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Notable Points for the Use of Intellectual Property Rights and Contractual Agreements in Co-branding

Haisheng LIU   
Lin Xia
Attorney-at-Law 
Shanghai Wei & Liu Law Firm
 
In today’s extremely rich material environment, many consumers choose goods not only based on simple cost performance to decide, but are willing to pay for creativity and brand value recognition. Consumer choice trends determine the direction of a brand’s efforts. In order to better attract more consumers, the era of the Internet of Everything has begun. Nowadays, co-branding, especially cross-industry co-branding, is not new. As a marketing method of strong alliance, various brands have tried and succeeded therein.

An important part of co-branding is the intellectual property rights issues of how to use the co-branded brands on co-branded goods or related rights licensing. This article intends to select several types of co-branding collaboration to discuss the use of intellectual property rights in co-branding and how to avoid falling into the “quagmire of infringement”.

I. Types of Co-branding

According to the “2021 Cross-border Co-branded Consumption Trend Insight Report”, the types of co-branding cooperation are divided into co-branding in the same industry, IP cross-industry co-branding, star co-branding, designer co-branding, artist co-branding, etc. From the perspective of intellectual property rights, the most common types of co-branding are trademark co-branding and copyright co-branding. Due to the long cooperation period required for patent or technology co-branding, there are relatively few cases, so they will not be discussed herein.

(1) Trademark Co-branding

In trademark co-branding, according to the purpose of the planning project, brand in the same industry or cross-industry brand will be selected for co-branding. In the case of co-branding in the same industry, an enterprise usually chooses a brand quite different from their own brand positioning, and complement each other through each brand’s advantages, in order to attract the attention and purchase of a wider group. For example, Louis Vuitton’s first collaboration with the U.S. fashion brand Supreme brought a huge impact and achieved a win-win situation in the marketing of the two brands.
 
  
【Images from Louis Vuitton WeChat public account】

Cross-industry co-branding will involve more considerations, and the risks vary greatly depending on the type of co-branding. For example, the images below are the co-branding milk tea of Heytea and the international luxury brand FENDI that has recently become popular in the “Circle of Friends” on WeChat, and the trademarks of both brands appear on the body of the milk tea cup, the outer packaging bag and other peripheral co-branding products.
 
 
【Images from Heytea WeChat public account】
 
In addition, in cross-industry co-branding, co-branded gift boxes are becoming increasingly popular, containing the main products of co-branded brands and are available in limited quantities. Due to the reason that some of the co-branded products may be required for special industry administrative licenses, or in consideration of reducing the risk of infringement that may arise due to the co-branding party’s trademark and other related rights, the brand owner may also choose to use only its own trademark on the main product in the gift box without the co-branded logo, or sell its own product with the co-branded product as a gift in limited quantities.

(2) Copyright Co-branding

Copyright co-branding should be one of the types of co-branding that emerged very early and has endured to this day. A common way of copyright co-branding is that the party initiating the co-branding activity obtains the permission of the copyright owner of the work to use the work on the co-branding product or outer packaging, and uses the author or title of the work for publicity in the co-branding product promotion activities. For example, the famous Japanese artist Yayoi Kusama and Louis Vuitton collaborated on the collection of bags, using her classic “dotted pumpkin” work.

 
【Images from Louis Vuitton’s official website】

Recently, MINISO announced a collaboration with Pokémon, the IP characters of Nintendo Corporation of Japan, which has collaborated with a number of different brands. In this co-branding collaboration, MINISO uses the works such as Pikachu, Psyduck and Squirtle on its products, and the terms “Pikachu”, “Psyduck” and “Squirtle” used in the promotional documents refer to the names of their works.
 
 
【Images from MINISO’s WeChat public account】

(3) Merchandizing Right Co-branding

Among the co-branding projects, there are many cases of co-branding with virtual characters created in well-known film and television works. Character images can be protected by copyright, but if the work or character name is not registered as a trademark, it can be protected by claiming the “merchandizing right” if it enjoys a high reputation. However, if the relevant name has been registered as a trademark in the class(es) of co-branded products prior to the formation of the film and television work, it will be difficult to print the co-branded logo on the co-branded product where already exists the prior registered trademark.

