Featuring three essential Q&As on legal review essentials, licensing scope, and evidence management in IP collaborations.
Cross-brand collaborations have become a major trend, with companies leveraging IP co-branding to launch creative and marketable products. However, amid this wave of innovation, ensuring IP compliance in co-branding initiatives is more important than ever.
This chapter explores key compliance issues entities should consider when engaging in co-branded partnerships. The goal is to help businesses fully leverage the value of IP collaborations while minimizing legal risk and capitalizing on a new wave of consumer trends at the same time.
We have selected three essential Q&As from Chapter 5: Intellectual Property Compliance of IP Co-branded Products of the Practical Q&A Guide to Cutting-Edge Intellectual Property Issues, co-authored by Wolters Kluwer, Lusheng Law Firm, and its strategic partner Rouse. The Q&As explore legal review of co-branded products, how licensing scope is defined, and how evidence of use is generated and collected.
With major brands expanding across borders, cross-border co-branding has become a prominent business model. It offers substantial commercial opportunities, but several legal issues must be considered. Organizations should be mindful of the following IP-related issues when planning co-branded products.
1. Determine the basis of authorization: Review the source of the licensor's rights and ensure the integrity of the authorization chain. Verify whether the rights are secure or if there are any potential risks that could lead to disputes.
2. Clarify the authorized use: During the design, production, and promotion of the co-branded product and its packaging, it is crucial to define how the IP of all the parties will be used. Improper use could violate legal provisions or lead to infringement disputes. To mitigate this risk, the parties can establish a review mechanism to ensure that the IP owners approve the use of joint IP before implementation.
3. Agree on the type of license, scope of goods, geographical scope, and term: Disputes may arise between the parties if there is no clear agreement on these matters, or if the terms are ambiguous.
4. Agree on ownership of newly created intellectual property rights: The ownership of newly generated intellectual property rights (often referred to as “prospective intellectual property”) should be clearly defined in the cooperation contract. Ownership can be determined based on each party’s contribution to the newly created IP, which may be owned by one party or shared between both.
5. Responsibilities for taking enforcement action against infringing goods: It is important to clarify the responsibilities of all parties involved in taking enforcement action if infringing products related to the co-branded products are found in the marketplace. It can be agreed that one party will bear full responsibility, or both parties may share it. The agreement should be as clear as possible – considering the industry’s characteristics – to prevent either party from shifting blame, responsibility, or hindering the enforcement process if infringement occurs.
6. Allocation of liability for trademark infringement: It is complex to determine the liability of each party when the co-branded products infringe on third-party intellectual property rights, especially if there is no clear written agreement in place beforehand. According to the Supreme People’s Court’s 2020 ruling regarding whether a victim of a product infringement case can file a civil lawsuit against the trademark owner displayed on the products: “Any organization or individual that embodies its name, title, trademark, or other identifiable mark on the product and indicates that it is the manufacturer, is considered a ‘producer’ under the Civil Code of the People's Republic of China and the Product Quality Law.” Therefore, if the co-branded products infringe upon another party’s rights, both parties could be defendants and face joint liability if the lawsuit is lost. To avoid potential disputes, it is crucial to reach a clear agreement on how legal liability will be allocated and to agree on each party’s proportional contribution.
7. Product quality assurance: The licensee (normally the manufacturer or product provider) must ensure the quality of the co-branded products. Failure to do so could damage the licensor’s brand image. This responsibility should be clearly defined in the cooperation contract, based on the specific circumstances of the partnership.
8. Exit mechanism: Once the co-branding agreement is in effect, both parties form a community of interests. If either party develops negative goodwill, it could negatively impact the market performance of the co-branded product. Therefore, it is essential to establish a clear exit mechanism that allows either party to terminate the cooperation if the other party develops negative goodwill.
9. Disposal of inventory goods after termination of the cooperation: The definition of inventory goods and the disposal period should be clearly defined at the outset of the cooperation. In practice, disputes often arise when the licensee continues to sell inventory goods after the cooperation has ended.
The licensee should first verify whether the licensor has a sufficient basis of rights. This involves verifying whether the licensor is the actual owner of the relevant rights or if they have the authorization from the rightful owners to engage in cross-border cooperation. This review goes beyond merely checking trademark or copyright registration certificates; it requires a thorough due diligence process. There have been instances where co-branded partnerships ended abruptly due to incomplete licensing chains or disputes over brand ownership.
For example, in the collaboration between a well-known mobile phone brand and an Italian fashion house, the issue arose when it was discovered that the owner of the Italian brand was not the legitimate rights holder of a popular street fashion label. After the joint campaign was launched, consumers widely questioned the legitimacy of the collaboration, prompting the mobile phone brand to terminate the joint campaign before the formal product launch, in order to mitigate further losses.
Once the brand’s ownership is verified, it is crucial to review the scope of goods covered by the relevant trademark. For example, if the authorizing party is a prestigious luxury brand, but the licensed product is a tea beverage, for example, it is important to confirm whether the luxury brand has registered its trademark for that category of goods. Using a trademark outside the scope of the approved goods can expose parties to the risk of trademark infringement. However, if the registered scope of goods does not encompass the co-branded products, this does not automatically preclude the possibility of collaboration. A comprehensive legal search should be conducted to assess the potential risks of infringing on third-party intellectual property rights.
