Chinese JVs – what not to do

The China Law Blog has a great post and article about the Danone v Wahaha dispute in China.

Basically – like many foreign multinationals before it, Danone came to China looking for an easy joint venture without understanding how things work there.

The only contribution by Wahaha to the JV was it’s popular brand ‘Wahaha’ and the associated trade mark registration.  However, the Chinese IP Office rejected the transfer to the JV.  The parties instead created an exclusive license, without fully restructuring the deal and thought it would all be ok.

Except that it wasn’t because the relationship fell apart (but that’s another story).

Here are the China Law Blog’s top lessons to be learned about Chinese JV’s from the dispute:

  • Do not use technical legal techniques to assert or gain control in a JV.
  • Do not expect a 51% ownership interest in a JV to provide effective control.
  • Do not proceed with a JV formed on a weak or uncertain legal basis.
  • The foreign party must actively supervise or participate in the day-to-day management of the JV.

These are good points for all JV’s, not only in China.

One of the striking things about the dispute is the lack of sophistication with which the IP issues were dealt with.  A similar mistake was made by Pepsi over Blue Storm (see Blue Storm rains on Pepsi’s China party). 
It’s almost as if some foreign multinationals when doing business in China become blind sighted and treat it as the ‘wild west’, forgetting all of the rules, rather than proceeding with even more caution than ever.

What do you think?

3 Comments on “Chinese JVs – what not to do

  1. “The foreign party must actively supervise or participate in the day-to-day management of the JV”  –  but this is more easily said than done, I fear.  Has anyone set up a business in China to which licensors can outsource active supervision, quality control etc?

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