Transboundary brand collaborations in China: from pre-execution to termination

On June 30 2026, Luckin Coffee and language-learning app Duolingo marked the first anniversary of their co-branding partnership by launching 11 co-branded products at once, under the theme that their mascots had “welcomed 11 children” in the second year of their “marriage” (see “Luckin Coffee and Duolingo Officially Announce Again: 8 Co-branded Drinks and 5 Merchandise Items, Second Wave of Collaboration Arrives”). The collaboration, which began in July 2025 with a wedding-themed campaign whose first co-branded drink sold more than nine million cups in its first week, has become the most prominent crossover in China’s consumer market this year. Yet behind every such headline sits a licence or cooperation agreement, setting out chain of title, trademark display, quality control, and exit mechanisms. Where any link fails, a commercial success can turn into litigation.

Drawing on Chinese court decisions, regulatory rules, and market episodes, and with comparative reference to EU and US practice, this article walks through the three stages of a brand collaboration’s life cycle – pre-execution, performance, and post-termination – and distils the practical lessons at each turn.

Co-branding disputes usually begin with two questions: who has the right to license, and what exactly the licence covers.

The National Treasure intellectual property (IP) authorisation case before the Beijing Chaoyang District People’s Court is instructive (see Civil Judgment No. (2019) Jing 0105 Min Chu 63687, China Judgments Online). An intermediary licensee held only a non-exclusive licence for furniture and stationery gifts, with no right to sublicense, but nevertheless granted an exclusive licence for offline immersive exhibitions. Two months after execution, the intermediary terminated the deal and publicly revoked the licence on social media.

The court upheld termination of the downstream contract: as of the trial date, the intermediary had not obtained the necessary authorisation from the original right holder, leaving the ultimate licensee’s rights fundamentally insecure.

Before signing, at least five checks matter.

• The chain of title – deal with the true right holder and review every upstream licence.

• The nature of the grant – an intermediary holding a non-exclusive upstream licence cannot lawfully grant an exclusive downstream one; that is a structural mismatch, not a drafting oversight.

• The scope of the grant – if upstream coverage does not match the downstream promise, the end licensee holds a promise, not a right.

• The coverage check – confirm that the partner holds trademark rights on the very goods or services of the co-branded product. A baijiu (Chinese liquor) brand licensing a coffee drink needs a registration covering coffee, and unlicensed use in a new category may infringe third-party rights.

• The stability check – verify that the partner’s marks are valid, not encumbered by exclusive licences in favour of others, and not under invalidation or non-use cancellation proceedings. A mark under challenge is a fragile foundation for a campaign.

Finally, agree at the outset on the ownership of any new IP the collaboration generates – combined logos, packaging artwork, new designs – and file applications promptly, before a third party does.

In practice, the pre-signing checklist is often longer than the contract, because the partner alone can be a source of significant risk. In 2021, the name of the Dunhuang Museum appeared on an e-cigarette through a licence signed by an authorised agent without the museum’s review. A public backlash forced the museum to withdraw the licence and apologise within days (see “Dunhuang Museum Apologises for Co-Branding with E-Cigarette Brand IP: Authorisation Immediately Suspended”). Vetting the partner’s industry and values is as important as vetting its paperwork.

Crossing categories can also cross regulatory lines: food, cosmetics, alcohol, healthcare products, and tobacco are each subject to production, filing, or licensing regimes. Food production and sale require licences under Article 35 of the Food Safety Law, ordinary cosmetics must be filed before marketing, health foods need approval certificates, and tobacco is subject to the monopoly licensing system (see the Trademark Law of the People’s Republic of China (2019 Amendment), Article 6). Every approval should be mapped before launch, with label, claim, and advertising review built into the timeline.

Actual products and actual sales are not enough. In the dispute over the ‘香格里拉’ (‘Shangri-La’) word mark on beer in Class 32 of the Nice Classification, Tsingtao Beer and the Shangri-La hotel group had launched a co-branded beer in 2018. When a third party filed a non-use cancellation action, the hotel group pointed to the co-branded product as proof of use. The Beijing High People’s Court disagreed (see Administrative Judgment No. (2018) Jing Xing Zhong 5474, China Judgments Online), for two reasons. On the bottle, the red “TSINGTAO” logo dominated the label, while the ‘Shangri-La’ mark was tucked near the neck in small type, presented as the Chinese trade name “香格里拉酒店集团”, which consumers would perceive as a trade name, not a trademark indicating commercial origin. And the cooperation agreement never mentioned the disputed mark at all. The court interpreted that silence as the absence of any intent to use it as a trademark. The registration was cancelled.

