Legal Issues to Consider Before Entering a Co-Branding Partnership

In a previous post about the legal side of branding, we pointed out the importance of clearly identifying the legal and financial conditions of a business partnership when you allow another individual or organization to use your trademark. This is critical when two brands collaborate to build a brand, whether it involves two corporate brands, or a celebrity brand and a corporate brand. Think Taco Bell and Doritos, Intel and IBM, or Nike and Michael Jordan.

This coming together of brands, called co-branding, has become a popular strategy for introducing and generating interest in a new company, product, service or event. A co-branding arrangement can be appealing because it allows brands to benefit from each other’s brand equity, loyalty and credibility. Co-branding can create a perception of exclusivity and allow brands to charge a premium while pooling resources to reduce costs. Co-branding can also provide exposure to new audiences and markets, which can lead to new revenue streams and more widespread brand awareness.

However, co-branding is not without pitfalls. Even if co-branding is successful, it can result in the dilution of both brands. Also, if something negative happens to one brand, there is a risk that it could impact the other brand. One brand’s negative publicity or scandal can affect both brands, resulting in a damaged reputation and sales declines.

Of course, not all partnerships go smoothly, and when problems or disputes arise, co-branding can turn into a legal headache. There can be disputes about who owns what intellectual property or underlying technology. Disputes about cost are common in co-branding relationships as brands will often argue about whose responsibility it is to pay for research and development, legal and licensing fees, supply chain management, or customer service. Both sides need to agree upon how one or both brands will be featured in marketing and packaging. For example, improper use of one brand’s trademark on a website can result in infringement claims. If the quality control standards aren’t aligned, one brand could claim that its reputation is being tarnished by the other brand.

The first step to avoiding co-branding legal issues is to be careful about who you choose as your co-branding partner. If you are concerned about how a certain brand could negatively impact public perception of your brand, look for a different partner, or re-evaluate whether co-branding is the right strategy. Even if you find the perfect co-branding partner, you need detailed guidelines to govern the business relationship. These guidelines should identify precisely what is being branded, intellectual property licenses and ownership provisions, who is responsible for what costs and tasks, how brands will be featured, quality control standards, and a formal process for handling disputes.

Lastly, your co-branding guidelines should include a termination clause that allows you to walk away with your brand intact if the relationship just isn’t working. Without the ability to terminate the partnership, another brand can continue to profit from your brand.

As the marketplace continues to become more saturated and competitive, there is an excellent chance that co-branding strategies will become more prevalent. Before entering such a partnership, do your research and consider having an attorney draft or review your agreement and co-branding guidelines.