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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.
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.
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.
A joint marketing agreement can be structured as a standalone agreement that includes all of the terms and conditions that will govern the parties’ relationship. However, if the scope of the arrangement includes joint bidding on RFPs from potential customers or otherwise preparing joint customer solutions, then it would be best to structure it as a framework or master agreement. The master agreement would include each party’s general obligations in support of the alliance as well as the terms and conditions that apply to all collaborations. The parties would then enter into a separate agreement under the master agreement, such as a statement of work or teaming agreement, for each customer specific alliance, which would set forth detailed terms and conditions with respect to the particular opportunity. For the purposes of this article, such agreements are referred to as teaming agreements.
Each teaming agreement would, among other things:
The term of a joint marketing agreement varies depending on the purpose of the arrangement and the ease with which the parties can exit the agreement. In some cases, the agreement may continue until it is terminated. In other cases, the term may be specified and the agreement will set forth a process for renewal.
If the agreement includes a defined term, it is important to consider whether the agreement should provide for automatic renewal unless either party provides notice of non-renewal within a specified notice period, or whether renewal should require the affirmative advance agreement of the parties. The renewal structure will depend on the commitments that are made within the agreement and whether one or both parties might be disadvantaged if they were to extend the agreement on the then-existing terms and conditions. For example, if the agreement includes preferred pricing terms or a lucrative referral fee, the party extending those terms may not be agreeable to an extension without an opportunity for adjustment of the terms and conditions. An automatic renewal provision does not foreclose this possibility; however, if such party does not track the expiration date and notice windows, it will be committed to an extension of such terms if the other party elects to renew the agreement.
If the structure of the agreement is not mutual, the party receiving the most benefit from the agreement will likely prefer a structure whereby such party has the unilateral right to renew the agreement at its option for a specified number of renewal periods. However, the other party will likely be opposed to renewal without its consent and will attempt to condition renewal on mutual agreement or limit the number of unilateral renewal options.
The parties to the agreement should consider whether any aspects of their relationship will be exclusive and whether there will be any carve-outs to exclusivity. In some cases, it may be appropriate for the parties to have a right of first refusal with respect to participation in any opportunities identified by either party for which the other party would be a suitable partner (e.g., due to such party’s product and service offerings and fit with the target customer’s needs). In such an arrangement, the party holding the right of first refusal should have a reasonable period of time to evaluate the opportunity and determine whether it wishes to participate. If that party declines the opportunity, or does not respond within the agreed time period, then the other party should be free to approach another potential partner with the opportunity.
In some cases, the scope of exclusivity might be narrower or there may be carve-outs to a broad exclusivity provision. For example, exclusivity might be limited to particular product and service lines or to a particular geographic area.
Even in relationships where the parties are not obligated to provide their counterparty a right of first refusal to participate in a joint bid, it would be practical for the parties to work together on an exclusive basis once they have decided to collaborate with respect to a particular opportunity. In such case, the parties should document their agreement with respect to the particular engagement in a teaming agreement in order to avoid situations where one or both parties has made investments in pursuit of the opportunity only to have the other party partner with another company. However, this obligation should be subject to certain exceptions—for example, if the applicable customer determines that the other party is not a good fit or if the parties are not able to come to an agreement with the customer on the price of the components of the solution that are to be provided by a party, then the other party should be permitted to seek support from another partner in order to meet the needs of the target customer.
The parties should consider whether there will be any restrictions on a party’s authorization to promote products on behalf of the other party. For example, the authorization may be limited to a subset of the other party’s products and services or may be restricted to certain geographical markets or customer industries. This is an important consideration if a party wishes to preserve relationships, or comply with exclusive arrangements, with other partners with respect to particular products, industries, or markets, or if a party has concerns about controlling its brand and marketing efforts in particular areas.
Regardless of the complexity of the agreement, all joint marketing agreements should include a management and governance structure to ensure regular communication and escalation of issues through the appropriate channels. The number of governance levels and frequency of contact will vary depending on the purpose of the relationship. If the sales that are triggered through the other party’s efforts are a material portion of revenue for one or both of the parties, then the agreement should establish a more rigorous governance structure, with more frequent meeting and reporting requirements. A more detailed structure may also be appropriate if one or both parties is promoting a new product or is entering new markets through the alliance since the other party will be an important channel for feedback and sales information. However, if the relationship is not key to either party’s success inthe marketplace, then a less structured governance framework is probably more appropriate. The following are governance components that the parties should consider when establishing the governance structure for their relationship:
Following are areas that the joint marketing agreement should address to the extent applicable to the relationship.
The agreement should address any cooperation activities that the parties plan to undertake. General cooperation activities include:
The agreement should address whether the parties are required to make any financial contributions to support alliance activities. Each party’s specific contribution for each year (or other time period) should be agreed in the applicable alliance plan.
