Like the Chinese proverb that says a smile can end disputes between enemies, a four-year legal battle that cost millions of yuan ended two weeks ago when Lim Por Yen and Bernard Lacoste shook hands in Beijing.

The exchange was particularly poignant since it was between a couple of 70-plus gentlemen from different countries and cultural backgrounds who are more aware than most of the younger generation of how tough life can be.

Hosted by the Beijing High People's Court, Lim and Lacoste, chairmen of Hong Kong-based Crocodile Garments Ltd and French retail giant Lacoste, signed a peaceful settlement on October 23 to settle a long-running lawsuit over competing crocodile logos.

Under the settlement, Hong Kong's Crocodile Garments Ltd agreed to stop selling clothes emblazoned with its current left-facing crocodile in the Chinese mainland by 2006.

After that, Crocodile Garments, whose sport shirts are barely distinguishable from Lacoste's barring price, will sell only products bearing a redesigned lizard.

Its new logo, only for use in the Chinese mainland, will also be circled.

"Lacoste is the only legal owner of the trademark in China registered since 1980. The reason why there was a legal dispute is that Lacoste did not agree that Crocodile Garments would use a very similar crocodile trademark in the China market," said Lacoste, in a recent exclusive interview with China Business Weekly.

"This is a win-win deal that could make all of us happy," said Lacoste. "We need to sit down together. We started talking together in August, which is good news to Lacoste, Crocodile Garments and Chinese consumers."

Lacoste and Crocodile Garments had a honeymoon period when Lacoste began selling its products in Hong Kong 23 years ago. The companies agreed to make Crocodile the sole distributor of products in Hong Kong, enabling the Hong Kong firm to sell its left-facing crocodile wares and Lacoste's right-facing ones in different shops.

But the relationship soured several years later when Crocodile, also eager to tap the world's largest potential consumer market, filed trademark applications in the Chinese mainland, a move Lacoste argued violated their 1980 agreement.

The legal disputes began in 1998, when Lacoste sued Crocodile in Hong Kong for making the trademark applications in the Chinese mainland, and also filed suit in Beijing for trademark infringement.

Lacoste won the Hong Kong suit in 1999, but the Beijing case dragged out until two weeks ago.

The settlement stipulates that Crocodile Garments agrees to stop using the crocodile it is using now, and will adopt a new version, and Lacoste will make a concession by accepting the new version.

As part of the settlement, Lacoste will team up with Crocodile Garments to open more licensed shops in Hong Kong to further their already smooth co-operation.

Arrival of new biz age

"We are partners in Hong Kong, and we are confident that the Chinese market is big enough for both of us to co-exist. The China market is big enough to make two of us live a happy life," said Lacoste.

Lacoste registered its right-faced crocodile logo in China in 1980. Today the company's garments are recognized as high-end and high quality by Chinese consumers.

Montaigne Garments Shanghai manufactures and distributes the Lacoste garments in the mainland market, and the company is now producing around 800,000 pieces annually, with half of them sold through 137 point-of-sales outlets. That sales figure is rapidly increasing, as the company sells about 21 million pieces annually around the world.

"China will become one of our largest markets within several years, and we will also make it one of our largest export bases for the global market," said Lacoste.

The company will work with its partners to establish another production base in Shanghai within two years.

Apart from nurturing the domestic market, the new production base will also be responsible for producing wares for markets in neighbouring regions.

Currently, Lacoste garments are licensed to be made in France, Mediterranean countries, China, Peru and a number of other countries.

"Following the settlement, we could concentrate more of our efforts on further lifting of our market shares in the rapidly growing mainland market," said Lam Kin Ko, general manager of Crocodile Garments' China Affairs.

The 51-year-old company began selling its products in the mainland market in 1990 following establishment of its production base in 1987.

As of today, it has over 900 licensed boutiques in major cities in all provinces, municipalities and regions, with the exception of Tibet.

One of the major activities to be introduced by these two firms, according to Lacoste, will be measures to clean up the market by cracking down on counterfeit merchandise.

Fighting for IPRs

"The situation of intellectual property rights (IPR) protection in China was bad, even very bad," said Lacoste, "but it's improving,"

And China's signing of a membership agreement with the World Trade Organization and the world Intellectual Property Organization will further spur its efforts for all-round and effective protection of intellectual property rights.

"We noticed that laws have been enforced and authorities have been implementing these laws. And the judiciary has also started to hand out decisions to crack down on violators," said Lacoste.

"A friendly solution is to be able to allow the authorities to protect our interests. The agreement is now giving an opportunity to the Chinese authorities to clean up the Chinese market."

Both firms hope the settlement will also help kill off a plethora of other confusing crocodile logos crowding mainland garment markets.

Teamed with local authorities, the two firms will work together to fight against rampant piracy problem that exacts a huge cost.

"Our estimation is that piracy result in tens of millions' worth of losses for us," said Lam.

Materials supplied by Lacoste indicated there are more than 10 variations of pirated garments with a crocodile logo being sold in a department store in Central China's Henan Province.

Another testimonial provided by Singapore-based Cartelo said there are about 136 garments sold in the market with crocodile logos.

New fighters joining in

Just days after the settlement of lawsuits between Lacoste and Crocodile Garments, Lacoste filed documents accusing Singapore-based Crocodile International Private Ltd of trademark infringement and unfair competition.

The Singapore firm's Cartelo-brand entered China market in 1993 and is now achieving much faster growth in China market.

Statistics from the firm indicate its garments sales hit more than 2 billion yuan (US$241.5 million) annually in the Chinese market where it has developed over 1,000 boutiques.

Tan Hian Tsin, one of the founders of the Singapore-based Crocodile line, fought back by saying the company obtained acknowledgement and protection from the Trademark Office of the administrative authority by registering as "Cartelo Crocodile" in China in March 1998.

On the international market, the three crocodiles have obvious differences in logos, products, prices and target consumer groups, said Tan, adding that co-existence won't trigger confusion among consumers.

Established in 1947, Singapore-based Crocodile has obtained trademark registration in nearly 20 countries and regions in Asia and Africa.

"Lacoste's lawsuit (against others) is better defined as a commercial promotion activity rather than legal lawsuits, which hurts other brands' image and the rules for a fair play," said a statement from the Singapore firm.

A war of biz interests

No matter if there are handshakes or lawsuits, experts believe this is because of the huge potential of the Chinese market.

China is emerging as a major global supplier of manufactured goods thanks to a cheap and abundant labour supply, and there is also a huge domestic market in this country.

Despite the negative impact of the SARS (severe acute respiratory syndrome) outbreak early this year, China's garment exports still grew 8 per cent to US$33.74 billion in the first half of the year, according to statistics of China National Textile Industry Council.

China has already become the largest supplier of garments for the global market, and the domestic market has become one of the world's largest. But most of the 80,000 domestic textile companies are small suppliers of mid- and low-end market segments.

Statistics indicate that garment sales in China reached about 400 billion yuan (US$48.3 billion) last year, the great potential of which lured international brands diving aggressively into the market for profits.

(Business Weekly 11/11/2003 page1)