As one of the most popular innovative business models today, cross-border brand co-branding enables numerous brands to continuously launch innovative and attractive products through IP co-branding. While creating IP co-branded products, compliance with intellectual property rights is of paramount importance. This article will delve into the intellectual property compliance issues that enterprises should pay attention to in the course of co-branding cooperation, with a view to providing useful reference for enterprises, fully leveraging the value of IP co-branding, and contributing to new consumer trends.
Focusing on the key points of legal review of co-branded products, determination of the scope of authorization, and the generation and collection of evidence of use, we have selected the following three popular Q&As from Chapter V: Intellectual Property Compliance for IP Co-branded Products of the Frontier Hot Topics in Intellectual Property Practice Q&A Handbook, jointly compiled with Wolters Kluwer Legal & Regulatory, Lusheng and strategic partner Rouse, to share with you.
Selected Practical Q&As
Q1
[Key Points of Legal Review of Co-branded Products] What are the key issues that enterprises should pay attention to in the process of co-branding?
In recent years, major brands have been actively engaging in cross-border cooperation, and blockbuster co-branded products have emerged one after another. Cross-border co-branding has become a highly sought-after business model. Behind the huge commercial profits lie numerous legal issues. From the perspective of intellectual property, what key issues should enterprises focus on when engaging in co-branding cooperation?
1. Determining the basis for authorization: Examine the source of the counterparty’s rights and whether the chain of authorization is complete. Confirm whether the status of the rights is stable or whether there are defects that may lead to disputes.
2. Clarifying the manner of authorized use: In the design and production of co-branded products and their packaging, as well as in product promotion, the manner in which each party’s IP is used should be clearly defined. Improper use may violate legal provisions or give rise to infringement disputes. In practice, the parties may establish a pre-use review mechanism for the co-branded IP, under which the IP owner shall review and approve the use before it is put into actual use.
3. Agreeing on the type of license, scope of goods, territorial scope and term: In practice, disputes between the parties may arise due to the lack of agreement on, or ambiguity in, the foregoing matters.
4. Ownership of newly generated intellectual property (also referred to as “foreground IP”): This is generally agreed in advance in the cooperation contract between the parties. Ownership may be determined based on the respective contributions of the parties to the newly generated intellectual property. The newly generated intellectual property may be owned by one party or jointly owned by both parties.
5. Responsibility for enforcement against infringing products: With respect to infringing products of the co-branded products appearing on the market, the enforcement responsibilities of each party should be clearly defined. It may be agreed that one party shall bear such responsibility, or that both parties shall bear it jointly. The agreement should, to the extent possible, be clear and tailored to the characteristics of the industry concerned, so as to prevent mutual shirking of responsibility or mutual constraints between the parties when infringement occurs.
6. Allocation of legal liability: The allocation of liability where co-branded products infringe third-party intellectual property rights is relatively complex. Pursuant to the Reply of the Supreme People’s Court on Whether the Victim in a Product Liability Case May Institute a Civil Action against the Owner of the Trademark of the Product as Defendant (2020 Revision), “Any enterprise or individual that indicates its own name, trade name, trademark or other identifiable mark on a product to indicate that it is the manufacturer of the product shall be deemed a ‘producer’ as prescribed in the Civil Code of the People’s Republic of China and the Product Quality Law of the People’s Republic of China.” Therefore, if co-branded products involve infringement, both co-branding parties may become defendants and, if they lose the case, face joint and several liability for infringement damages. Accordingly, based on the degree of participation of each party in the co-branding cooperation, the manner and proportion of allocation of legal liability should be clearly agreed, so as to avoid further disputes between the parties over the allocation of liability for damages.
7. Product quality assurance: The licensee (generally the manufacturer or product supplier) should ensure the quality of the co-branded products; otherwise, the licensor’s brand image may be damaged. This may be clearly agreed upon based on the actual circumstances.
8. Exit mechanism: Once co-branding commences, the parties to the cooperation become, to a certain extent, a community of interests. If either party suffers negative publicity at this time, it will affect the market performance of the entire co-branded product line. Therefore, a clear exit mechanism should be agreed to avoid a situation where neither party can advance nor retreat.
9. Disposal of inventory products: The definition of inventory products and the time limit for their disposal are issues that need to be clarified at the outset of the cooperation. In practice, it is not uncommon for disputes to arise between the parties because inventory products continue to be sold after the cooperation has ended.
Q2
[Determination of the Scope of Authorization] How can the IP licensee determine the scope of the rights granted so as to avoid potential infringement risks relating to trademarks, copyrights, etc.?
In the course of co-branding cooperation, the licensee should first determine whether the counterparty has a sufficient basis for its rights, i.e., examine whether the counterparty is the owner of the relevant rights, or has been authorized by the relevant right holder to engage in cross-border cooperation. Such examination is not a mere cursory verification of the trademark registration certificate or copyright registration certificate, but requires detailed due diligence.
