COMMENTARY Co-branding: A sweet business strategy?

By Kelly McCarthy, Esq., and Samantha Von Hoene Sideman & Bancroft

In today’s brand-centric world, co-brands are over 23 new versions produced since the everywhere. From fast-food joints to credit original design was first sold in 1984.1 Benefits of co-branding card companies to fashion, co-branding has In a typical co-branding deal, two or more  Introduce loyal customers of one been making its mark on business strategy companies come together and strategically brand to the other. since at least the 1950s. When brands merge, merge some of their own products, services,  Build wider customer base for the results can propel a brand’s popularity designs, colors or logos to come up with new products and advertising. and success to soaring new heights. But a new marketable product or service. A Use another brand’s strong be careful — those same collaborations can successful pairing results in automatic  reputation when trying something sometimes leave a brand fighting to save a credibility in the eyes of the consumer, new or different. once-polished reputation from tarnish and increasing popularity and sales for both of disrepair. the partnered brands.  Save money.  Create illusions of exclusivity through limited-edition or A successful pairing results in automatic credibility limited-duration products. in the eyes of the consumer, increasing popularity  Elevate brand’s reputation, and sales for both of the partnered brands. popularity and financial success.

Risks of co-branding Over the past 60 years, co-branding has been A co-branded product usually crosses into used to form a multitude of new partnerships. a new marketplace for at least one of the  Dilutive effect because two companies share success of the Popular examples of co-branding exist across brands involved, allowing both brands to co-branded item. a variety of marketplaces. Eddie Bauer, reach a new audience. Martha Stewart’s famed for quality clothing and adventure co-brand with Home Depot is a prime  Relying on another brand’s equity gear, paired with Ford Motor Co. to make a example of an expansion of a brand into and reputation. series of successful sport utility vehicles. The a new customer arena. Martha Stewart  Need to closely monitor the Girl Scouts of America partnered with Dairy Living is a predominately female-oriented co-brand. Queen to sell a limited-edition Blizzard, home goods brand, while Home Depot is a mixing the famous door-to-door cookies in classic home improvement store targeted an ice cream shake. at the “Mr. Fix It” male consumer. With the AND KITKAT merger of these two brands, each company Celebrity partnerships commonly make their The most recent example of an unexpec- has the opportunity to speak to a new market mark on the co-branding world. Prominent ted co-brand is the new KitKat Android segment. examples include basketball legend Michael operating system put out by Google. Not Jordan teaming up with Nike to produce a Co-brands range from the intuitive and surprisingly, this co-brand is the first time shoe. Through this co-brand, the Air Jordan expected, like the popular TGI Fridays and Google has paired with Nestle, a well-known became one of the most successful and Jack Daniel’s menu offerings, to the unique culinary and baking brand, that produces widely recognized shoes on the market, with and surprising. the candy bar. Many didn’t see the partnership coming, and this rare co-brand left some consumers wondering why either company would find it desirable to work together. Google’s Android OS already has over 1 billion activations, making it the leading Kelly McCarthy, an intellectual property attorney at Sideman & Bancroft in the world. in San Francisco, focuses her practice on copyright and trademark issues. She can be reached at [email protected]. Samantha Von Hoene Both Nestle and Google are listed near (not pictured) is an intellectual property intern at Sideman & Bancroft. the top of Forbes’ “World’s Most Valuable She attends University of California, Hastings College of Law and will receive her J.D. in 2015. Brands” list, and both have a net worth of well over $200 billion.2 It’s fair to say that neither brand needs the financial boost or

