Contractual Joint Ventures – Drafting and Negotiating Joint Marketing Agreements

By: Candice Choh and Kari Krusmark, GIBSON, DUNN & CRUTCHER LLP

A joint marketing agreement is a contract pursuant to which one or both of the parties will collaborate in order to promote the sale of product and service offerings of the other party. Such a contractual joint venture agreement may also be known as an alliance agreement, strategic alliance agreement, or co-marketing agreement, depending upon the client’s preference and the specific nature of the relationship.

THIS ARTICLE ADDRESSES THE KEY ISSUES THAT THE PARTIES should consider before and during the negotiation and drafting of a joint marketing agreement. The scope of this article includes those relationships where one party will independently promote the other party’s products to its customers and potential customers, as well as collaborative efforts by the parties, such as joint solicitations and bidding on requests for proposals (RFPs) from potential customers. This article does not address the terms and conditions of sale of products and services to customers.

Purpose

A joint marketing agreement can arise from a variety of circumstances. Companies typically enter into such an arrangement in order to take advantage of synergies between their respective products and services. In most cases, each party wants to sell the other party’s complementary products and services alongside its own products and services, or combine its products and services with the products and services of the other party in a bid to a customer in order to provide a comprehensive solution and make its proposal more competitive. Many such arrangements arise in the context of a divestiture of a company or business unit where the parties to the transaction desire to continue an intercompany arrangement that existed prior to the divestiture. A joint marketing agreement or similar agreement is necessary in order to set forth the rules of the road for the parties’ relationship.

Complexity of Terms and Conditions

Joint marketing agreements vary in their degree of complexity and specificity of terms. The purpose and nature of the alliance will determine the rigor of the terms and conditions that are included in the particular agreement. In some cases, the agreement might simply serve as a way for the companies to work together if and when they engage in joint marketing activities, with no firm commitments or obligations. In other cases, the success of the alliance might be vital to the ongoing success of one or both parties. For example, in the context of a divestiture, an acquirer’s commitment to continue to work with the divesting party and promote the divesting party’s remaining products and services may be part of the consideration for the transaction. In such circumstances, more extensive terms and detailed obligations, such as commitments to actively promote the products and services of the divesting party, quotas and remedies for failure to meet them, and governance and dispute resolution procedures, will be necessary in order to ensure compliance with the terms of the agreement and achievement of the objectives of the arrangement. Another factor that will determine the complexity and stringency of the terms and conditions is whether the parties will have mutual obligations to promote the products and services of the other party or whether the obligations will be unilateral. If the terms and conditions are mutually enforceable, then the drafter should carefully consider the strictness of terms and severity of remedies since the other party will likely expect the drafting party to be held to the same standards.

To read the full practice note in Lexis Practice Advisor, follow this link.

Candice Choh is a partner in the Corporate Transactions practice group at Gibson, Dunn & Crutcher, Los Angeles. Kari Krusmark is an associate in the Corporate Transactions, Fashion, Retail and Consumer Products, and Strategic Sourcing and Commercial Transactions practice groups at Gibson, Dunn & Crutcher, Los Angeles.

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