In practice, there have been instances where co-branding cooperation came to an abrupt end due to an incomplete chain of authorization or disputes over brand ownership. For example, in a cooperation between a well-known mobile phone brand and an Italian brand, the owner of the Italian brand was not in fact the true right holder of the well-known streetwear brand widely recognized in the market. After the co-branding campaign was launched, it was widely questioned by consumers, and the mobile phone brand had to issue an announcement stating that it needed to re-evaluate the cooperation in order to avoid greater losses.
After the first step of verifying the authenticity of the brand, it is also necessary to examine the scope of goods for which the relevant trademarks are registered. For example, if the licensor is a well-known luxury luggage and bag brand, but the licensed products are milk tea and other beverages, it is necessary to examine whether the luxury brand has been approved for registration in respect of milk tea and related goods. Use of a trademark beyond the scope of the approved goods may give rise to potential trademark infringement risks. Of course, if the scope of goods covered by the relevant trademark registrations does not in fact include the co-branded products, this does not necessarily mean that the co-branding cooperation cannot be implemented. However, it is necessary to conduct thorough legal searches in the class of goods to which the co-branded products belong, and to comprehensively assess, in light of the actual manner in which the authorized IP is used on the co-branded products, whether there is a risk of infringing third-party intellectual property rights.
In addition, there may be situations where the right holders are not the same for different types of rights. For example, a graphic IP may be protected both by copyright and by trademark rights. If the right holders of the two are not the same entity, even if permission has been obtained from one right holder, there may still be infringement risks arising from the other right holder. Therefore, at the outset of the cooperation, a comprehensive examination of the source and ownership of the rights is required.
Q3
[Generation and Collection of Evidence of Use in IP Co-branding] How can effective evidence of use be generated and collected during brand co-branding cooperation to prevent potential non-use cancellation risks in the future?
In co-branding campaigns, the licensed cross-border products may not be the main products of one of the co-branding parties. For example, in a co-branding between a well-known luxury brand and a tea beverage brand, beverages are not the main products of the luxury brand. The registered trademarks of the co-branding party whose products are not the main products are often exposed to a higher risk of cancellation for non-use. A review of the decisions on review of cancellation published on the China Trademark Network shows that many well-known brands have faced non-use cancellation applications in respect of non-core or co-branded product categories, such as a well-known automobile brand facing a non-use cancellation application in respect of co-branded clothing products, a well-known mobile phone brand facing a non-use cancellation application in respect of beverage products, and a well-known jewelry brand facing a non-use cancellation application in respect of food products.[1]
To address potential non-use cancellation applications filed by third parties against the registered trademarks of one of the co-branding parties, the brand owner should use the registered trademarks in an appropriate manner during the co-branding campaign and promptly retain evidence of use on the co-branded products.
First, in co-branding campaigns, the co-branding parties should use the registered trademarks in an appropriate manner.
To avoid cancellation of trademarks, it is necessary to prove that the co-branding party has made trademark use of the registered trademarks on the co-branded products. The Trademark Law provides: “Use of a trademark as referred to in this Law means the use of a trademark on goods, packaging or containers of goods and on transaction documents for goods, or the use of a trademark in advertising, exhibitions and other commercial activities, for the purpose of identifying the source of goods.” In the context of co-branding campaigns, trademark use occurs in such contexts as co-branding agreements, products and product packaging, and advertising and promotion.
In advertising and promotional activities, the brands of both co-branding parties are generally heavily promoted, and fewer issues arise in this regard. Our focus here is on use in agreements and on co-branded products. In the intellectual property license agreements between the co-branding parties or the IP license clauses in such agreements, it is advisable to include the registered trademarks of the co-branding party as used on the co-branded products, thereby indicating the intention of the co-branding party to license and use the registered trademarks on the co-branded products.
On co-branded products and their packaging, the trademark of the co-branding party whose products are the main products is generally placed in a prominent position. It should be noted that the trademark of the co-branding party whose products are not the main products should also be indicated on the products in a relatively conspicuous manner so as to highlight trademark use. In addition, use of the trademark in the form of a trade name or in a descriptive manner should be avoided. In a co-branding campaign between a well-known hotel brand and a beer brand, the registered trademark of the hotel brand was indicated on the beer products in a non-conspicuous manner, used as the trade name of the hotel group, and the registered trademark of the hotel brand was not included in the trademark license agreement between the parties. For these reasons, in the non-use cancellation proceedings, the court of second instance held that the manner of use by the hotel brand did not constitute trademark use, and therefore cancelled the registered trademark of the hotel brand.[2] This case serves as a warning that, in brand co-branding, using the co-branding party’s brand in a trademark manner is crucial to resisting potential future non-use cancellation applications. On co-branded sports shoes between a well-known automobile brand and a clothing brand, for example, the clothing brand’s trademark is indicated on the front of the shoes, while the automobile brand’s trademark is indicated on the sides and back of the shoes, with both trademarks indicated on the products; this manner of use is worth emulating.
Second, it is advisable to promptly retain evidence relating to the co-branding campaign, especially evidence that is easily lost over time.
