The Legal Risks and Countermeasures of Co-branding in Fashion Industry

The fashion industry is currently experiencing a surge in co-branding, with the emerging trend of “everything can be co-branded”. For example, the co-branded drinks between Hey Tea and the famous luxury brand Fendi, the co-branded clothing between Uniqlo and major anime IPs, which are often very popular with consumers due to their unique design and brand value. However, while co-branding can bring huge dividends to brands, many legal risks are also associated with co-branding. This article will briefly explain co-branding’s specific definition, its advantages, alongside the potential legal risks and control measures brands may take.

1. Definition and Advantages of Co-branding

Co-branding generally refers to the cooperation of two or more brands in some form to increase consumers’ desire to buy through joint brand power, which is in essence a marketing strategy. There are two common types of co-branding: (1) brand-brand co-brandings, such as the co-branded drink between Luckin Coffee and Coconut Palm Group; (2) IP co-brandings, such as the co-branded lipsticks between MAC and the game “Arena Of Valor”.

Co-branding has its unique advantages, such as the interchangeability of consumer groups, allowing a brand to quickly open up new consumer markets while allowing for changes and adjustments to their brand positioning; it can also stimulate consumers to make purchases by launching limited edition items.

2. Legal Risks and Countermeasures Involved in Co-branding

Co-branding can involve the licensing and use of intellectual property, which carries certain legal risks if it’s not appropriately operated, such as:

(1) Intellectual Property Licensing Risks

According to the Anti-Unfair Competition Law and Trademark Law of the People’s Republic of China and other related laws and regulations, a fashion company that uses another party’s trademark, design or print on its products without authorisation will constitute an infringement of another party’s trademark rights as well as other intellectual property rights. If a company incorporates another party’s highly influential and well-known product decoration into the appearance of its products without permission, consumers will likely be misled into thinking that a specific relationship has been entered into between the two parties, which constitutes an infringement of certain rights alongside the related legal liability.

(2) Risks of Regulated Use

China’s trademark law provides that the exclusive rights of a registered trademark right holder are limited to the approved registered trademark and the goods and services approved for use. If a party goes beyond the scope of its approved trademark registration to which they do not have the right to use, it may give rise to the problem of irregular use, and if others already hold prior registered trademarks in the relevant categories of products and services, the company will face the risk of trademark infringement.

(3) Reputational Risk

Co-branding is essentially a union of the reputations of both fashion companies. Fashion companies should strictly control the quality of their co-branded products to avoid tarnishing the reputation of the brands involved. In addition, if there are quality problems or other negative connotations about one brand, it can also affect the reputation of the co-branded products and even the other brands with which it has a co-branding relationship.

Therefore, we suggest that the legal risks of co-branding can be managed in the following aspects:

（1） At the preliminary stage of co-branding, fashion companies are required to obtain authorisation of the intellectual property such as trademarks, graphics and patterns to be used, and to clarify the details of the licensing method, scope and duration of the licence and the content of the rights authorised for use at the signing stage of the cooperation.

（2） The use of intellectual property should be regulated at the stage of designing co-branded products, and the co-branding should be done within the scope of the authorised licence in order to prevent infringement of others’ prior registered trademarks.

（3） To prevent brand reputation collateral damage, fashion companies can also assess the goodwill of their partners and agree in the agreement on how to compensate for damage to goodwill, the percentage and scope of compensation, etc.

In summary, co-branding may involve the licensing and use of various types of intellectual property, with the licensing method, scope, content and restrictions on the use of specific rights leading to potential intellectual property disputes if care is not taken. Therefore, fashion companies should be aware of the legal risks involved and take precautions when engaging in co-branding cooperation. If you would like to know more, you’re welcome to contact us: info@dandreapartners.com.