This article first appeared in The Edge Financial Daily on December 23, 2019

KUALA LUMPUR: Homegrown coffee maker OldTown Sdn Bhd, which is said to be under criminal investigation for suspected contract fraud in China, denies it has ever committed fraud and that its brand of cafes in China had been closed due to a trademark dispute.

“OldTown White Coffee (OldTown) categorically refutes and denies all allegations from Jiangsu G&L Food & Beverage Management Co Ltd (G&L) that it has ever committed or intended to commit contract fraud, and its assertion that the closure of its licensed OldTown cafes in China was related to a trademark dispute. This remains a contractual matter only,” OldTown said in a statement to The Edge Financial Daily (The Edge FD).

“Several of the outlets in Jiangsu Province were already closed due to poor management of the business by the licensees prior to any allegation of trademark dispute.

“As a company that prides itself with its integrity, we are disappointed to see these baseless allegations being levelled in the media and will be taking the necessary steps to protect our brand and our reputation,” said OldTown.

The company, however, did not confirm nor deny if it was under investigation for fraud. It also did not respond to further queries seeking clarification on this.

The statement came after G&L, which claimed it had the right to operate OldTown White Coffee outlets within the Jiangsu province, alleged last Tuesday (Dec 17) that Shenzhen Kopitiam Asia Pacific Ltd (SZKAP), an indirect wholly- owned unit of OldTown, was under criminal investigation by the Chinese Public Security Bureau for suspected contract fraud.

G&L claimed SZKAP was the one who granted the company the right to operate OldTown White Coffee within Jiangsu province in May 2016, to use the trademark “OldTown”, and to develop it into a franchising business.

However, G&L said Ai Chang Investment Ltd reported it to Chinese authorities in April 2018 for trademark infringement. “Ai Chang reported to the local Administration for Industry and Commerce that they are the actual trademark owner in mainland China,” G&L claimed in a media release. Subsequently, G&L said it had to close all its OldTown White Coffee outlets, causing tremendous damage to the company.

A legal representative of G&L, when contacted, told The Edge FD that the company had paid exorbitant sums in fees and royalties to SZKAP, which are now unrecoverable.

The representative also said SZKAP had tried to register the “OldTown” trademarks for cafes and other goods and services in China, but were unsuccessful in obtaining the approvals from The State Administration for Industry and Commerce.

The trademark rights went to Ai Chang, which applied for the registration in March 2013, said the legal representative, citing information available on the Trademark Office of National Intellectual Property Administration, PRC website.

“On Aug 14, 2014, Ai Chang’s trademark application was granted for a 10-year period until August 2024. The goods and services protected by the trademark are Old Town cafes, diners, restaurants, fast food joints, bars, and others,” the representative said in a written reply.

But two years later, SZKAP authorised Yu Chao and Tao Yuchen — the latter is G&L’s chief operating officer — to open and develop “OldTown” franchise stores within Jiangsu province. Following that, both parties entered into a licensee agreement, the representative said.

Besides itself, G&L has alleged that franchising rights were also given to Xiamen Kuaike Investment Management Co Ltd, another Chinese company in Fujian, in March 2017, and that all OldTown White Coffee outlets in mainland China have now been shut.

“With prior knowledge that it does not own the ‘Old Town’ trademark rights in China, SZKAP had continued to authorise franchisees the use of said trademark in China and charged exorbitant amount in fees and royalties. This has caused Chinese franchisees to now be unable to recover their huge sum of investments.

“After G&L lodged a report to the public security bureau, the bureau finds circumstances of the matter constitutes a contract fraud and has since placed SZKAP on file for criminal investigation,” the representative added.

To this, OldTown, in its statement, said Ai Chang had, via a declaration and power of attorney granted, in December 2018 begun the process of assigning their trademark for the operations of cafe outlets to Kopitiam Asia Pacific Sdn Bhd, a wholly-owned subsidiary of OldTown.

“OldTown has been in constant communication with the relevant authorities both in China and Malaysia to resolve these disputes in accordance to the law,” the company added.

Formerly listed on the Main Market of Bursa Malaysia, OldTown was privatised after Dutch coffee company Jacobs Douwe Egberts successfully gained control of the Malaysian coffee maker via its indirect unit, Jacobs Douwe Egberts Holdings Asia NL BV, in a deal worth RM1.47 billion or RM3.18 per share. Subsequently, shares in OldTown were delisted from Bursa Malaysia on April 4 last year after nearly seven years on the stock exchange, where it debuted at an issue price of RM1.25 per share in July 2011.