By Samuel Shen
Reuters
Tuesday, December 11, 2007; 4:08 AM

SHANGHAI (Reuters) - French food group Danone <DANO.PA> will appeal to a Chinese court to overturn a decision forcing it to hand back the best-selling Wahaha beverages brand to its estranged venture partner, Hangzhou Wahaha Group.

The decision by a Chinese arbitration commission on Monday to terminate a trademark transfer deal signed in 1996, was "wrong, blatantly illegal and unacceptable," Danone's lawyers said on Tuesday.

"The decision is trampling Chinese laws and seriously hurts Danone's interest," Tao Wuping told reporters in Shanghai.

"We will demand that the decision be cancelled by the relevant court," Tao said, adding Danone may be a victim of local protectionism.

The arbitration commission is located in the eastern city of Hangzhou, where Wahaha is based, and mainland newspapers have said the local government owns a stake in China's biggest drink maker, which was founded by billionaire chairman Zong Qinghou.

Wahaha officials could not immediately be reached for comment.

In one of the most high-profile disputes between a foreign company and a Chinese partner, Danone and Wahaha have been exchanging accusations and lawsuits for months.

The dispute has raised concerns among foreign investors about potential risks involved in investing in joint ventures in China.

The French company has accused Wahaha of setting up parallel operations outside their ventures that sell Wahaha-branded products such as soft-drinks and bottled water.

Although Danone has asserted that it paid Wahaha $6.6 million for exclusive rights to use the Wahaha trademark at their joint ventures, Danone said it never got official approval to own the brand, one of China's best known.

Instead, Danone and Wahaha signed a separate agreement in 1999 allowing their joint ventures to use, rather than own, the trademark.

After Wahaha filed an arbitration claim on June 14 seeking termination of the trademark transfer agreement, Danone filed a counter claim, urging Wahaha to make applications to the State Trademark Office.

"Danone always thought Wahaha had been making the application, and only recently we realized that Wahaha had never formally done so," lawyer Tao said.

Danone said the Hangzhou decision would not have a negative impact on its overseas arbitrations and lawsuits against Wahaha.

Danone is seeking arbitrations in Stockholm, accusing Wahaha of breach of contract by selling competing products outside their ventures.

It is also filing a lawsuit in California against Zong's wife and daughter, as well as a company controlled by Zong's family.

Last month, Danone won overseas court orders to freeze assets of 10 companies it accuses of using the Wahaha trademark illegally.

(Editing by Lincoln Feast)