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Tuesday, December 20, 2016

CROSS BRANDING – PRACTICAL BUSINESS AND LEGAL CONSIDERATIONS

By: Aaron Riedel

 

This blog post is a practical exploration of cross branding relationships and the basic legal underpinnings of putting together a cross branding agreement. Not every issue or legal topic is covered. This blog post is not meant to be legal advice, but may be considered attorney advertising.

What is Cross Branding?

Cross branding is when two or more companies work together to promote each other’s products or services to maximize publicity and/or revenue for both companies. Cross branding deals come in many forms - on products themselves, in TV advertising campaigns and sponsorships, and in physical retail displays.

For example, Red Bull sponsors extreme sporting events alongside GoPro. RedBull, which puts its logo on the sporting gear itself and the events’ signage, gets the benefit of media exposure and video content made from GoPro’s cameras. GoPro also gets exposure to Red Bull’s consumers while demonstrating its cameras’ capabilities. Simultaneously, both RedBull and GoPro co-create a lifestyle.

But cross branding isn’t just for large, household brands. Small businesses and entrepreneurs can begin to cross brand very early on in their lives.

Consider the following hypothetical involving two local businesses. Company A makes and sells high-end, handcrafted ceramic cups and dishware in Manhattan. It sells directly to Manhattan restaurants and to individuals primarily in the New York area online. However, Company A has no physical retail outlets. Company B roasts fair trade coffee beans in Brooklyn. Company B has several coffee shops in trendy Brooklyn neighborhoods and a strong cult following. A natural cross branding opportunity could permit Company B to serve its coffee at its coffee shops in Company A’s ceramic cups and simultaneously sell Company A’s ceramics separately within each coffee shop. In turn, Company B could promote and sell bags of Company A’s coffee beans through its online store and to its restaurant partners, either individually or as a pairing with its ceramics.

Practical Business and Legal Considerations.

After identifying a cross branding opportunity, cross branding partners should consider future outcomes and risks to mitigate disputes and maintain market position. Here are several practical, high-level considerations.

A. Intellectual Property.

The alliance between two brands is ultimately held together by the strength of the consumers’ recognition of the brands – the consumers are buying into the collaborative effort and lifestyle overlap. Thus, it’s very important to ensure that both brands’ intellectual property is displayed correctly and used only as intended.

These intellectual property rights can include the partners’ trademarks (logos, designs, and names), printed marketing text, and product packaging. A good place to begin is by asking: Are there any visual, auditory, or written sales or marketing materials? If so, what is the message? Who is creating these materials? Is one partner’s brand, product, or services to be emphasized more, or first?

This can depend heavily on the relationship of the partners. Ideally, both partners should have a chance to contribute to, review, and approve the visual, auditory, and written material prior to public display and distribution. What are the size, color, and display parameters of each partner’s trademarks? Are there any restrictions on use of each partner’s own intellectual property? What are the restrictions on use of any jointly-created intellectual property?

B. Market Scope.

Cross branding partners should also consider the geographic and market scope of the deal. Each partner may only currently operate in certain geographic markets. Do you mind being locked into one partnership over all markets, or is it better to partner in only a specific market? What happens when the partnership gives each partner the opportunity to expand into separate markets. Does the partnership automatically expand with this growth?

A cross branding agreement can include a clause that allows for a first right of refusal to continue the arrangement if one partner expands into a new geographic region or distribution channel (i.e. social media, physical retail spaces). This first right of refusal can mandate that the partners  continue the relationship (i) on the same terms, or (ii) on new terms to be mutually agreed upon later.

C. Agreement Duration.

Cross branding partners should likewise determine the most advantageous length of the arrangement. Is it better to have a short-term, seasonal, or long-term partnership? Is the partnership exclusive? In other words, in our example, are Company A’s products the only ceramic products that Company B can use to serve its coffee and sell in its coffee shops? If so, is that limited to a fixed time period? Or are Company A’s ceramics the only coffee cups, regardless of what material they are?

Depending upon your strategy, you may want to be exclusive for a period of time, but subject to meeting a certain sales threshold. Some agreements may allow multiple partnerships to be part of an umbrella of brands within the cross branding effort.

D. Supply and Demand.

Once the partnership kicks off, it’s essential both partners keep up with market demand. If you can’t keep up with demand, you risk losing the deal and weakening your brand image. If your partner can’t keep up with market demand, that may reflect poorly on your company.

To avoid this pitfall, both partners should realistically analyze their production and service capabilities. Cross brand agreements can include various standards to hedge against this risk. For example, an agreement can mandate that each partner fulfills all “needs” of the market, regardless of volume. Alternatively, each partner could stipulate a specific quantity of products or services to be provided per week, month, quarter, or year. This latter option may be useful if there is a limited edition of certain products being promoted.

E. Liability and Disputes.

Cross branding partners should also consider their individual and collective liability in the event any lawsuit is brought against one or both of them.

Typically, each partner would bear full liability for any lawsuits stemming directly and solely from their own products (i.e. if a particular batch of Company B’s coffee makes some consumers sick, Company B would handle that liability directly and indemnify Company A).

The more difficult part is how both parties jointly bear liability for their collective actions. For example, what happens if Company A and Company B are sued for copyright infringement for the advertisement that they jointly created? Will both parties fund the litigation equally? Do both parties have to agree to settle a matter or continue fighting in court? How will both parties respond publicly to any liability or lawsuit?

One partner could offer to foot most or all of the litigation expense in exchange for more control in deciding the course of the dispute. Also, both parties can choose to work together in public-facing statements about a litigation to ensure that both partners’ reputations remain intact.

Addressing these, and related, issues up front before embarking on the venture could significantly decrease both cross branding partners’ risks and liability, while paving the way for a successful partnership. As always, it is important to review the general and specific terms of any cross branding agreement with a qualified attorney.


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