However, in China, merchandizing right is not a legal right, and there is no clear provision of “merchandizing right” in the law. In 2017, the Supreme People’s Court for the first time put forward the concept which is similar to “merchandizing right” in the Provisions of the Supreme People’s Court on Several Issues Concerning the Trial of Administrative Cases Involving Trademark Authorization and Confirmation, and it stipulates in Article 22 of the Interpretation that “For a work within the term of copyright protection, if the title of the work, the name of the character in the work, etc. has a high reputation, and its use as a trademark on the relevant goods is likely to mislead the relevant public to believe that it has the permission of the right holder or has a specific connection with the right holder, and the party claims that it constitutes a prior right, the people’s court should support its claim”, which is regarded by the majority as the basis for merchandizing right. In the meanwhile, in judicial practice, courts have also supported the “merchandizing right” as a form of rights that can be protected in some cases. For example, in the case (2017) Beijing Administrative Final No. 3856, Trademark Review and Adjudication Board (hereinafter referred to as “TRAB”) et al. v. DreamWorks Animation L.L.C. (hereinafter referred to as “DreamWorks”) over the “功夫熊猫  KUNGFU PANDA” trademark administrative appeal dispute, “功夫熊猫  KUNGFU PANDA”   was filmed in September 2005, produced by DreamWorks, and released in mainland China on June 20, 2008. The opposed trademark “功夫熊猫  KUNGFU PANDA” was filed for trademark registration by Sing & Po International Company Limited (hereinafter referred to as “Sing & Po”) on January 28, 2009. DreamWorks went through the opposition appeal and the judgment of two instances, and eventually protected its prior rights and interests through judicial practice. Beijing High People’s Court held that DreamWorks’ “功夫熊猫  KUNGFU PANDA” constitutes a movie name with high reputation. The application for registration of the opposed trademark is likely to mislead consumers to believe that it comes from DreamWorks or has a certain degree of connection with DreamWorks, thereby improperly taking advantage of the popularity and influence of the “功夫熊猫  KUNGFU PANDA” movie, squeezing the business opportunities with respect to the above-mentioned goods originally belonging to DreamWorks, and harming the interests of DreamWorks. Therefore, the application of the opposed trademark infringes the legitimate civil rights and interests enjoyed by DreamWorks in relation to the famous movie name “功夫熊猫  KUNGFU PANDA” and constitutes a situation of “harming the existing prior rights of others” stipulated in the Trademark Law.

In addition, in the co-branding of Holiland Cake and Harry Potter, the “Birthday Cake from Hagrid” launched therein used the names and props of virtual characters in the movie works.
 
 【Images from Holiland’s WeChat public account】

II. Notable Points in the Use of Intellectual Property Rights in Co-branding and Precautions for the Co-branding Agreement

Business departments often only consider the good sales prospects when planning co-branding projects, and may lack sufficient understanding of the intellectual property risks of marketing two brands or related licensed rights together. In order to minimize unnecessary risks, we recommend that the following aspects can be used to prevent and control the risk of intellectual property infringement in the co-branding collaboration.

1. Open your eyes and verify the other party’s true identity.

At the beginning of co-branding, the first thing to ensure is that the brand to be collaborated is the real right owner or the right licensor that you wish to collaborate with. The famous mobile phone brand Samsung China has encountered the embarrassing incident of co-branding with a wrong party. At the domestic launch of Samsung's Galaxy A8s mobile phone at the end of 2018, Samsung announced that it would cooperate with Supreme to launch a co-branding model, which may be aimed at attracting young consumers and changing the decline of its mobile phone sale in the Chinese market. However, the Supreme brand that Samsung collaborated with was not the genuine brand expected by consumers, but the Italian Supreme brand, so Samsung was complained by netizens. As such, on December 12, 2018, Samsung released an inconspicuous short statement on GALAXY’s official Weibo, stating that “Recently, Samsung Electronics announced at the Galaxy A8s press conference that it will collaborate with Supreme Italia in the Chinese market. We are currently in the process of re-evaluating this collaboration and we apologize for the inconvenience it caused.” Samsung did not carefully confirm the authenticity of the brand at the beginning of the co-branding project. Not only did Samsung fail to achieve the intended purpose, but also damaged its own brand image. The Italian-based brand has nothing to do with Supreme, the U.S. street fashion brand loved by trendy lovers, but is merely a brand created in Italy by utilizing legal loopholes. The image on the left below is the street fashion brand founded in the United States, and the image on the right below is Supreme Italia, which is indeed difficult to see the difference with the naked eye, and it is no wonder that large companies such as Samsung were also deceived.
 