© 2014 Thomson Reuters FEBRUARY 13, 2014 ■ VOLUME 31 ■ ISSUE 18 | 3 the increased popularity that this deal could FUTURE For example, a recent co-branding effort by potentially bring. superstar rapper Jay Z was temporarily on Only time will tell if this deal ultimately leads the rocks when, just before launching his So why bother? Some analysts suggest that, to increased profit for either company, but brand “Shawn ‘Jay Z’ Carter” in collaboration through this co-brand, Google may have what does this mean for other brands? been trying to link its products to a message with the retailer Barneys New York, an Most companies are not world brand of availability for all. Others says this brand alleged incident of racial profiling occurred giants like Google and Nestle, so they merger stands as a possible indication of at Barneys that forced Jay Z to publicly need a co-brand to be successful for lower prices on phones and tablets, selling comment on the scandal and consider many reasons, not just for smiles and fun. 6 the message to consumers using the tasty removing his line from the store completely. Luckily, co-branding does not discriminate; chocolate name. Yet others say this was just Although Jay Z had nothing to do with the successful co-branding has occurred with a fun and yummy way to advertise and build incident and Barney’s vigorously denied any both large and small companies, popular hype for the new system release.3 wrongdoing, Jay Z’s name and reputation, and unknown products, and regional and along with that of his brand, was quickly However, the system name Kit Kat is not as national entities. The idea is simply to affected by the link to the idea that Barneys random as some may think. The Android OS, respond to a changing marketplace in a would engage in racial profiling. in fact, has a rather sweet naming history. way that will increase product revenue and When co-branding goes wrong, not only is Every version of the operating system after generate consumer interest. Android 1.0 has been named with a popular a brand’s reputation put into jeopardy, but Co-branding has many benefits. It can confection or bakery item. In addition to unforeseen problems can occur, like the introduce loyal customers of one brand to the naming trend, Google has purposefully creation of new competitors. For example, a new brand, building a wider customer named each OS version to begin with the when firearms maker Wild West Guns worked base for new products and advertising. It next consecutive letter in the alphabet. For to facilitate a co-branding relationship with also allows for brands to rely on the strong example, in 2009, Android 1.5 became known another gun company, Marlin Firearms, to reputation of other brands when trying as “Cupcake,” which was quickly followed by add innovative levers to various designs, the something new or different. This is often Android 1.6 named “Donut” later that same plan backfired. What started as a strong referred to as benefiting from a brand’s year, and the trend continued. co-brand opportunity left Wild West Guns “halo of affection” and is seen in many of the fighting in court to keep Marlin Firearms from By the time July 2013 rolled around, Android popular co-brands displayed in stores today. claiming and using the new gun lever design 4.3 came out with the name “Jelly Bean.” By late October, Google was ready for Android 4.4 and was on the hunt for a sweet name Ultimately, this pairing seems like the perfect deal: that began with the letter K. Android low financial risk and a public relations and consumer followers immediately suspected Key Lime awareness success. Pie as the new OS name of choice, but they were as shocked as everyone else when 7 Sometimes, co-branding can even offer as its own. Although a co-branding effort Google announced the Nestle co-brand and the benefit of cost-savings, which can be may start on the right foot, it is important the OS name of KitKat. especially useful in times of economic to closely monitor the co-brand, or else a If you watch the promotional ads for the new downturns. Co-branding can give the solid partnership can quickly turn into a big operating system, you will catch the witty illusion of exclusivity, such as limited-edition problem. ways Google has turned its new Android OS co-branded clothing lines or limited-duration The risks are great in the world of co-branding, release into a sweet deal, one you will surely product lines. This business strategy can but when it is done correctly, the benefits 4 want to break off a piece of for yourself. transform an old, stale brand into something can truly transform a brand and a business. Most people would not immediately pair the new and hip, sometimes by simply adding If your company is considering a co-brand, two brands because they share no obvious another brand name to the label. When don’t dwell on the risks and problems that commonalities between either their products done correctly, co-branding can elevate a can come. Instead, be proactive and do your or their potential customers, but this may brand’s reputation, popularity and financial research. Think creatively about products have been just the thing that brought success to new levels. and services in the current marketplace together these pop culture giants. The But co-branding is not without its risks. If that could augment your own products or unexpected nature of this deal has paid off brands are not careful, a dilutive effect can customer base. Research stores and brands so far, at least in terms of social engagement. occur. The success of the co-branded item that you trust and see where they had positive The KitKat Android OS generated more is now being spread across two companies and negative co-branding experiences. Look than 1.3 billion Twitter impressions and over instead of just one. In addition, co-branded for brands that fit with your company’s own 2 million YouTube views in less than 72 hours, products are, by definition, relying in part core values and business philosophies and according to Nestle executives.5 Ultimately, on another brand’s equity. If something then see if those brands would offer your this pairing seems like the perfect deal: low negative happens to one brand, it may reflect company any new customers or an innovative financial risk and a public relations and poorly on the brand it is partnered with. approach to a product or process. consumer awareness success.