Co-branding campaigns are generally highly time-sensitive, and some last only a few months. When preparing evidence of use in response to a non-use cancellation application against a trademark involved in a co-branding campaign, an awkward situation may arise: the co-branding campaign has ended, the co-branded products have been taken off the shelves, and no sales evidence can be found. Apart from the co-branding agreement, there may be a lack of other evidence proving the actual existence of the co-branding campaign and the public launch and sale of the co-branded products, making it difficult to form a complete chain of evidence. Some co-branding campaigns are heavily promoted, and media reports on the campaigns may still be found online years later, which can help prove that the co-branding campaign actually took place and that the co-branding agreement was performed. Other co-branding campaigns, however, have limited advertising and promotion, making it difficult to find other online reports, or such reports (including self-media promotion) may have been deleted. If this occurs at the non-use cancellation stage, it may still be possible to maintain the registration of the trademark, but at the review and litigation stages, where evidentiary requirements are stricter, the trademark may still face the risk of cancellation.
Therefore, at the preparation and implementation stages of a co-branding campaign, it is advisable for the co-branding brand owners to promptly retain evidence of trademark use in the co-branding campaign to address the risk of non-use cancellation. The original co-branding agreements signed by the parties should be archived and kept; photographs of the co-branded products should be taken and preserved in a timely manner; advertising and media reports on the co-branded products should be promptly preserved; records of the listing of co-branded products on e-commerce platforms and consumer reviews should be promptly preserved; and sales data of co-branded products in e-commerce stores should be promptly communicated and properly retained with the cooperation partner. Evidence retention should enable the trademarks, products and dates to be clearly shown. In addition, for online evidence relating to co-branded products, such as product photos, online reports and e-commerce platform records, it is advisable to use electronic evidence preservation technologies to preserve such evidence, thereby enhancing its probative value and avoiding challenges by the applicant for non-use cancellation as to the authenticity of the online evidence.
References
[1] Decisions on review of cancellation Nos. Shang Ping Zi [2024] 0000077070, Shang Ping Zi [2024] 0000078737 and Shang Ping Zi [2022] 0000021344.
[2] Administrative Judgment (2019) Jing Xing Zhong No. 7191. After the second instance, the hotel brand filed an application for retrial, and no result of the retrial has been found through public channels so far.
Other Exciting Q&As Covered in This Chapter:
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[IP Licensor’s Rights Layout] How should the IP licensor structure its intellectual property portfolio to ensure a sufficient basis for authorization?
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[Ownership of New IP Generated in the Course of IP Co-branding] May the licensee independently design co-branded products? How is the right holder of the new IP thus generated to be determined?
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[Disposal of Inventory Products] After the expiry of the cooperation term, may unsold co-branded products continue to be sold?
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[Dispute Resolution between IP Licensor and Licensee] What dispute resolution mechanisms are available between the IP licensor and the licensee?
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[Concurrence of Breach of IP License and Intellectual Property Infringement] What breaches of contract may constitute concurrence with intellectual property infringement? What are the consequences?
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[Intellectual Property Enforcement] What other enforcement options are available to the IP licensor?
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[Clarifying Contractual Arrangements] What are the difficulties in administrative enforcement and criminal prosecution of intellectual property infringement cases between the IP licensor and the licensee? How can they be overcome?
Authors of This Chapter
Cui Hong General Manager, China; Head of Trademark and Brand Protection, China
Rouse International, Beijing
Email: hcui@rouse.com
Wang Shan Head of Shanghai Office; Co-head of Dispute Resolution Practice
Lusheng Law Firm, Shanghai
Email: cwang@lushenglawyers.com
Zang Lei Senior Trademark Attorney
Rouse International, Beijing
Email: rzang@rouse.com
Zhang Wenfang Trademark Attorney
Rouse International, Beijing
Email: pzhang@rouse.com
Zhang Qing Lawyer
Lusheng Law Firm, Shanghai
Email: czhang7@lushenglawyers.com
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About the Report:
The Frontier Hot Topics in Intellectual Property Practice Q&A Handbook is jointly and meticulously authored by Wolters Kluwer Legal & Regulatory, Lusheng Law Firm and its strategic partner Rouse International, and was officially released online in November 2024. The handbook is compiled by more than 30 senior intellectual property experts, and selects 108 intellectual property questions divided into 11 chapters, comprising 100,000 words of detailed analysis. It focuses on the most cutting-edge issues of concern in the industry today, comprehensively covering key areas such as patents, trademarks, copyrights, trade secrets, unfair competition on the internet, intellectual property capital contribution and punitive damages for intellectual property infringement. In a “Q&A” format, it distills the hot topics of concern to intellectual property practitioners and provides readers with the latest legal interpretations, case analyses and practical guidance.
Upon its release, the report attracted wide attention and high praise from the industry. In order to better share its exciting content, we will continue to select and publish, in the form of a series of articles, some of the most valuable Q&As from each chapter.