        
 【Image from Supreme’s official website】                                                   【Image from news reports】

2. Conduct searches in the preliminary stage and reasonably prevent and control risks

In co-branding, it is necessary to communicate with the co-branding party about the status of trademark rights they own with respect to the co-branded goods at the beginning of the collaboration. In the case that the co-branded counterparty has not registered the trademark on the co-branded goods but there are no other prior trademark registrations to be obstacles, the risk of printing the co-brand on the co-branded product is relatively manageable. As mentioned above, FENDI did not register its trademark in Classes 29 and 32 with respect to milk tea, and the related risk in using the mark is not very high due to the reason that there are no other prior registered trademarks. Moreover, the cycle of such co-branding is relatively short, which further reduces the corresponding use risks. However, if there are other prior registered trademarks, it will be not suitable to print the co-branded logo on the product. Furthermore, in the description of the outer packaging such as gift boxes and promotional materials, the other party’s trademark should only be fairly used within the scope of trademark indication, so that consumers can clearly distinguish the brand and its corresponding goods.

3. Do not be greedy and refrain from use

When in a co-branding project, an enterprise may hold that in view that a co-branding is carried on, it is necessary to explore the use as much as possible. There is nothing wrong with maximizing benefits, but due to different industries, the trademark portfolio strategies of the brands are also quite different. If using the brands excessively, it may bring unnecessary risks to itself. Suppose an outdoor brand wants to co-brand with a sunscreen brand, if the outdoor brand wants its trademark to be printed on the packaging of the sunscreen, it will face not only the problem of whether its trademark is registered with respect to the class covering cosmetics goods, but more importantly, there will be an issue to obtain the administrative permission on cosmetics. This is clearly not cost-effective for a short-term collaboration. Therefore, the use of the other party’s brand and mark should be reasonably restrained after comprehensive judgment based on the form of co-branding, the characteristics of the industry of both parties, the rights status, and the obstacles to the rights of third parties.

4. Avoid trademark use in a copyright co-branding

In the case of copyright co-branding, the party should only use the name of author and the title of work within the scope of the necessary description. If the title of the work or even the name or image of the author is printed on the co-branded product, it may constitute trademark use. If it is really necessary to use the above, the party should conduct a prior trademark search or inquire the status of its rights with the co-branding counterparty to avoid trademark infringement.

5. How to stipulate in the co-branding agreement

As important evidence of co-branding and an important means of self-risk prevention and control, when negotiating the terms of the co-branding agreement, we believe that at least the following perspectives should be agreed upon from the perspective of intellectual property risk prevention and control:

i. As the basis for collaboration, it is necessary to clarify the ownership of rights or clear licensing relationships of the co-branding parties, as well as the commitment of non-infringement and corresponding penalties;

ii. Stipulate the specific expression of co-branded brands on products, as well as the copywriting review requirements in product marketing;

iii. Some brands with trademark portfolio in all classes may want to solve the problem of being cancelled on the basis of non-use through co-branding. In order to reduce the risk of instability of rights, it is recommended to stipulate in the agreement the clauses on how to deal with the circumstances of the interruption and loss of rights and the corresponding penalties.

With the development of new retail, new consumer groups, and rapid changes in marketing methods, more forms of co-branding may appear in the future. However, everything is inseparable, and any variation should be within the permutation and combination of several types of rights. In general, the legal issues faced by co-branding activities are complex and diverse, and enterprises need to conduct a comprehensive assessment based on the overall situation to determine the advantages and disadvantages of co-branding, and seek the assistance of professional intellectual property legal teams when necessary, so as to minimize the possible legal risks. We wrote this article based on the problems encountered in out practical work, and we will continue to track this topic and share with you when there are new practical views.

 
 

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