The Treasury Wine Estates Ltd (ASX: TWE) share price has dipped nearly 3% in 2 days, falling from $17.47 at market open on Monday to close Tuesday trade at $17.01, following the news its battle to protect the Penfolds brand from copycats is not over.
Efforts by Treasury Wines to protect its valuable Penfolds brand from imitators have been shaken by a recent Beijing High Court decision, which overturned an earlier decision that threw out a trademark similar to Penfolds used by a copycat winery.
What's the story?
As reported by The Australian, the trademark 'Ben Fu', which translates to 'chasing prosperity', had previously been used by Treasury Wine Estates in China. Rush Rich, which sources its wine in bulk from South Australia, copied the trademark and used a logo and labelling similar to the Penfolds logo and labelling.
Treasury Wine Estates had battled for 2 years to have the imitator outlawed and looked to have succeeded in May when the Federal Court awarded Treasury $375,302 in compensation from Rush Rich. Wine Australia also revoked the export license of the winemaker which supplier Rush Rich.
The position in China is not, however, so clear cut. As reported by The Australian, two Chinese courts had previously reached decisions in favour of Treasury Wine Estates, but the latest decision represents a blow to the Treasury Wine cause.
In 2019, the Shanghai Pudong Court held Rush Rich had engaged in unfair competition by misleading Chinese consumers into believing they had a relationship with the Penfolds brand. Another court ordered Rush Rich to stop misleading activity, pay Treasury Wine $1.4 million yuan in damages, and issue an apology.
The Chinese market and brand protection
China has been a key territory for Treasury Wine Estates' intellectual property protection program. In September, Treasury Wine Estates reported over 20 court cases on foot in China relating to copycat enforcement. China is also an important consumer market for Treasury Wine Estates. Wine consumption in China is predicted to grow by 9.8% per annum between 2018 and 2022, which is far higher than Australia's -1.9%.
Treasury Wine Estates' net sales revenue for the Asia region grew by 26.8% in FY19 to $748.9 million. Earnings before interest and tax (EBIT) for the Asia region were $293.5 million, up 43% in FY19. EBIT for ANZ was $156.5 million, up 15%, while earnings for the Americas were $218.7 million, up 13.3%.
Penfolds was recognised as the World's Most Admired Brand in 2019 by Drinks International. The strength of Treasury Wine Estates brand portfolio has been a key driver of growth, with the luxury and "masstige" segments of the portfolio demonstrating compound annual growth rates of 21% between FY15 and FY19.
The potential for the value of its brands to be diluted through the efforts of imitators will be something Treasury Wine Estates is keen to avoid.
Where to from here?
Treasury Wine Estates has vowed to appeal the Beijing High Court decision, noting it was the owner of the earliest trademark filings for 'Ben Fu', both in China and Australia. The company told The Australian it "will continue to invest every effort to protect its brands against copycat infringers."
