(By You Yunting)Abstract: The Yunnan Baiyao Group Co., Ltd had used its good historical reputation, its customer’s curiosity about its ingredients and the protection afforded to a state-secret recipe to make large profits. However, with the proliferation of awareness of an individual’s rights and the gradual strengthening of democratic consciousness, its enterprise institutions and culture are eroding consumer confidence in the brand and ruining its business reputation in the eyes of consumers.
Recently, the Yunnan Baiyao Group Co., Ltd stumbled into a public relations crisis through its refusal to publish the formula of Yunnan Baiyao in China. This may result from an incompatibility between both traditional Chinese medicine and the intellectual property protection system, and between the differences in cultural and legal systems at home and abroad. In today’s post, we will explain why Yunnan Baiyao Group Co., Ltd is now in trouble from the perspective of intellectual property rights and legal systems.
Yunnan Baiyao, developed in 1902, is a hemostatic powdered medicine famous for stopping bleeding and relieving pain. Yunnan Baiyao Group Co., Ltd, the operator, has always refused to publish the formula of Yunnan Baiyao, on the grounds that the formula have been classified a national secret. However, according to reports, Yunnan Baiyao Group Co., Ltd was founded to publish the whole formula of Yunnan Baiyao in English several years ago. Recently, due to the fact that the State Food and Drug Administration (the “SFDA”) required the manufacturers of Chinese traditional medicines to publish any toxic drugs in the ingredients, Yunnan Baiyao Group Co., Ltd disclosed its use of the toxic drug black, also known as gelsemium elegans Benth, in this product, but refused to disclose any other ingredients. Furthermore, the publicized formula in America had no black. Therefore, as many news media have reported the issue of non-disclosure of the formula of Yunnan Baiyao in China, as well as its use of the drug black, Yunnan Baiyao Group Co., Ltd has received withering criticism.
In my opinion, the reasons why Yunnan Baiyao Group Co., Ltd fell into a crisis of public trust can be broken down into three important aspects which are related to both intellectual property rights and the diversity inherent in the global legal systems. Firstly, Yunnan Baiyao, as a traditional medicine, is incompatible with the intellectual property protection system; Secondly, the formula management and disclosure system in China is incompatible with established international standards; Thirdly, the fact that the formula was protected under national secrets protection instead of trade secrets made Yunnan Baiyao Group Co., Ltd unable to prove itself with action. These aspects are expanded below:
1. In the reports, many news outlets mentioned that Yunnan Baiyao Group Co., Ltd could use the patent law to protect its formula, however this often turns out to be impractical.
To begin with, pursuant to the Patent Law, any invention or utility model for which a patent right may be granted shall possess novelty. The term novelty in this context refers to an invention or utility model that can in no way be attributed to any existing technology. However, Yunnan Baiyao, as a traditional medicine, was developed in the last century without novelty. Furthermore, after a successful application, an invention is required to publish its core technique. Even then, a successfully grant of patent for an invention shall only be effective within a validity period of twenty years, after which the invention will be attributed to the whole society. i.e., everyone can use the invention after the validity period. Based on this system, western medicine manufacturers have adapted to the inventory techniques’ publication and the validity period through the establishment of rapid patent applications, clinical research and a business model where new medicine available to market will be charged a high price within the validity period. The lessons to be learned from traditional medicine, which emphasizes the curiosity of ancestral secret formulas, are that the validity period is too short and is inadequate to satisfy the requirement of long-lasting protection required to make profits.
2. Chinese traditional medicine is a part of traditional Chinese culture, so governments have issued many laws and regulations to prevent some famous Chinese patented medicines from having their formulas revealed. Due to cultural factors, Chinese consumers always trust famous Chinese patent medicines which are unable to disclose their formulas. When the famous Chinese patent medicine is exported overseas, there are many importing countries that require the medicinal products to reveal their formulas. Furthermore, foreign consumers have a stronger desire to know the truth about the formula.
Yunnan Baiyao Group Co., Ltd revealed its entire formula in America and excluded the “black” used in its formula. However in China it refused to publish all its formula in its entirety and still used the chemical “black”，which is considered very toxic. This situation is a great contrast between China and America. Lacking transparency, the Yunnan Baiyao Group Co., Ltd was caught in a dilemma which created serious dissatisfaction in both the press and the public. Even worse, this dilemma may have effects on overseas sales, as this may lead to further legitimate discussion as to whether the publicized formula in America is true and complete.
3. According to the Agreement on Trade-Related Aspects of Intellectual Property Rights and the Chinese Anti-unfair Competition Law, the formula of Yunnan Baiyao is considered a trade secret. Contrast this with the example of Coca Cola, which uses the trade secret model to protect the proportion and technique of its formula whilst still revealing the basic ingredients to consumers. If Yunnan Baiyao Group Co., Ltd could use a similar model of protection to that of Coca-Coca Company, it may both satisfy the consumer’s right to information and protect its trade secret.
However, the formula of Yunnan Baiyao is protected under the national secret laws and thus the disclosure of its formula may be restricted under the Laws of the People’s Republic of China on Guarding State Secrets and other relevant regulations. Even though the formula of Yunnan Baiyao was revealed in America, Yunnan Baiyao Group Co., Ltd is unable to reveal its formula in China by virtue of these regulations’ restrictions.
Above all, Yunnan Baiyao Group Co., Ltd has used its good historical reputation, the customer’s sense of curiosity about its ingredients and the protection afforded to a state-secret recipe to make enormous profits. However, with the proliferation of awareness as to an individual’s rights and a strengthening of democracy consciousness, its enterprise institutions and culture are eroding the confidence of consumers and ruining the business reputation in the eyes of the public. It is time for the governments and Yunnan Baiyao Group Co., Ltd to rethink the regulations and systems under which the formula of Yunnan Baiyao is protected.