The joint marketing agreement should provide for a joint planning process for the conduct of alliance activities. It would be best practice for the agreement to require the parties to develop and agree to a business plan for each year or shorter time period during the term. If the time period is annual, the parties may wish to align the planning process with their fiscal year if each party has the same fiscal year. The plan would identify, among other things:
The plan would then be reviewed and adjusted as necessary on a periodic basis throughout the year. The parties should also jointly develop and review a periodic (e.g., monthly or quarterly) report that tracks the parties’ progress against the objectives established in the plan.
In addition to the identification of targets through the mutual planning process described above, the agreement should address the process for submitting opportunities that are identified by a party independently. Each party should designate a contact for receipt of such sales leads from the other party. Following receipt of notice of a potential target, the receiving party should have a specified number of days to consider the opportunity and determine whether it desires to pursue the opportunity. If the parties decide to pursue the target, they would then determine each party’s roles and responsibilities with respect to the proposal and ideally enter into a customer-specific teaming agreement as described above.
If the scope of the agreement permits each party to independently promote the other party’s products to its customers and potential customers, and there is a risk that the parties might be competing for the same customer, it would be wise to include a process for registration of sales leads. If a party identifies a particular target, that party would notify the other party through the agreed mechanism, and the other party would then be restricted from approaching that target for a specified period of time. The other party should be permitted to reject the registration, within a specified time period, if the target is an existing customer of such party or if such party is already in active discussions with the target. If the registration is not rejected within the specified time period, the parties may wish to deem the registration accepted. Following registration of a sales lead, the registering party should be obligated to use reasonable efforts to close a sale with the target within a specified time period; if there is no sale within such time period, and the non-registering party does not agree to extend the time period, then the registration would be cancelled and the non registering party would no longer be prohibited from engaging in a transaction with the target. However, if a party is continuing to use reasonable efforts to complete a sale at the time of expiration of the permitted time period, the parties may want to agree that such party will have an additional period of time to complete the sale.
The agreement should specify whether a party will be permitted to sell the other party’s products and services directly to its customers (and identify which party’s terms and conditions will apply to the sale), or whether the selling party will act as an intermediary, with the party whose products and services are being purchased entering into the agreement with the customer.
If the scope of the agreement permits each party to independently promote the other party’s products to its customers and potential customers, the parties should consider including sales targets or firm quotas. This is particularly advisable where the parties have an exclusive relationship in order to ensure that a party’s sales partner is using its best efforts to promote the sale of the other party’s products and services. If sales targets and quotas are included in the agreement, then the parties should include specific remedies in the event that a party’s sales partner is not performing in accordance with such targets or quotas for a specified duration of time, such as termination of exclusivity or termination of the agreement. The parties should also consider whether any product and service mix restrictions or requirements should be included in order to protect a party’s profit margins.
The parties should consider whether the agreement should include an obligation to maintain sufficient availability of the products and services that will be promoted by the other party. Subject to confidentiality restraints, it would be good practice to include an obligation for the parties to provide reasonable notice of discontinuations of, and changes to, products and services, as well as notice of new products and services.
The agreement should address each party’s responsibility for the development of, and rights in, promotional materials used in furtherance of the alliance. In many cases, each party will provide to the other party the standard marketing materials that it has produced for its products and services, and the parties will also collaborate on the development of materials to be used in support of the alliance.
Pre-existing materials. With respect to a party’s preexisting materials, the joint marketing agreement should provide that the originating party will retain all rights in and to such materials and grant the other party the right to use such materials for the term of the agreement, provided that such use should only be in the manner approved by the originating party and only for the purposes outlined in the agreement. The agreement should also address whether a party has the right to modify or create derivative works of the preexisting materials of the other party and, if permitted, which party will own such derivative works.
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.
RESEARCH PATH: Commercial Transactions > Joint Ventures > Joint Venture Agreement > Practice Notes > Contractual Joint Ventures
For additional information on joint venture contractual agreements, see
> DRAFTING A CONTRACTUAL JOINT VENTURE AGREEMENT
For a detailed explanation on the licensing and ownership of intellectual property rights in contractual agreements, see
> ESTABLISHING INTELLECTUAL PROPERTY RIGHTS
RESEARCH PATH: Commercial Transactions > General Commercial and Contract Boilerplate > Contract Boilerplate and Clauses > Practice Notes > General Contract Drafting and Boilerplate
For assistance in recognizing and addressing the issues that are relevant to drafting and negotiating indemnification, see
> ESTABLISHING INDEMNITY
For an overview on the types of damages that are related to a breach of a commercial contract and when and how those damages may be limited or waived, see
> DEFINING AND LIMITING REMEDIES
For a comprehensive review of arbitration and guidance in drafting contractual arbitration clauses, see
> DRAFTING AN ARBITRATION CLAUSE
For information on the possible grounds for the termination of a joint marketing agreement and the rights and obligations of the parties post-termination, see
> ESTABLISHING TERMINATION AND CANCELLATION RIGHTS