Guangdong Court Awards Damages to Tea Trademark Owner

* Six subsidiaries of JDB Group ordered to pay a combined penalty of 1.44 billion yuan for trademark infringement to Guangzhou Pharmaceutical Group, the owner of the Wanglaoji tea brand

* JDB vows to appeal ruling to Supreme People’s Court

(Beijing) — The seven-year-long trademark battle surrounding one of China’s most popular herbal teas reached another milestone recently, with a local court ruling in favor of the original owner of the beverage brand.

The Guangdong High People's Court decided that six subsidiaries of JDB Group should pay a combined penalty of 1.44 billion yuan ($211 million) for trademark infringement to Guangzhou Pharmaceutical Group, the owner of a prominent herbal tea brand, according to a Friday exchange filing (link in Chinese) by Guangzhou Pharma’s Shanghai-listed unit, Guangzhou Baiyunshan Pharmaceutical Holdings Co. Ltd.

Both companies made and sold Wanglaoji herbal tea, also known as Wong Lo Kat, a popular beverage that originated in southern China in the early 19th century. In 1995, Guangzhou Pharma, based in the southern Chinese city of Guangzhou, sold to JDB the right to use the tea brand name for five years. When the original deal expired in 2000, the two parties inked a new 10-year licensing deal, which was later extended to 2020.

In 2011, the brand owner claimed that the agreements to extend the licensing deal, based on two contracts in 2002 and 2003, were the result of bribery. It petitioned with the China International Economic and Trade Arbitration Commission, which ruled in 2012 that the extension agreements were invalid.

Guangzhou Pharma demanded JDB pay compensation for using its trademark between 2010 and 2012. It originally asked for 1 billion yuan in payment, later raising its demand to 2.9 billion yuan. The latest court ruling awarded a penalty between the two figures.

JDB said in a Friday statement (link in Chinese) in response to the ruling that it will appeal the case to the Supreme People's Court. Guangzhou Pharma told Caixin that it respected the court ruling that protected the centuries-old herbal tea brand of Wanglaoji.

Starting in 2011, JDB was forced to gradually rebrand its products from the original Wanglaoji to JDB, erasing a 16-year-long marketing effort. During the 2008 Sichuan earthquake, the company had donated 100 million yuan in relief aid under the name Wanglaoji, which left a lasting positive impression on many consumers traumatized by the disaster.

In 2010, sales of the tea made by JDB reached 17 billion yuan, even more than the annual sales of Coca Cola in China at that time, while Guangzhou Pharma had a smaller market share for its herbal tea sales.

JDB has been forced to spend heavily on marketing for the new brand and for packaging adjustments. Last year, JDB secured investment of 2 billion yuan from state-owned food giant China National Cereals, Oils and Foodstuffs Corp. (COFCO), which can help “enhance the market leading power of JDB herbal tea,” a COFCO unit said.

Alongside the trademark dispute was another string of lawsuits over the packaging of the tea. JDB sold its tea in a red can, while the container used by Guangzhou Pharma was a green carton. After it won its trademark petition in 2012, Guangzhou Pharma started to produce its own red-tinned tea, which turned out to be more eye-catching, and demanded JDB stop using the red tin package.

In 2014, the Guangdong High People's Court ruled in favor of Guangzhou Pharma. But three years later the Supreme People’s Court reversed the decision, saying that both companies could use red packaging.

Shares of Guangzhou Pharma’s Shanghai-listed unit, Guangzhou Baiyunshan, dropped 3.6% on Monday. JDB said on Friday that it has started the process for an initial public offering and expects to list in three years.

Contact reporter Coco Feng (renkefeng@caixin.com)