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October 31, 2009

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Cola maker sues Pepsi over deal that fizzled

A DOMESTIC soft-drink maker is suing the Chinese unit of Pepsi because the company says its former joint-venture partner is illegally using its brand and business secrets.

Chongqing-based China Tianfu Cola Group Corp also said yesterday it is preparing additional legal action charging the beverage giant with contract breaches that caused the JV to go into debt.

The relationship between Tianfu group and Pepsico China Investment Co Ltd began in 1994 when they set up Chongqing Pepsi-Tianfu beverage Ltd Co to produce soft drinks under both the Tianfu and Pepsi brands.

Tianfu group contributed land, factories and production facilities valued at about US$7.32 million and took a 40 percent stake in the JV.

But the venture failed to turn a profit, and in 2006 the Chinese company sold its stake to Pepsi for 130 million yuan (US$19 million). Now it wants its product back so it can resume making the brand on its own.

Free ride

"The formula and some manufacturing know-how behind Tianfu Cola were not included in the investment, and Pepsi never paid us anything for using them during our cooperation," Qian Huang, general manager of Tianfu Cola Group, said in a telephone interview yesterday.

"The core business technologies of Tianfu Cola have been retained by Pepsi, and even after we quit the venture, it is still producing the products, which is illegal."

The Chongqing No. 5 Intermediate People's Court accepted the case early this week. A Pepsico China official last night declined to comment, saying the company's legal department was reviewing the matter.

Qian said the Chinese company is also asking for "several million" yuan in compensation. In the future, that figure could go higher.

More suits on tap

"We are also preparing to file a series of lawsuits against Pepsi for breaching partnership contracts and transferring profits that caused the joint venture to fall into deep debt," Qian said.

Government regulators said in 1995 that the output of Tianfu-brand beverages should be no less than 50 percent of the JV's total output.

"Pepsi increased the production of its own products while cutting the output of Tianfu beverages," Qian said. "Pepsi turned the venture into its own bottling plant."

Tianfu Group was one of China's leading beverage makers in the early 1990s and had a strong presence in south of China. It owned 108 plants nationwide and turned out 200,000 tons of soft drinks a year. But most of the plants have been shut down.

"We gained nothing from the JV," Qian said. "The Chinese company is near collapse."


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