Additionally, there may also be cases where the subjects of rights differ between different types of rights. For instance, an artwork may be protected by both copyright and trademark rights. If the trademark owner is not the copyright owner of the artwork, obtaining permission from one rights holder may not be sufficient to secure the use of the artwork on the co-branded products. Therefore, at the outset of the cooperation, it is vital to conduct a comprehensive review of the sources and ownership of rights.
In a co-branding project, the co-branded product may not be one of the main products of one co-branding parties. For instance, in the collaboration between a leading luxury brand and a tea beverage brand, the tea beverage is not the main product of the luxury brand. Trademark registrations owned by one co-branding party, whose main products are not the co-branding products, often face a higher risk of non-use cancellation.
A review of the non-use cancellation appeal decisions published by CNIPA reveals that many renowned brands doing co-branding with non-core products/services were attacked by third parties through non-use cancellations. For example, a famous automobile brand registered in respect of clothing was attacked by a non-use cancellation, a renowned mobile brand registered in respect of tea beverages was attacked by a non-use cancellation, and a leading jewellery brand registered in respect of food was attacked by a non-use cancellation.
Ensuring proper trademark use in co-branding
To mitigate the risk of a third party initiating non-use cancellation proceedings against a registered trademark owned by a co-branding party, the co-branding party must actively use the trademark and retain evidence of its use on co-branded products.
The co-branding party should ensure the registered trademark is actively used during co-branding activities. Trademark Law defines trademark use as applying a trademark to goods, packaging, containers, transaction documents, advertisements, exhibitions, and other commercial activities that indicate the source of goods. In co-branding, this includes displaying the trademark in agreements, on products and packaging, and in advertising campaigns. While advertising campaigns typically promote both brands of the two co-branding parties, the key focus should be on trademark use on co-branded products and within agreements.
The intellectual property licensing agreement or the relevant IP licensing clause should explicitly reference the trademark registration in relation to the co-branded product. This confirms the co-branding party’s intention to authorise and use the registered trademark.
Typically, the trademark of the party whose primary products are being co-branded appears more prominently. However, to establish proper trademark use, the other co-branding party’s registered mark should also be displayed in a prominent and independent manner, rather than merely as a trade name or descriptor.
For example, in a co-branding arrangement between a well-known hotel chain and a beer brand, the hotel’s registered trademark appeared in a non-prominent manner on the beer packaging and functioned as a trade name rather than a trademark. Additionally, the trademark was not included in the licensing agreement. As a result, the appellate court ruled that the trademark was not in proper use, leading to its cancellation for beer-related products.
In contrast, a successful co-branding example can be seen in sneakers co-branded by an automobile brand and a clothing brand. The clothing brand’s trademark is prominently displayed on the front of the shoe, while the automobile brand’s trademark appears on the side and back – ensuring both trademarks function as independent indicators of source.
Because co-branded products and events are often time-sensitive, timely preservation of evidence of trademark use is crucial, particularly for evidence that may degrade over time.
This is because by the time a non-use cancellation challenge arises, the co-branding event may have concluded, and co-branded products may no longer be available. In such cases, the agreement alone is insufficient to prove that the trademark was used in commerce. While advertising campaigns may leave digital footprints, not all co-branded products receive widespread media coverage, and online reports may be deleted over time. This can make it difficult to defend against non-use cancellation challenges – particularly in the appeal stage before the Trademark Review and Adjudication Department (TRAD).
During co-branding activities, parties should proactively archive materials to demonstrate actual commercial use of the trademark. This includes:
Online materials such as product listings, media reports, and e-commerce sales records should be notarized via a digital notarization tool. This enhances their probative value and mitigates the risk of authenticity challenges from parties filing for non-use cancellation.
In collaboration with our strategic partner Lusheng in China and Wolters Kluwer, Rouse has developed a valuable resource for rightsholders: “The Practical Q&A Guide to Cutting-Edge Intellectual Property Issues in China”. This guide, compiled by over 30 senior China IP experts from the two leading IP firms, addresses the key concerns of businesses by providing insights on patents, trade marks, copyright, trade secrets, internet unfair competition, intellectual property investment, and punitive damages in an accessible Q&A format. It offers readers the latest legal interpretations, case studies, and practical guidance applicable to their operations.
To request a full copy, please complete the form through the link here.
Please note that due to publishing restrictions, we may not be able to fulfil every request. The application will be reviewed, and the report will only be available to corporate organizations. Thank you for your understanding.
Hatty Cui, Principal, General Manager of China, China Head of Trade Marks & Brands, Rouse, hcui@rouse.com
Carol Wang, Managing Partner of Shanghai Office, Global Co-Deputy Head of Dispute Resolution, Lusheng Law Firm, cwang@lushenglawyers.com
Robert Zang, Senior Trade Mark Attorney, Rouse, rzang@rouse.com
Phoebe Zhang, Trade Mark Attorney, Rouse, pzhang@rouse.com
Claire Zhang, Associate, Lusheng Law Firm, czhang7@lushenglawyers.com