The lesson is clear: genuine commercial use through co-branding must still satisfy the statutory requirements of trademark use. Both marks need real visual prominence, used to indicate commercial origin rather than as decoration. Intent to use is best evidenced where it is expressly set out in the written agreement. And the evidentiary record – packaging photographs, invoices, advertising – should be built from the outset in every market where the product is sold. If use cannot be proved, it may never have happened in the eyes of the law.

The Shangri-La ruling raises a question that has been addressed in comparable terms in other major jurisdictions. The respective standards are compared below.

	China	EU	US
Legal standard	Use must indicate commercial origin; a mark displayed as a mere trade name or decoration does not qualify (Shangri-La cancellation case, (2018) Jing Xing Zhong No. 5474)	EU Trade Mark Regulation, Article 18(1): use “in the course of trade” and “as a trademark”; in composite or concurrent use, the mark must still be perceived as indicating origin (Colloseum Holding, C-12/12; Air, T-800/19; Ferrari Testarossa, T-1104/23)	Lanham Act, 15 US Code, Section 1127: “bona fide use of a mark in the ordinary course of trade”; courts ask whether consumers perceive the mark as source-identifying
Licensing-specific risk	Written display terms and intent evidenced in the agreement carry decisive weight	EUIPO Guidelines: simultaneous use of several marks is acceptable unless the original mark loses independent perception	Licensor must exercise quality control over the licensee, failing which ‘naked licensing’ may result in abandonment
Practical implication	Name both marks in the cooperation agreement; give each mark real visual prominence; build the evidentiary record from the outset	Monitor that the mark keeps its origin function in composite presentations	Put quality-control provisions in the licence and enforce them in fact

The convergence across three jurisdictions is instructive: whatever the jurisdiction, a co-branded mark must keep performing its origin function – and the safest way to prove that is to put the display terms and quality-control arrangements in the written licence.

Proper display has a second face: using the marks exactly as registered. Altering a registered mark’s form in a co-branded design – recombining elements, changing colours, or proportions – may not only invite administrative correction or even cancellation of the registration, but the altered mark may itself fall within a third party’s rights (see the Trademark Law of the People’s Republic of China (2019 Amendment), articles 24 and 49; public information database of the CNIPA). The same discipline applies to composite marks of special types: for three-dimensional and colour-combination marks, the registered form, proportions, and arrangement must be followed exactly, and any fused new design should be cleared and registered in its own right.

Advertising compliance deserves separate attention. For co-branded products involving alcohol, Article 23 of the Advertising Law prohibits content that induces drinking or suggests health benefits, and tobacco advertising is banned from mass media and public venues altogether.

Claims must also be literally true: marketing a product as containing a branded ingredient it does not in fact contain constitutes false advertising under Article 28, exposing the parties to treble punitive damages under the Consumer Protection Law and administrative fines (see the Advertising Law of the People’s Republic of China (2021 Amendment), articles 23 and 28; the Consumer Rights Protection Law of the People’s Republic of China (2013 Amendment), Article 55; and the Food Safety Law of the People’s Republic of China, articles 67 and 148).

Labels are equally regulated: alcohol content and warning statements must be displayed, and defective labelling can trigger the strict ‘refund plus tenfold compensation’ regime under the Food Safety Law.

Performance also carries risks beyond the IP itself.

In 2022, adidas terminated its Yeezy partnership over its partner’s antisemitic remarks, leaving around $1.3 billion of stranded stock and the company’s first annual loss in three decades – a morality clause is not boilerplate but a contractual exit (see “adidas terminates partnership with Ye immediately”).

In 2019, the Palace Museum’s co-branded make-up sold out on day one and was withdrawn entirely within a month over quality complaints.

Under Article 43 of the Trademark Law, the licensor is obliged to supervise the quality of the licensee’s goods, and where a co-branded product is defective, the partners may face joint liability to consumers (see also the Civil Code of the People’s Republic of China, articles 1202 and 1203).

Marketing mechanics can also cross the line: a blind-box meal promotion by a fast-food chain and a pop-culture brand was publicly criticised by the China Consumers Association for inducing irrational purchases and food waste, contrary to public order and good morals under the Civil Code (see “China Consumers Association: Blind Boxes Induce Excessive Food Consumption and Should Be Resisted”).

Every partnership comes to an end; the question is whether it ends by mutual agreement or in court.

In the Dunhuang playing cards case, Zhejiang Orient, the owner of the ‘敦煌 Dunhuang’ trademark registration for playing cards in Class 28 of the Nice Classification, had licensed its manufacturer of nearly 30 years, Ningbo Yanning Printing, to use the mark with exclusive sales rights. The licence expired on December 31 2019. The licensee asked to renew; the brand owner declined in writing, took back the mark, and offered to help clear the stock by placing new orders on equal terms.

