Co-branding and issues of product liability

Co-branding is a term devised to describe what happens when two separate companies work together to improve either their respective sales or their respective brand images. This may take the from of them joining forces to produce a joint product, joining forces to market their separate products in one campaign or bundling two products together into a single service or integrated sales deal. Inevitably, these partnerships have innumerable side effects, including issues of licensing, exclusivity and product liability.

Examples of co-branding from recent years include working associations between McDonalds and Coca Cola, KFC and Cadburys, Starbucks and The Times, Disney and Mattel, and Lexus and leather manufacturer Coach.

While these partnerships have many advantages, such as extending the reach of particular companies into new, previously untappable, markets, and the receiving of valuable shared kudos through the forming of high profile associations, there are also potential drawbacks.

Undoubtedly the most serious of these relates to the area of liability. For example, a well-respected company with a trusted reputation for quality and service may suffer if they team up with a less reputed company who take on aspects of their trademark. When the larger brand do this, they must do so carefully as by agreeing to co-brand they are also extending obligations to provide their usual level of quality to the co-branded product.

One very public example of the potential pitfalls of such an agreement came in 2004 when design retailer Guess agreed to allow an umbrella manufacturer to use their logo. Unfortunately for Guess, when a man became injured by one of these umbrellas, he made a compensation claim against Guess, arguing that by agreeing to become the apparent manufacturer of the umbrella, they owed him a duty of care and had an obligation to ensure the product was not defective.

The Indian Supreme Court agreed that under tort law, Guess should be considered liable for man's injuries and ordered them to pay a sum of product liability compensation.

Cases like these have led to most new co-branding contractual agreements providing very strict stipulations relating to warranty, defect and liability issues.

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