The manufacturer of REDBULL brand energy drinks in China, T.C. Pharmaceuticals Industries ("T.C. Pharma"), has successfully defeated an intellectual property claim that could have subjected it to one of the highest damages claim heard by a Chinese court. In RedBull Vitamin Drink Co., Ltd. v. T.C. Pharmaceuticals Industries, the plaintiff, RedBull Vitamin Drink Co. Ltd. of China ("RedBull China") sought an award of U.S. $5.3 billion in damages to reimburse it for advertising expenses incurred in connection with promoting licensed REDBULL brand energy drinks. T.C. Pharma argued that it had not authorized RedBull China's claimed advertising expenses because the trademark license agreement had expired, and therefore it was not liable for any reimbursement. The Beijing High Court ruled in favor of T.C. Pharma and did not award any damages to RedBull China.
Under Chinese law, trademark licensing agreements are generally not considered to be perpetual. Failure to secure an extension of the licensing agreement means that the licensee no longer has rights to use the licensed marks. Accordingly, the term during which the license is valid must be clearly defined in licensing agreements. Absent explicit words such as "automatically renewed," "perpetual," or "indefinite," Chinese courts will not award the licensee reimbursements of continued expenses following expiration of licensing terms, even if the licensee has greatly contributed to the goodwill associated with the licensed marks.
In this case, T.C. Pharma entered a joint venture agreement with the parent companies of RedBull China, China Foods Limited, SINOHAO Group of China, and RedBull Vitamin Drinks (Thailand) Co., Ltd., in 1996 (the '96 Agreement) to create RedBull China. The '96 Agreement provided that the RedBull trademarks "are part of RedBull China's corporate assets." The arrangement was to comply with China's then stringent regulatory requirements related to tax and zoning.
However, the '96 Agreement explicitly stated that the joint venture would expire in 1999. So, in 1998, RedBull China secured a second agreement with T.C. Pharma, where the term was re-defined as twenty years or from 1996 to 2016 (the '98 Agreement). Unfortunately, the '98 Agreement was silent on the ownership of the RedBull Marks and used phrases such as "T.C. Pharma will provide the trademarks," as opposed to "T.C. Pharma will own or license the trademarks."
Although not explicitly discussed in the terms of the '98 Agreement, the parties' course of performance suggested that T.C. Pharma owned the REDBULL trademarks. While RedBull China initially filed applications to register the REDBULL marks in China, those applications were assigned to T.C. Pharma following the '98 Agreement." Both the '96 and '98 Agreements provided that the parties would share their advertising expenses for promoting the REDBULL brand products in China.
For twenty years, the joint venture achieved great commercial success in China. But things turned sour in 2015. Negotiations for a third joint venture between T.C. Pharma and RedBull China fell apart. T.C. Pharma refused to consent to any extended joint venture or licensing terms. Nevertheless, RedBull China unwisely went ahead and spent over U.S. $17 billion advertising and promoting the REDBULL brand drinks without T.C. Pharma. In 2018, RedBull China was still unable to obtain a third agreement with T.C. Pharma, and subsequently sued T.C. Pharma for reimbursement of the advertising expenses. In the complaint, RedBull China alleged that the REDBULL marks should belong to RedBull China, based on the language in the '96 Agreement. In the alternative claim, RedBull China asked the Court to order that T.C. Pharma share advertising expenses with RedBull China as intended by the '96 and '98 Agreements. The Court disagreed with RedBull China on both claims.
In reaching its decision, the Court said that the '98 Agreement should control the parties' understanding of the ownership issue. RedBull China's arguments primarily rested on the '96 Agreement, which provided that the RedBull marks should belong to RedBull China. While the '98 Agreement addressed similar, if not the same issues covered by the '96 Agreement, it was not an amendment or extension to the '96 Agreement. The stakeholders had changed significantly in the RedBull China joint venture between 1996 and 1998. Specifically, Reignwood Group had become a new shareholder, and the remaining shares had been divided differently among the other parens. Accordingly, the '98 Agreement was a different joint venture agreement between T.C. Pharma and different entities.
With respect to the licensing relationship, the Court noted that T.C. Pharma had always been the record owner with the Chinese Trademark Office of the REDBULL trademark registrations in China since 1998. The trademark filings made by RedBull China were all assigned back to T.C. Pharma following the '98 Agreement. Moreover, RedBull China consistently paid royalties to T.C. Pharma for using the REDBULL marks from 1996 to 2016. These facts have all been verified by witnesses and documented in RedBull China's audited tax filings. Furthermore, the expenses incurred in registering more REDBULL marks and enforcing them were deducted from the royalties and paid to T.C. Pharma. Clearly, the language in the '98 Agreement and the totality of the circumstances all favored T.C. Pharma as the owner and licensor of the RedBull marks in China.
Turning to the '96 Agreement, the Court noted that the language of that agreement would not change its decision favoring T.C. Pharma. According to the '96 Agreement, T.C. Pharma was the majority shareholder of the joint venture. Even if the Court considered the '96 Agreement to be the controlling document, it would likely interpret T.C. Pharma as the ultimate owner of the REDBULL trademarks. The fact that that T.C. Pharma, as the majority shareholder in the joint venture, initially allocated the corporate assets to RedBull China was not enough for the Court to interpret the Agreements as naming RedBull China as the owner of the marks at issue.
Most importantly, the Court ruled that trademark ownership would not change simply because a different party paid the advertising expenses. The Court emphasized that unlike in real estate or property law, there is no "accession" in trademarks. In other words, ownership of real estate property naturally carries with it the right to possess all the things that are added to that property, whereas the ownership of trademarks does not carry that right.
RedBull China has indicated that it will appeal the decision to the Supreme Court of China.
This case is RedBull Vitamin Drink Co., Ltd. v. T.C. Pharmaceuticals Industries, Case No. (2018) Jing Min Chu 166.
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