Arbitration ends long tempest in a tea can

Seven years after a court found the former vice-chairman of Guangzhou Pharmaceutical Holdings Ltd guilty of bribery for conveying the trademark for one of the nation's best-known herbal tea drinks, full rights to the name were recently restored by the China International Economic and Trade Arbitration Commission.

The popular herbal tea Wanglaoji, also known as Wong Lo Kat, was first made in 1828, but its recent history has been a brew of dispute.

Today the tea made by Guangzhou Pharmaceutical comes in a green box, but Chinese consumers are more familiar with the same name on red cans that contain the drink made by Hong Kong-based JDB group.

In 1995, Guangzhou Pharmaceutical first licensed the trademark Wong Lo Kat to JDB and later extended permission to the Hong Kong company until 2010.

But rights to use the trademark were then illegally granted until 2020 by Guangzhou Pharmaceutical's former vice-chairman Li Yimin, who accepted a bribe of HK$3 million ($586,400) from Chan Hung To, chairman of JDB's parent company, according to a verdict handed down by the Guangdong High People's Court.

Li was sentenced 15 years in prison in 2005, but Chan fled while free on bail.

The illicit deal with JDB allowed it to use the Wong Lo Kat trademark at an annual licensing fee of 5 million yuan ($790,500).

"Usually, the licensing fee for a trademark is 5 to 20 percent of sales revenues," said Ni Yidong, head of the marketing department of Guangzhou Pharmaceutical. "But 5 million yuan equates to less than 0.09 percent."

Guangzhou Pharmaceutical filed an application with the arbitration commission in April, 2011. The verdict was issued two weeks ago, ruling that contracts signed between 2001 and 2003 were illegal and JDB must stop making herbal tea drinks with the Wong Lo Kat trademark.

An evaluation in 2010 found that the Wong Lo Kat trademark was valued at 108 billion yuan. Industry insiders said JDB's marketing and R&D over the past two decades had contributed greatly to the brand's value.

Last year, Wong Lo Kat herbal tea, in both green boxes and red cans, generated 20 billion yuan in sales, about 90 percent of it by JDB.

The trademark ruling is "a hard hit for JDB after many years of effort", said Wang Yuegui, vice-manager of the company's brand management department.

The company has launched the new trademark Jiaduobao to replace Wong Lo Kat on its iconic red cans with the drink inside "exactly the same as before", said Wang.

Guangzhou Pharmaceutical is also asking compensation from JDB and has three plans for calculating losses. The highest figure is more than 300 million yuan.

"From the market perspective, JDB has made great contributions to the brand and it is widely recognized by consumers," said Zhang Jin'gen, a researcher at the Center for Anti-Corruption Studies of Sun Yat-sen University.

"But from a legal perspective, the case is a warning to all companies to respect and obey the law for healthy, long-term development."