Date
8 December 2016
Guangzhou Yangcheng has filed a lawsuit against JDB for copying its red-can design. It also demanded a compensation of 4.7 billion yuan. Photo: China News
Guangzhou Yangcheng has filed a lawsuit against JDB for copying its red-can design. It also demanded a compensation of 4.7 billion yuan. Photo: China News

A drawn-out war between two Chinese herbal tea brands

In China, it is hard to miss red cans of herbal drinks almost anywhere you go nowadays. The cans all look alike, but if you take a closer look you’ll discover that there are actually two brands — Wong Lo Kat and Jiaduobao (JDB).

Wong Lo Kat tea, which originated during the Qing Dynasty period, was created by a doctor named Wong Chat Bong. It is made from herbs and is believed to be able to good for the body.

It became widely popular in Guangdong province, Hong Kong and Macau.

After China opened up its economy in the 70s, “Wong Lo Kat” trademark became the property of state-owned Guangzhou Yangcheng Pharmaceutical, whose parent is the predecessor of Guangzhou Baiyunshan Pharmaceutical Holdings (00874.HK).

In 1995, Hong Kong businessman Chan Hung-to saw the potential of the brand and acquired exclusive licensing rights to Wong Lo Kat on the mainland until 2010, through his company Guangdong Jiaduaobao Drink & Food. The contract was later extended twice until 2020.

Applying his business acumen to the operation, Chan marketed the herbal tea as a healthy, mass-market soft drink. He also changed the packaging into eye-catching red aluminum cans.

Wong Lo Kat became a big success, and replaced Coca-Cola as the top seller of canned beverages on the mainland. The annual sales of the herbal drink reached 4 million tons by 2007.

Chan has managed to transform Wong Lo Kat into a household name in China.

Unfortunately, as the business became far too successful, Guangzhou Yangcheng wanted to take it back.

The company applied to the China International Economic and Trade Arbitration Commission to terminate Jiaduaobao’s right to use the Wong Lo Kat trademark, using the argument that Chan had bribed its former manager to get the licensing contracts.

The commission ruled that the licensing extension contracts were invalid.

Guangzhou Yangcheng took back the trademark and started to produce its own Wong Lo Kat herbal tea.

But that didn’t stop Chan because the recipe itself is not patented, but only the trademark. Soon, he continued the business by renaming its products as JDB in 2011.

Chan kept the red can design and again employed his superb marketing skills to build up the brand. In a key initiative, he spent a huge amount to sponsor the popular singing contest program, Voice of China.

JDB soon dominated the market.

Guangzhou Yangcheng was not happy. It escalated the fight and filed a lawsuit against JDB for copying its red-can design. It also demanded a compensation of 4.7 billion yuan.

The two companies fought a series of lawsuits against each other over the past 15 months, arguing over issues such as advertising and brand image.

Now, a report surfaced online on Tuesday bearing the headline “JDB’s miracle collapses as CEO quits, chairman flees”.

Following the report, Guangzhou Baiyunshan saw its shares soar over 6 percent as investors speculated that the war between two companies could end.

But it was all rumor.

JDB refuted the report the next day.

Quite the opposite, JDB is in talks with state-owned Beijing Enterprise Group for a stake sale, according to mainland media.

The two aim to build up the business and eventually list it in Hong Kong in first half of next year.

If this is true, the fight between Wong Lo Kat and JDB is certainly going to drag on, or get worse.

This article appeared in the Hong Kong Economic Journal on Nov. 3

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal columnist

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