Ferrero hanging on court decision for Chinese expansion
products in China is hindering its growth in the booming market,
and continues to erode the brand's value, says the company.
Kathie Choi, legal counsel for Ferrero Asia, says the company could have doubled its sales in the market that is seeing rising demand for luxury products.
But fears of further counterfeiting have blocked sales expansion to new cities and limited it to a 'conservative' marketing strategy.
"We don't want to go for a big expansion because we're afraid of attracting lots more copycats," Choi told AP-Foodtechnology.com.
"Chinese companies are too good at following trendy products and are very speedy at putting imitation products on the market."
The Chinese chocolate market is currently seeing double-digit growth, and importantly for foreign brands, a shift to higher quality products.
New regulations requiring manufacturers to label cocoa substitute content will support this trend.
But Ferrero, which sold its first chocolates in China in 1984, says it cannot tap the potential in this market without better protection of its brand.
Several of its products including Raffaello and Kinder Bueno have been copied in China but problems with its Ferrero Rocher brand reached such proportions that the Italian firm took court action in 2004.
After losing in the first instance, Ferrero won a widely reported second court case against Chinese company Montresor in January this year.
The Tianjin court found that Montresor had 'adversely affected' Ferrero's sales by unfair competition with its almost identical product.
But the findings were quickly appealed and while the Italian company waits for the case to be heard by the Supreme Court of China, Montresor's Tresor Dore chocolates - presented in the same shape box and individually wrapped in gold paper - continues to be sold alongside Ferrero Rocher on supermarket shelves.
Lawyers for Montresor however claim that the Chinese firm uses its own original packaging design.
Zhou Mian at Tonghaolin law firm, who represented Montresor in the past two appeals, said: "First, the packaging design was originally designed by ourselves, and we have sufficient evidence to prove this fact.
Secondly, we also have evidence to show that before Ferrero began to use this kind of packaging, there were already some similar designs in the market.
"Thirdly, it is obvious that different kinds of chocolate packaging share a certain degree of similarity, which is decided by the characteristic of the product."
Choi emphatically disagrees.
"Our surveys have shown that consumers are really confused [by the presence of a similar Ferrero product]," she said.
Ferrero's problem however is that it did not trademark the Chinese name for its Rocher brand, Jinsha, when it first entered the market in the 1990s.
Instead, its rival trademarked the name, preventing Ferrero from suing the Chinese company under trademark law, even though the tradedress seemed to be virtually identical.
This meant that Ferrero had to prove in court that it had suffered unfair competition - a much harder claim to prove than trademark infringement - and that Montresor's reputation had been built on bad faith, owing to confusion between the brands.
Proving 'confusion' is tough in any jurisdiction.
But while common law jurisdictions use a 'reasonable person standard' to demonstrate likelihood of confusion, in China's civil law system, it is up to the judge's discretion.
And Choi is worried that the legal system will seek to protect domestic industry.
Ferrero does not know how long it has to wait before its next case will be heard - under Chinese law the Supreme Court does not have to set a date for a case involving a foreign company.
It says its sales in China are still growing, and it has a leading share of the gift chocolate segment but the company needs a good outcome at the Supreme Court before it introduces any new brands to the market.
Meanwhile, as the holiday season approaches, the group is anticipating more copycat chocolates to go on sale, attracting consumers with a lower price than the Ferrero Rocher brand.
"Normally you can go to the AIC [Administration for Industry and Commerce] and if they agree with your complaint they will conduct a raid and confiscate counterfeit products.
But because they're aware of the [pending] court case, they want to wait until a decision from the court," explained Choi.