The stock was substantial: RMB 6.9 million in inventory, including about 4.05 million decks of finished cards. After the COVID pandemic halted production for over a month, the licensee asked to keep producing and selling until September 30 2020 to work through the stock. No agreement was reached. Production ran to the end of March, sales continued into April, and Zhejiang Orient sued for trademark infringement, claiming fivefold punitive damages.

The court laid down the following rule: when a licence ends, whether leftover stock may be sold depends first on the contract. If the contract is silent, the court sets a reasonable sell-off period; sales within it are allowed, sales beyond it are infringement. Because this contract required the licensee to stop production and sales immediately upon termination, the continued sales were infringing.

The court fixed damages at RMB 300,000 on a discretionary basis, expressly weighing the parties’ 30-year partnership and the licensee’s contribution to the brand. This ‘comprehensive consideration’ approach – contract first, judicially determined reasonable period as fallback – is also the position of the Beijing High People’s Court in its official guidance, and of the courts applying it: in the 岩田 Yantian case, sales after the reasonable period had elapsed were held to infringe both the registrant’s and the ordinary licensee’s rights (see Beijing Xicheng District People’s Court, Civil Judgment No. (2017) Jing 0102 Min Chu 25117, China Judgments Online).

Two qualifications complete the picture. During the sell-off period, the licensee may only clear the stock: prominently featuring the mark on storefronts, signage, or shop decoration beyond what is necessary to identify the goods is infringing use, and may evidence bad faith (see Shijiazhuang Intermediate People’s Court of Hebei Province, Civil Judgment No. (2019) Ji 05 Zhi Min Chu 34, China Judgments Online). Selling other brands’ goods alongside the leftover stock is likewise infringing (see Beijing Haidian District People’s Court, Civil Judgment No. (2016) Jing 0108 Min Chu 18738, China Judgments Online).

The rule also applies only to goods marks – service marks have no inventory to clear. And where stock was acquired without any licence at all, the seller may, in limited circumstances, invoke the legitimate-source defence against damages, though infringement stands.

Approaches to the post-termination sell-off period across the three jurisdictions are compared below.

	China	EU	US
Default rule	Contract first; if the contract is silent, courts set a reasonable sell-off period – sales within it are lawful, sales beyond it are infringing (Dunhuang playing cards case; Beijing High Court guidance)	No unified statutory rule from the EUIPO or the Court of Justice of the European Union; practice generally respects the contractual terms	No statutory default; contractual sell-off clauses are common and enforceable (Icon v North Star: sales within a six-month contractual period held non-infringing)
Factors considered	Inventory volume, past turnover, nature and seasonality of the goods, and bad-faith stockpiling before expiry	Determined by negotiation; treated as a standard component of licence templates	Determined by negotiation; courts enforce the agreed period as written
Practical implication	In the absence of a clause, parties face case-by-case judicial discretion; sell-off is confined to clearing stock – no prominent store signage, no selling other goods alongside	Include duration, start date, channels, pricing, and buy-back in the licence	Same – an express sell-off clause removes the uncertainty

The comparative takeaway is consistent with the Chinese rule: put the sell-off clause in the licence itself. In the absence of contractual terms, the parties must accept the uncertainty of case-by-case judicial discretion.

Three practical points follow:

• Write the ending at the beginning: fix the sell-off clause in the licence – how many days, counting from which date, through which channel, at what price, and whether the brand owner buys the stock back at a discount;

• If the contract is silent, expect a reasonable sell-off period; courts weigh inventory volume, past turnover, shelf life and seasonality, and whether anyone stockpiled in bad faith just before expiry; and

• During the sell-off period, storefront banners, co-branded campaign pages and social media content should come down together – continued prominence of the partner’s mark beyond what stock clearance requires invites a fresh infringement claim.

The Luckin–Duolingo collaboration may have been a commercial hit, but the legal safeguards behind it are far more demanding than the public sees. The safeguards now extend beyond three stages. Before execution:

• Full-layer title due diligence;

• Coverage and stability checks;

• Ownership of newly generated IP; and

• Vetting of the partner itself.

During performance:

• Written display terms;

• Use of the marks exactly as registered;

• Advertising and labelling compliance;

• Quality supervision under Article 43; and

• A live evidentiary record.

After termination:

• A written sell-off period – deadlines, stock handling, advertising takedown – observed within its limits.

Contract drafting, however, cannot anticipate every contingency. What carries a collaboration through the unforeseen is the parties’ commercial trust and good faith. The most durable collaborations are those whose exit arrangements were settled at the outset; the most reliable safeguard is one that reaches beyond the text of any clause.