The world’s third largest chocolate producer, Italy’s Ferrero Group, recently made an announcement that effectively landed a body blow on domestic chocolate producers like Montresor (Zhangjiagang) Food Co., Ltd.
The announcement referred to a Ferrero intelligence property rights (IPR) lawsuit that was dragged out into a five year court battle, the first case for which the Chinese court adopted the Law of the People’s Republic of China for Countering Unfair Competition to protect the IPR of foreign companies. The ruling could mean that China’s chocolate pirates will finally be forced out of business.
In effect, the Supreme People’s Court ruling handed a decisive victory to Ferrero over its biggest rival in China, Montresor.
Back in July 2003, Ferrero sued Montresor in Tianjin, claiming the defendant used packages and decorations similar to its own designs in a bid to confuse consumers. Convinced that this was an unfair business practice, Ferrero hauled its rival into court to demand that it stop the infringement and provide compensation.
In February 2005, Tianjin Secondary Intermediate People’s Court announced the first instance judgment, which overruled Ferrero’s appeal. Ferrero then appealed to Tianjin Supreme People’s Court, which made the second instance judgment on January 2006, holding that Montresor’s actions had constituted unfair competition. It ordered Montresor to stop the infringement and pay RMB700,000 (US$102,174) for compensation.
But then Montresor appealed to the Supreme People’s Court. That court heard the case twice-in late December 2006 and January 2007-before issuing a ruling in March 2008. It upheld the major points of the second-instance judgment ruling that Montresor’s actions had constituted unfair competition, and demanding it to stop using the packaging and decorations that infringed on the IPR. However, the compensation was reduced to RMB500,000 (US$72,982). The chocolate war is over - at least for now.
The drawn out court battle was essentially over trademarks. As a legendary international chocolate brand, Ferraro began selling chocolates to Chinese in 1984. In Taiwan and Hong Kong, Ferrero used the name Jin Sha for dozens of years. However, it never bothered to register the Chinese trademark in mainland China. It wasn’t long before a Chinese dairy company near Shanghai, the predecessor of Montresor, applied to register the trademark in 1990.
Soon, Montresor’s Jin Sha products became a headache for Ferrero. They looked and tasted the same like Ferrero’s products, but cost a lot less. This meant brisk sales for the chocolate pirates without having to invest a penny in advertising. The success of Montresor’s Jin Sha “branding” strategy also attracted a number of imitators including Jin Meng and Jin Pin. A box of Ferrero would cost RMB39 (US$5.6), but a box of Jin Sha chocolates might cost just RMB25 (US$3.6), and Jin Meng as less as RMB13.8 (US$2). After its first few direct lawsuits against Montresor failed, Ferrero instead decided to try protecting its packaging and decorations.
The case is of great significance, because it was a ruling from the Supreme Peoples’ Court, and it will be instructive to all subsequent IPR disputes involving multinationals. The lawsuit also forced Chinese chocolate makers to come to terms with the fact that although decorations and packaging elements like gold foil, fancy labels and transparent boxes are everywhere, they still fall under the patent of Ferrero. The judgment has essentially squashed the copycat practices of Montresor and some other Chinese companies.
After 18 years in business, Montresor is suddenly clinging to life. And while the management and local government officials all regret what happened, the fact is they still let the copy infringement continue over a protracted period of time.
The Chinese government is under growing international pressure to ensure the protection of IPR. The global corporate community continues to watch how well the government’s rules work in the courts. The aim is to show the world that IPR infringement will no longer be tolerated by foreign companies or the Chinese government.