4 | WESTLAW JOURNAL ■ COMPUTER & INTERNET © 2014 Thomson Reuters When considering if a certain partnership is appropriate, evaluate the reputation and financial stability of the possible partner brand. Additionally, look at the level of sophistication that the brand has, not only in its own products and services, but also in the customer market the brand maintains, to see if these levels match with your company. Once a suitable partnership has been discovered, the negotiation of the co-branding deal begins. The Google–Nestle deal is rumored to have taken only a quick phone call and a day of paperwork, but for most co-brand seekers, the process will take much longer.8 It is important to first determine what type of deal is going to be involved. There are various types of co-branding efforts, including ingredient co-branding, joint venture co-branding and multiple sponsor co-branding. Once the co-branding type is determined, then the partnership can move forward with the elements of the deal. The parties should work together to define realistic goals of the co-brand and clearly lay out the terms of the co-branding agreement and the particular details of the cross-trademark license between the companies. Failure to include an appropriately worded license could result in negative consequences for one or both of the brands and, in the worst case scenario, a loss of trademark rights altogether. Another important factor to consider is what happens when the partnership ends and the parties wish to go their separate ways with their brands intact. Brands sometimes forget about this step, which makes it almost impossible to stop a co-branded relationship if something goes wrong, like in the case of Christopher Norman Chocolates. Christopher Norman partnered with another chocolatier, Schokinag Chocolates, to co-brand special confectionary treats, but when problems arose between the companies, Christopher Norman wanted out of the deal. Unfortunately, because of the nature of the agreement in place, there was nothing that could be done to stop Schokinag Chocolates from continuing to sell the co-branded confections.9 Once the terms have been hammered out, it is crucial that both brands in the partnership stay committed to the co-brand for the duration of the partnership. A strong commitment will add value to not only the

