As with all partnerships, co-branding has its positive and negative aspects. But with valuable brand goodwill at stake, preparation is key to avoiding the pitfalls.

As the global marketplace becomes a larger and more expensive stage for selling goods and services, many trademark owners have adopted co-branding as a cost-effective means of reaching as many consumers as possible. However, as with all partnerships, co-branding has its positive and negative aspects, and valuable brand goodwill is always at stake. Does co-branding improve cooperation and create a stronger brand for both companies? Or does it encourage competition, thus diluting the strength of each mark and creating confusion? The answer to both of these questions may be yes and will depend on multiple factors, including campaign success, industry conditions, contract terms and the legal strategies adopted by involved parties. Although other forms of intellectual property (eg, copyrights, patents and rights of publicity) may also be the subject of co-branding campaigns, this article focuses solely on trademarks.

At its essence, ‘co-branding’ is a legal and marketing vehicle that uses the cross-licensing of trademarks from different companies to brand a new product, attract consumer interest and increase sales. Famous examples include Apple teaming up with Mastercard to create Apple Pay (using both logos to promote the new product), Versace working with H&M to create a “Versace for H&M” collection, BMW partnering with Louis Vuitton to create a luggage line tailored for a hybrid BMW car, and Taco Bell recently branding with Frito-Lay to promote a new “Doritos Locos” branded product sold at Taco Bell restaurants. The first three examples show two unrelated companies deciding to co-brand, whereas the last example shows historically related companies collaborating (both Taco Bell and Frito-Lay/Doritos were once owned by Pepsi). These and other examples of successful co-brands often involve combined brand logos or advertisements featuring multiple indications of source (see Figure 1).

Figure 1: Notable examples of co-branding

 

Co-branding can often provide a platform for trademark owners to expand their consumer base. The cooperating brand’s mark is likely to attract attention that may not typically follow the promotion associated with its own mark and, if the cooperating brand uses a famous or well-known mark, it may function as a platform to increase awareness and recognition for a lesser-known mark.

Co-branding may also involve the combination of personality brands with consumer or retail brands. For example, Jaclyn Smith, star of the original Charlie’s Angels TV programme, currently cooperates with the Kmart retail store to promote a Jaclyn Smith women’s clothing line. In addition, co-branded social media personality marketing has become popular on platforms such as Instagram and Twitter, with well-known brands such as American Express, Nike, Procter & Gamble and Coca-Cola partnering with key influencers to create sponsored content to accompany large-scale events such as the Olympics, the FIFA World Cup and music festivals.

For marketers, co-branding can be a form of line extension to create new products with a new feature – a trademark from a different company (usually, but not always, a famous trademark) – that reaches a new audience for a specific product (eg, introducing H&M fast-fashion consumers to Versace luxury product lines). One of the basic principles of co-branding is that the brands must work together in different commercial spheres; thus, it would be highly unlikely to see co-branding from direct competitors (eg, Coca-Cola and Pepsi, Boots and Superdrug, FedEx and UPS, Etihad and Emirates, or Mercedes and BMW).

Pros and cons

Pros

Co-branding campaigns often generate publicity in the form of news or industry articles, exposure on social media and word-of-mouth referrals due to their use of two recognised marks for a unique product or service. Examples of successful co-branding ventures include Walkers’ Heinz ketchup and the Marmite-flavour potato crisps in the United Kingdom and Breyers’ Oreo cookies and cream-flavour ice cream in the United States – a partnership that has been in place for many years. In addition to its crisp flavours, Walkers also recently partnered with Leicester City Football Club to expand its routine sponsorship of the club with a co-branded Winners – Salt and Victory crisp product acknowledging Leicester’s historic title-winning season in 2015/2016.

Co-branding activities are encountered in multiple product spaces, including fashion, retail, food and beverage, cosmetics and toiletries, electronics and household cleaning, and may be beneficial to service providers in fields such as sports, media, entertainment, finance and transportation. A co-branding campaign does not need to be boxed within the brand owner’s typical product or service lines. In fact, successful campaigns have demonstrated value and increased consumer recognition by associating limited-edition products or services with famous or well-known marks. As examples, a range of ales by Brewery Ommegang is currently being promoted using the Game of Thrones brand as Ommegang Game of Thrones beer, and a winter-themed Johnnie Walker Game of Thrones/White Walker variety of Scotch whisky was also recently introduced. Each product uses the Game of Thrones brand to emphasise particular ingredients or features, and the partnerships have attracted significant publicity due to coordinated product launches that coincided with the final season of the popular TV series.

Uses of co-branding for services is also popular. The Apple Pay brand incorporates the Apple and Mastercard logos to promote a service that combines the proprietary mobile platforms of Apple with the proprietary payment processing services of Mastercard. Meanwhile, airlines and financial institutions have traditionally combined logos to promote credit card programmes that offer air miles as rewards, with recent co-branding arrangements combining Citibank with American Airlines in the United States and American Express with British Airways in the United Kingdom.

