inspection committee.

 

It was not known whether the letter had forced Danone to compromise in negotiating the stake transfer. Danone has not responded so far, according to the paper.

 

However Frank Riboud, Danone CEO, vowed recently to adjust its investment strategy in emerging economies and to bring the dispute with Wahaha to a complete end, implying the food giant has realized it faces tough decisions in China and may have to drastically rethink its approach.

 

(Chinadaily.com.cn November 7, 2007)