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When 1+1 is more than 2: IP Issues in Co-Branding in China

Published on 25 Sep 2020 | 7 minute read

In China’s hyper-competitive market, it seems that conventional marketing methods and predictable advertising tactics do not work effectively anymore.  

There is a growing trend among major companies to look for new growth through brand collaborations with companies in different industries, from local fast-moving consumer goods to international high-end luxury brands. A driving force that pushes and empowers brands to experiment with cross-brand collaborations is to bring fresh, creative and exciting co-branded products to the market, which has access to both brand owners’ existing markets. This can lead to new streams of revenue, increased sales and market shares, doubled consumer bases, increased customer awareness and better reputations.

Co-branding is a strategic collaboration between two brand owners with strong common interests, seeking to mutually increase their customer bases, sales channels, brand awareness, market share, profitability, customer loyalty, brand image, positive associations, perceived value and cost savings.

During the COVID-19 pandemic, many new co-branded products entered the marketplace to compete for the attention of housebound consumers and to help bring some happiness and delight to their restricted lifestyles.

Some examples in China in 2020 include the co-branding of Wei-Chuan’s dairy products with Dove Chocolate to produce a co-branded chocolate milk. Customer bases of the two existing markets were combined to become Wei Chuan x Dove.

This summer, the famous American personal care brand Dove (different from Dove Chocolate) collaborated with the popular Chinese milk tea chain Heytea to release a ‘peach tea’ scented shower foam and peach flavoured teas. In the example of Dove x Heytea, the intersection between smell and taste became the starting point for a new product crossover. This partnership allowed Heytea to reach beyond its core target audience and enabled Dove to leverage Heytea’s influencer value amongst Chinese Millennials and Gen Zers, who expect more personalised consumer experiences.

This can also be reflected in the unique collaboration between the American fast food restaurant chain KFC with the Chinese mosquito repellent-maker Liushen. They released new products in the form of a Liushen-flavoured K Coffee and a coffee-scented floral water to repel mosquitoes. Clever combinations like these meant that consumers could not resist the chance to buy the products and discover how they would taste and smell.

There is no doubt that through co-branding collaborations, these companies have successfully reached out to more consumers and found new streams of revenue and other mutual benefits. In addition to increased sales and combined market strength, some partners also collaborate for widespread brand awareness.

The Forbidden City is known for being an ancient palace full of stately cultural exhibitions. It sells its own line of creative souvenirs that combine historical intricacies with modern details and technologies. Many local and international companies seek co-brandings with the Forbidden City by using its name and artworks on their products to enhance their ‘cultural’ image in the market, and attract consumers with more educational and like-minded cultures. Collaborations with the Forbidden City in Chinese market covers a variety of industries, from consumer products, cosmetics and sports to luxuries, music and media. Benefits the Forbidden City obtains from the co-brandings include more visitors, a more widespread awareness of the Palace, along with a more modern and fashionable image among the younger generations.

In order to make co-branding truly work and a “win-win” activity, it not only needs to start with a creative consumer insight and a better consumer experience, but it should also be protected by the following legal actions in order to keep a competitive edge in the market. 

  1. Choosing the ‘right’ co-branding partner

Failure to choose the ‘right’ co-branding partner may lead to financial loss and may harm the established reputation of a brand. The term ‘right’ used here can have several interpretations, such as a competitively famous brand partner, the correct brand owner and a reasonable number of collaborations.

Where one brand has a stronger reputation than the other, it is possible for the brand with a lower reputation to drag the other down because it was unable to keep up with the consumers’ needs. It is also possible that the company with the lesser known brand will benefit from being marketed alongside a more famous brand. To balance out, it would be better to look for a brand with the right match. The two brands should match in relation to resource allocation and enterprise size, which would strengthen and enhance the brand's image in consumers' minds through promotional activities and advertising. 

Considering the large number of trade mark squatters in China, brand owners need to make sure that they are dealing with the real brand owner in the co-branding collaboration and avoid accidentally partnering with a fake legal brand owner, which would lead to an embarrassing public relations fiasco.

As to the frequency of co-branding, a brand owner may also want to limit the number of collaborations as it may decrease the credibility of the brand, even though such collaborations can make a significant amount of money.

