Introduction

On 16 August 2017, the 5 years of legal battle between Guangzhou Pharmaceutical Holdings Limited (“GPHL”) (the owner of the Wang Lao Ji (i.e. 王老吉) (“WLJ”) trademark) and Jia Duo Bao (China) Beverage Co., Limited (“JDB”) over the ownership of the iconic red can design for their competing herbal tea drinks finally came to an end. The Supreme People’s Court of China (the “SPCC”) overturned the decision of the Guangdong High People’s Court and declared a draw, stating that both GPHL and JDB are allowed to co-own the red can design as the SPCC views that both parties had made substantial contributions in promoting the packaging and overall reputation of the herbal tea drinks. This case is significant as it suggests how Courts in China may adjudicate on such similar cases whenever ownership disputes over product packaging arise in the future.

Background

GPHL has been using the WLJ trademark on herbal tea products since 1997. Under a trademark licensing agreement, GPHL authorized a Hong Kong company, HongDao Group (HK) Co., Limited (“HongDao”), to use the WLJ trademark for selling herbal tea drinks from 2000 until 2010. At that time, GPHL sold herbal tea drinks under the WLJ trademark in a green carton trade dress, while HongDao, through its subsidiary JDB, sold the herbal tea drinks using the iconic red can designs with the WLJ trademark. The red canned herbal tea drinks became a commercial success in China through strong marketing efforts on the part of JDB.

The seed for dispute was planted when JDB continued to sell the herbal tea drinks in the red can trade dress (labelled with its own trademark “Jia Duo Bao” (i.e. 加多寶)) after the trademark licensing agreement between GPHL and HongDao was terminated. Meanwhile, GPHL’s subsidiary, Guangdong Wanglaoji Grand Health Co., Ltd., (“GPHL Subsidiary”) began to sell herbal tea drinks in a red can highly similar to JDB’s red can trade dress, albeit labelled with the WLJ trademark.

On 6 July 2012, JDB filed an action against GPHL Subsidiary, claiming that the red can trade dress belonged to JDB as JDB was the sole creator of the design, and that such design should be independent from the WLJ trademark. JDB sought to recover from GPHL Subsidiary RMB 30.96 million in damages. On the same day, GPHL also sued JDB on the same ground of trademark infringement and sought RMB 150 million in damages.

The Guangdong High People’s Court in December 2014 ruled in favour of GPHL and GPHL Subsidiary, holding that the WLJ trademark and red can trade dress are so closely associated with one another that they are inseparable as a whole. Since the WLJ trademark is owned by GPHL, the red can trade dress should accordingly also belong to GPHL. JDB was banned from using the red can trade dress on its herbal tea drinks and was ordered to pay RMB150 million in damages and over RMB260, 000 in legal costs.

Dissatisfied with the Guangdong High People’s Court ruling, JDB appealed to the SPCC.

The SPCC’s Decision

Things twisted and turned. The SPCC reversed the Guangdong High People’s Court ruling and held that JDB and GPHL Subsidiary can both own and use the red can trade dress as long as they do not cause harm to each other’s interests. In the SPCC’s decision, it ruled that under ordinary circumstances, after termination of a trademark licensing agreement, the right to use and the goodwill derived from use of the trademark should belong to the trademark owner. However, this is a special case where during the term of the trademark licensing agreement, the red can trade dress bears the characteristics of a unique design protected by the Anti-unfair Competition Law of China and that the identifying function of a trademark and of a famous packaging work independently for different right owners. As such, the red can trade dress, due to its reputation and uniqueness, has generated independent rights from the WLJ trademark itself. Moreover, both GPHL subsidiary and JDB provided significant contributions to the red can trade dress. GPHL subsidiary provided the basis for the development of the reputation of the red can trade dress while JDB, through its long term effort in advertisement, greatly promoted the publicity of the red can trade dress.  

Due to significant contributions from both sides, the SPCC ruled that it would be unfair and against public interest if the ownership of the red can trade dress was awarded as either belonging to GPHL / GPHL subsidiary or JDB.

Implications

No doubt, this case shows the importance of having well drafted agreements with clear provisions to protect the interests of the intellectual property owner, particularly in a license or Original Equipment Manufacturer (OEM) agreement, in which the ownership over the intellectual property rights concerned should be clearly drafted. In addition, it illustrates that the trademark owner should no longer merely rely on its trademark registration and respective provisions in such agreement to receive protection. S/he should also take further steps and consider filing design applications for its product’s trade dress and/or design, and further filing copyright registrations for such designs to ensure that his/her intellectual property rights could be covered by and protected from different angles, and to plug such loophole to share or co-own such intellectual property rights. These measures not only could help draw a clear line on such ownership and avoid future dispute but also allow the enforcement of the intellectual property owner’s rights against infringement by unauthorised third parties.