Wadia-Danone spat brings royalty to fore

The spat between the Wadias of Bombay Dyeing and French food major Groupe Danone, which together wrested control of biscuit maker Britannia Industries in 1993 through a hostile takeover from NRI Rajan Pillai, has brought the spotlight on royalty paid for use of brands by companies.

As it turns out, in recent years, companies operating in India have been increasing royalty and technical payments to their parent or associate companies at a fast pace.

Multinationals that are listed on Indian exchanges, such as Colgate India, Procter & Gamble Hygiene & Healthcare and Glaxo SmithKline Consumer (GSK Consumer), pay royalty to parent companies for using brands from their international portfolio, or accessing technology.

The three companies have brands such as Colgate and Palmolive, Vicks and Whisper, and Horlicks respectively, among others. In the case of oral care major Colgate India, the company's royalty and technical fees to its parents have risen more than 100 per cent in financial year 2005-06 over the previous year.

In 2004-05, Colgate India paid its parent Rs 10.32 crore in royalty. However, this increased to Rs 24.37 crore in 2005-06. For Procter & Gamble (P&G) Hygiene and Healthcare India too, it was a similar case. While P&G India paid its parent a royalty and technical fees of Rs 17.81 crore in 2004-05, it increased to Rs 24.48 crore in 2005-06 an increase of more than 35 per cent.

Even royalty in proportion to net sales has seen a similar upward trend. While in the case of P&G, the royalty payment increased significantly from 2.6 per cent in 2004-05 to 4.31 per cent in 2005-06.

For Colgate, the proportion went up from 1.02 per cent in 2004-05 to 2.16 per cent in 2005-06, while for GSK Consumer, it went up marginally from 3.86 per cent to 3.94 per cent,

In the case of Danone-Wadia, the Danone Groupe paid Britannia Industries, where the Wadias and the Danone Groupe hold almost a 51-per cent stake, a royalty for the usage of Britannia's Tiger brand of glucose biscuits in foreign countries, while Britannia paid Danone for selling the Little Hearts brand of biscuits in India.

The dispute between them reportedly occurred over Danone's usage of Tiger, by registering the brand name in 73 countries without informing its joint venture partner in India.

Britannia Industries found this out when it started facing obstacles in exporting the Tiger brand to other countries.