This part is more about the marketing team following the company’s business compass when choosing partners. After utilising business analyses such as SWOT, PEST or Porter’s Five Forces, the final decision on the brand partner should be made by both the branding team and the compliance team, and whether the chosen partner may cause damage to the brand reputation and to the company.

  1. IP due diligence check

Each party to the co-branding should license the other to use the trade marks used in the co-branding collaboration.

Although it is acceptable to license unregistered rights, it can be very risky to do so as it may lead to claims of infringement from other rights-holders or create opportunities for squatters. Even though there are proper terms in the agreement to waive the licensor’s responsibility in compensating for any loss caused by a trade mark infringement claim, the licensor, being the trade mark owner, will still be bound for responsibility by any third-party.

It is important to have a registered trade mark in China before starting co-branding collaborations, in order to reduce the risk of encountering trade mark squatters from claiming compensation from a preemptive bad-faith registration against the true brand owner who is unregistered in China.

For example, if a brand owner in the food industry is intending to co-brand with a clothing brand owner to create a new clothing product bearing the marks of the two parties, the former brand owner’s trade mark registration in Class 29 (food category) will not cover the use and license in Class 25 (clothing category). It will need a trade mark registration in Class 25 in order to license the clothing brand owner to have both parties’ marks appearing on the new clothing product.

For foreign brand owners, they may pursue a more balanced filing strategy structure that balances the investment in maintaining registered marks and the benefits of owning them. They may not make defensive trade mark registrations in all 45 classes unless it is an extremely important brand for the initial launch. When expanding into a foreign market, investment of a foreign brand is usually split into several stages, such as setting up a company in China for business operations or finding a business partner for promotional and marketing campaigns, and then establishing ‘essential’ IP protections. 

For Chinese companies, it is more frequent to file in all 45 classes for defensive purposes due to the affordable filing fee (RMB 300 as the official fee for each trade mark application, per mark per class). Having a full range of protection allows companies the flexibility to expand business operations to a different industry at any time. One example includes the Chinese car company SAIC-GM-Wuling Automobile Co., Ltd., whose main brand 五菱 (WU LING), is registered in its core class (Class 12 for automobiles) and in other classes. Soon after the outbreak of COVID-19 earlier this year, they were able to immediately start manufacturing and selling WU LING branded masks (Class 10—medical  area) to support the large demand for masks in the market and also offset the economic loss incurred from ceasing the manufacturing of automobiles during that period due to government policies.

Current challenges are that co-branding marketing activities happen very quickly and are very diverse, creating difficulties for the legal and IP team. The legal and IP team should align with the business team and make clear the benefits and risks in licensing unregistered rights in marketing activities, as well as the length of the trade mark registration process, from application to registration, so that the business team would be willing to share ideas and marketing plans for co-branding activities with the legal and IP team in advance.

  1. Clear ownership and proper trade mark licenses

In a co-branding agreement, the business team may believe the most important terms relate to working methods and how to share costs and profits. From the legal perspective, it will also be necessary to have a carefully drafted and detailed agreement in place to clarify the brand owners’ rights and responsibilities. It should also make clear the ownership of the new intellectual property rights that might be derived from the co-branding collaboration. This is to avoid any potential disputes, especially when parties are developing a co-branded product together.

The co-branding agreement is in nature a type of cross-licensing agreement and should have sufficient legal framework clarifying that brand-holders can maintain their separate identities and exercise control over their respective brands.

It is not compulsory to record licensing agreements with trade mark authorities, especially if the licensing is short-term. If it is in the long-term, an official record of the licensing agreement will be highly recommended when dealing with royalty fees or when preparing to confront third parties.

‘Co-branding’ is a powerful legal and marketing tool that uses the cross-licensing of trade marks from different companies to brand a new product, and such process requires a seamless collaboration between the business team and the legal and IP team.

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Principal, General Manager
+86 10 8632 4000
Senior Trade Mark Attorney
+86 10 8632 4000
Principal, General Manager
+86 10 8632 4000
Senior Trade Mark Attorney
+86 10 8632 4000