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Pepsi Loses Lawsuit to Tianfu Coke

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China Tianfu Cola Group Corporation, the owner of the Tianfu Coke brand which has disappeared from the market for five years, announced Tuesday that it has won the first round of its lawsuit against Pepsi, in which the Chinese company accused the soft drink giant of stealing the secret recipe for its beverage.

Tianfu Coke said the court ruled Pepsi must stop using the ingredients, formula and production techniques immediately and return all confidential material on the production process to Tianfu by November 13.

The lawsuit is related to events going back to 1994, when Tianfu Coke was one of the most popular soft drinks on the Chinese market, occupying more than 70 percent of the market share. The same year, it set up a joint venture (JV) with Pepsi.

But Tianfu said the JV did not comply with its commitment to allow Tianfu Coke to cover 50 percent of the market, and decreased production of the beverage and, by 2005, Tianfu Coke's market share had plummeted to 1 percent. The JV was losing money and China Tianfu Cola Group Corporation was in debt.

In 2006, because of its debts, China Tianfu Cola Group Corporation had to sell its stakes in the joint venture to Pepsi, while the brand of Tianfu Coke was left in the JV.

China Tianfu wrote to Pepsi to ask it to return the material relating to the ingredients, formula and technical secrets of production, but the latter did not respond.

In 2009, China Tianfu Cola Group Corporation filed a lawsuit to force Pepsi to stop using the ingredients, formula and technical secrets and return the materials on all of this. It also asked for compensation of 1 million yuan (US$150,001).

Tianfu said that, when the JV was set up, the ingredients, formula, and confidential production techniques were not valued as assets to inject into the JV and, after it sold its stakes, Pepsi kept the secret information.

The court rejected Tianfu's request for 1 million yuan compensation, and also refused to order Pepsi to return the brand name to Tianfu. But the Chinese company said that it would pursue this in court and, if it manages to regain its brand name, it will reopen next year.

Analysts said that this case shows that domestic brands now have more awareness of such issues, and can choose to take the initiative and break the monopoly of foreign brands in the Chinese market.

(Global Times December 1, 2010)

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