Cons

If not approached with care and consideration of key trademark licensing terms, a co-branding campaign can harm one or more of the parties involved. Potential adverse results include:

  • marketplace confusion;
  • increased competition between the parties following the dissolution of a partnership;
  • loss of goodwill due to a partner’s shortcomings or tarnished reputation;
  • vulnerability to product liability lawsuits resulting from deficient products of a partner; and
  • dilution or loss of trademark rights due to overexposure or improper trademark use stemming from the co-branding campaign.

As such, a proactive and measured approach is always recommended when launching a co-branding campaign. Indeed, careful evaluation of all stages of the campaign (ie, during pre-launch, the co-branding period and termination) is just as critical as it is with routine trademark licensing agreements. In short, the approach should account for the daily activities of both parties throughout the partnership, and key terms of the underlying agreement should account for best and worst-case scenarios.

For example, imagine that Company A, a well-known designer, partners with a high-end retailer to enhance its brand awareness and reputation. The initial agreement may benefit the high-end retailer by rewarding it with exclusivity, extensive royalty payments and unilateral renewal rights, in exchange for the increased brand exposure enjoyed by Company A. However, should the prominence of Company A’s brand reach new heights as a result of the agreement, its owners may be locked into unfavourable terms and unable to partner with a more appropriate retailer to satisfy new market conditions or expanding demand.

Company A’s ability to reap its own rewards from the co-branding partnership may hinge on the interpretation of fundamental terms of the underlying licence agreement, with issues such as brand rights, exclusivity, territory, channels of trade and ownership of co-branded designs becoming the subject of a dispute and awkward divorce between the parties. Indeed, a co-branding partnership can build the reputation and value of one or both brands depending on the circumstances; therefore, its termination could trigger a bitter dispute between the parties by creating competition instead of cooperation.

Other downsides that should be considered include:

  • brand control that must be surrendered in order to participate in the partnership;
  • any moral issues that may arise due to an unfavourable reputation or tarnishing as a result of being tied to the partner brand;
  • restrictions on means and manners of advertising;
  • changes in distribution channels and markets that may result from the partnership; and
  • the risk of overexposure that may result from coexisting brand collaborations.

Essential features

Legally, co-branding is a trademark licensing agreement, rather than a joint venture or partnership. A co-branding structure differs from straightforward sponsorships or the unilateral use agreements used in supply chain management because it relies on a trademark cross-licence with each party licensing its mark(s) to the other(s).

Any co-branding campaign – whether designed to be limited or permanent in nature – has the potential to benefit the marks of both parties. If drafted with care, the cross-licence must be able to rely on the existing IP rights of each party in order to launch a co-branded product in new markets with manageable risk or to enforce against potential infringers. To achieve maximum effectiveness, the licence must address:

  • the correct licensor and licensee;
  • the intellectual property to be licensed;
  • ownership of co-branded properties;
  • revenue sharing (eg, royalties);
  • exclusivity;
  • territory;
  • quality control;
  • indemnifications and insurance;
  • distribution, marketing and consumer relations;
  • trademark use requirements and ownership acknowledgments;
  • morals and reputation; and
  • renewal, renegotiation, phase-out and termination.

Correct licensor and licensee

Cross-licences position each trademark owner as a licensor which agrees to grant permission to a partner (the licensee) to use its mark under agreed-on conditions. The licensor must be the registered owner or another party similarly authorised to use the mark under an existing agreement (eg, a sub-licence). The licensee should ideally be the partner using the mark in commerce, rather than an intermediary or other third party involved in the production, distribution or promotion of the co-branded product.

Intellectual property to be licensed

The licence should clearly delineate the trademarks (preferably registered for the goods and/or services being licensed), appropriate use restrictions and acknowledgement that use of the licensor’s mark by the licensee will inure to the benefit of the licensor. By restricting the licence to a particular logo, specific channels of trade (eg, wholesale, retail or off-price) and strict use requirements, the licensor will retain control over the use of its mark to ensure that its brand is not tarnished and that its mark’s validity, ownership and reputation is not jeopardised.

Ownership of co-branded properties and revenue sharing (royalties)

Collaboration can breed competition. As such, the ideal licence will delineate the ownership of co-branded properties that may result from the joint efforts of the parties. In addition, the licence should identify royalty shares that will stem from the co-branding venture and include appropriate renegotiation terms to account for changes in circumstances due to potential successes or shortcomings.

Exclusivity

The parties must decide in the grant clause whether the rights are exclusive or non-exclusive. While exclusive licences typically allow for higher royalty payments, any increase in a party’s bottom line may ultimately level out due to changes in consumer behaviour or market positions. If not coupled with flexible negotiation or renewal provisions, an exclusivity clause could essentially lock a mark out of a specific market and cause the brand owner to miss out on more lucrative partnership opportunities.