© 2014 Thomson Reuters FEBRUARY 13, 2014 ■ VOLUME 31 ■ ISSUE 18 | 5 co-branded product or service, but also the Obsidian and Padrick sued Cox for partners’ original brands. CONTINUED FROM PAGE 1 defamation based on this post and others. Like any other business strategy, co-branding U.S. District Judge Marco A. Hernandez can be associated with risk, but as Google 418 U.S. 323 (1974). In the former type of of the District of Oregon found the other and Nestle are sure to see with the KitKat case, plaintiffs need to prove actual malice posts constituted Cox’s hyperbolic opinion, operating system, the rewards can be and, in the latter, they must prove that the but it allowed the claim about the Summit plentiful. If market trends are any indication, defendant acted negligently. blog post to go to the jury, saying it could the use of co-branding will only continue to potentially be read as asserting reputation- Although this case involved Cox’s First grow and expand between companies and damaging facts. Amendment rights, the trial court judge brands. WJ never instructed the jury that Padrick needed The jury found in favor of Obsidian and Padrick, awarding them $2.5 million in NOTES to prove that she acted with fault, according to the appeals court opinion. compensatory damages. 1 Deena Crawley & Steve McKee, Twenty Co-Branding Examples, BLOOMBERG BUSINESSWEEK, available at http://images.businessweek.com/ Like a member of the institutional media, ss/09/07/0710_cobranded/19.htm. blogger Crystal Cox had a First Amendment 2 The World’s Most Valuable Brands, FORBES, available at http://www.forbes.com/powerful- defense to the defamation suit. brands/list/. 3 Leo Kelion, Android KitKat unveiled in Without these key instructions, the On appeal, Cox argued that the judge erred BBC N Google surprise move, EWS (Sept. 3, 2013), jury improperly awarded Padrick and as a matter of law when he failed to instruct available at http://www.bbc.co.uk/news/ his company, Obsidian Finance Group, technology-23926938; Scott Webster, Android the jury about her First Amendment rights. $2.5 million in compensatory damages. 4.4 KitKat: What’s the point of co-branding?, Her right to speak about a matter of public CNET (Sept. 3, 2013), available at http://reviews. Therefore, the appellate panel reversed the cnet.com/8301-19736_7-57601154-251/android- concern meant that Obsidian and Padrick 4.4-kitkat-whats-the-point-of-co-branding/; judgment and remanded for a new trial. needed to prove that she acted negligently Todd Haselton, Android KitKat: No Financial Cox blogs about corruption in the financial or with actual malice when she published her Deal Between Google and Nestle, Just Plain Fun, blog post, according to Judge Hurwitz. TECHNOBUFFALO (Sept. 3, 2013), available at http:// industry. She has been accused of seeking www.technobuffalo.com/2013/09/03/android- payoffs for retractions, according to the The plaintiffs responded that the negligence kitkat-google-nestle-deal/. opinion. requirement applies to only institutional 4 KitKat, Android KITKAT 4.4 – The future of She wrote a few blog posts about Padrick media outlets accused of defamation, not , YOUTUBE (Sept. 3, 2013), http:// confectionery and his Obsidian, which advises financially to lawsuits between private parties where a www..com/watch?v=OKOrkLxOBoY. distressed companies, implying that they strict liability standard applies, the opinion 5 Rebecca Borison, Nestle exec: Kit Kat Android committed fraud, money laundering and says. partnership drove significant social engagement, MOBILE MARKETER (Nov. 7, 2013), http://www. other illegal activities, the opinion says. The 9th Circuit panel rejected this argument. mobilemarketer.com/cms/news/strategy/16550. Cox published her posts on http:// The First Amendment does not afford greater html. obsidianfinancesucks.com/ and http:// protections to certain defendants, Judge 6 Alan Farnham, Jay-Z Defends Deal with bankruptcycorruption.com. Hurwitz wrote. Barneys After Fans Urge Rapper to Break Ties, ABC NEWS (Oct. 26, 2013), available at http:// On Dec. 25, 2010, Cox blogged about Therefore, on remand, the lower court must abcnews.go.com/Business/jay-defends- Padrick’s role as the court-appointed trustee instruct the jury that the plaintiffs must deal-barneys-fans-urge-rapper-break/ in Summit Accommodators Inc.’s bankruptcy prove Cox’s fault and actual damages, the story?id=20682761. matter, the opinion says. appellate opinion said. WJ 7 Marlin Firearms Co. v. Wild W. Guns LLC, Attorneys: No. 3:09-cv-921, 2013 WL 2405510 (D. Conn. In her post, she alleged that he fraudulently Defendant-appellant: Eugene Volokh, Mayer May 31, 2013). withheld over $170,000 in taxes owed by Brown LLP, Los Angeles 8 Haselton, supra note 3. Summit while he administered its Chapter 11 estate, and she called on federal and Plaintiffs-appellees: Robyn Ridler Aoyagi, 9 Steven M. Wilker and David S. Aman, Tonkon Christopher Norman Chocolates Ltd. v. state tax authorities to investigate, the Schokinag Chocolates N. Am., 270 F. Supp. 2d Torp LLP, Portland, Ore. 432 (S.D.N.Y. 2003). opinion says. Related Court Document: Opinion: 2014 WL 185376

See Document Section A (P. 19) for the opinion.

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