by Alberto Crivelli, founding partner, and Martina Famlonga, attorneys at AMTF Avvocati

We hear more and more aboutco-branding and capsule collections between brands of varying importance,which are highly advantageous marketing strategies for the companies involved in the collaboration. In particular, the objectives pursued through these forms of collaboration include: increased sales, reduced production and product promotion costs and related marketing expenses, or, more generally, the relaunch of declining brands.

But what exactly is it?

Co-branding can be defined as a specific form of co-marketing, in which there is cooperation between two or more brands, both used to market the same product, created jointly in a single marketing context, such as product placement, advertising, and distribution.

Often, the main idea behind a co-branding strategy is to pair two or more brands in order to transfer the positive perceptions associated with the partner brands to those that may be new and about to be launched on the market. In other words, as soon as a co-branded product appears on the market, consumers will judge the new product based on the reputation of both brands involved and appearing on the product itself.

 What types of co-branding are there?

We are talking about:

  • product-based co-branding when, for example, two or more products are sold in a single package or are combined to create a totally new product;
  • communication-based co-branding when, on the other hand, two or more brands are combined in advertising or collaborate in promotional activities in order to increase sales;
  • Distribution-based co-branding, where partners leverage a single distribution network to optimize space and profits.

What are the business risks?

The risks, like the advantages, can be manifold. For example, in the long term, the business partner could turn out to be a competitor through opportunistic behavior that exploits the alliance for its own exclusive benefit. Or one of the partners could overshadow the image of the other, creating confusion in the minds of consumers, in this case referred to as the 'halo effect'.

And from a legal standpoint?

From a legal point of view, a co-branding agreement is an atypical contract involving reciprocal obligations and characterized by significant risk, as it necessarily involves the most sensitive aspects of the business, such as reputation, know-how, distinctive signs, and other intellectual and industrial property rights of both parties. Much of the sensitive property of companies operating in co-branding will, in fact, have to be made available to the other party in order to achieve the production and promotional goals pursued together.

It is therefore essential that co-branding agreements establish, from the outset, the mutual commitments of each party (e.g., design, production, marketing, etc.) and the measures aimed at safeguarding the intangible assets and commercial image of the parties involved.

Nevertheless, especially in the case of co-branding between highly rated entities on the market, it is always preferable to regulate the ownership of the generated trademark in a precise and timely manner (possibly also providing for 50% co-ownership) by including, where appropriate, put & call options or Russian roulette options in the contract governing the relationship between the parties to allow one party to purchase the percentage held by the other. In such circumstances, it is also important to provide for a right of first refusal in favor of the parties, in order to prevent the ownership of the trademark (or a percentage thereof) from being transferred to third parties who were not involved in the creation of the new product and/or brand.

Source: Youmark