Territory

The territory of the licence should reflect the trademark rights of the parties; therefore, it is not uncommon for parties to partner with different brands in different markets (eg, Febreeze fabric freshener co-brands with Ariel laundry detergent in the United Kingdom while maintaining separate co-branding with Tide laundry detergent in the United States). Co-branding on a global scale may encounter unanticipated language or translation issues, different perceptions of meaning and lack of recognition or sufficient trademark rights to support the use of one brand over another. Moreover, Trademark A may be registered in all countries of the territory whereas Trademark B may be registered in only five countries – a discrepancy that may require further protections. Registration in multiple jurisdictions can help in fighting infringement and working with customs officials to prevent fake goods from being imported or exported.

Quality control

It is critical that the licence includes provisions that will allow the licensor to retain quality control over the licensed goods or services during the licence period. Without such control, a so-called ‘naked’ licence may be created, resulting in the loss of trademark rights and, in the worst-case scenario, trademark abandonment.

Indemnifications and insurance

The co-branding agreement must also involve reciprocal indemnifications and liability insurance since each party will in effect be using the other party’s mark in the structure. For example, if a new product has two components from two companies and one of these is defective, the other party may also be sued under certain case and statutory law, since both parties are jointly making the product.

Distribution, marketing and consumer relations

It is natural for a co-branding campaign to create at least some initial confusion and means for competition. As such, the agreement should separate the campaign from the routine branding activities of each party. This may be accomplished by designating a subsidiary or related company solely responsible for the activities associated with the co-branding or ensuring that a separate division of an existing company deals solely with the co-branding venture. For example, if one party always uses red trade dress while the other uses blue, and the co-branded product is blue, confusion may arise as to whether the product has been jointly developed. Thus, all advertising and consumer relations should be tailored to the co-branding campaign to ensure that obligations are met and that consumers are not confused or misled regarding the source of the goods or services. Each brand owner should retain its own right to address any confusion, deficiencies or reputational damage that may result from the partnership.

Trademark use requirements and ownership acknowledgments

The underlying licence should be drafted to prohibit trademark use that may be derogatory or otherwise damaging to a party’s reputation. Parties should retain the right to review and approve advertising and promotion for the co-branding venture and product packaging. What is more, public-facing adverts should, where feasible, provide notice of ownership rights in each of the marks and disclose that each mark is being used under licence.

Morals and reputation

Because co-branding creates associations of sources in the minds of consumers, licences should address the potential for tarnishment, loss of goodwill or reduction in brand value that may stem from reputational damage experienced by either party. For example, Company A, an electronics brand, may benefit from partnering with Company B, a shipping company, to facilitate convenient delivery, setup and return of home theatre systems. However, should the shipping company find itself facing accusations and bad press concerning the violation of environmental regulations, Company A may incur reputational damage due to its associations with Company B as a result of the co-branding campaign. Consumers may view Company A as a similar bad actor or as a party that has benefited from Company B’s misgivings. The morals and reputation clause may be drafted to address such potential harm by requiring corrective advertising, damages and/or termination. Morals clauses are particularly useful when one co-branding party is a celebrity.

Renewal, renegotiation, phase-out and termination

While automatic renewal provisions may be appropriate for production and manufacturing licences to ensure that supply-chain concerns are satisfied, these same provisions could be detrimental to brand owners partaking in a co-branding venture because such campaigns are often public-facing and prone to spikes in demand and popularity over time. In fact, many co-branding arrangements have a short lifespan.

Parties should always be prepared for the possibility that their co-branding ventures may not be as successful as planned and may require early termination due to reductions in consumer demand, corporate restructuring, drastic changes to supply chain costs or unexpected changes in the equities of the deal. Options for early termination by both parties may be appropriate and licences may include penalty provisions in certain circumstances. Best practice may involve both sides negotiating a defined term for the licence with an option to renegotiate based on the successes or shortcomings of the co-branding campaign.

Challenges for the future

Co-branding partnerships may be prone to disputes due to the unpredictability of the reception and demand of such a collaboration. Because each party is contributing its trademark and reputation to the campaign, disputes may arise out of common concerns (eg, the quality of the goods and services distributed under the campaign, distribution channels, manners of advertising, termination and renewal provisions, royalty goals, exclusivity and market share). While many of these issues can be addressed in the initial licence, most will require consistent monitoring and renegotiation on a periodic basis and will often demand substantial review in response to changes in consumer demand and market conditions.

Parties should keep in mind that a successful co-branding venture may create a permanent link in the minds of consumers and result in confusion once the parties part ways. This has been the case for previous high-profile corporate co-branding campaigns, with these being recalled as related brands for generations in regions where they were dominant and well publicised.

Technology such as the Internet, AI, social media and virtual brand presence, along with an increase in famous trademark recognition from Kinshasa to Kyoto and increases in advertising options, will all continue to facilitate increases in co-branding campaigns on a global scale. However, while technology may be global, trademark protection remains national or regional. Thus, as the 21st century moves forward, the law must catch up with current business practices – co-branding being one of them – in order to protect valuable trademark rights in a universal market.

Clark W Lackert, Jonathan Goodwill

Carlton Fields (New York)

This article first appeared in World Trademark Review. For further information please visit https://www.worldtrademarkreview.com/corporate/subscribe