How the Co-Branding Agreements Create Ownership Ambiguities

Introduction

Co-branding is a strategic marketing alliance where two or more established brands collaborate to launch a unique product or service, leveraging their combined brand equity to capture new market segments. In the Indian corporate landscape, successful examples include the long-standing Maruti-Suzuki partnership, the Air India-SBI credit card collaboration, and the integration of Spotify within Uber’s interface. While these partnerships offer significant advantages—such as shared marketing costs, enhanced credibility, and expanded customer reach—they also present a complex legal minefield regarding Intellectual Property (IP) ownership

The primary challenge lies in the fact that co-branding is an "atypical" contract, not specifically regulated by a single statute in India. Instead, it is governed by a patchwork of the Trade Marks Act, 1999, the Copyright Act, 1957, and the Indian Contract Act, 1872. When two distinct legal entities merge their identities into a single consumer offering, the lines of ownership often blur, leading to "ownership ambiguities" that can result in protracted litigation, loss of trademark rights, and the dilution of brand value.

1. The "Derivative Work" Dilemma

In any co-branding venture, the parties often create something entirely new: a composite logo, a unique product design, or specialized software. In legal terms, these are often considered "derivative works." Ownership ambiguity arises when the agreement fails to explicitly define who owns these hybrids.

If Brand A provides the technology and Brand B provides the aesthetic design, the resulting product is a fusion of both. If the partnership ends, can Brand A continue to use the aesthetic elements with a different partner? Conversely, can Brand B use the underlying technology? Without a "work for hire" clause or a clear assignment of rights, both parties might find themselves in a stalemate where neither can utilize the collaborative output independently, effectively freezing a valuable asset in a legal vacuum.

2. Data Ownership and Consumer Insights

In the digital age, data is often more valuable than the product itself. Co-branding initiatives, particularly in the tech and retail sectors, generate mountains of consumer behavior data. Ambiguity peaks when deciding which entity "owns" the customer who engaged with the co-branded product.

The Lead Brand Dilemma: Often, one brand acts as the primary host (e.g., a credit card offered by an airline). The airline might feel the customer belongs to their loyalty program, while the bank claims ownership of the transactional data.

Privacy Regulations: With the rise of GDPR and CCPA, the "joint controller" status creates a liability trap. If ownership of the data is not clearly partitioned, both brands may be held liable for a breach or misuse by the other, leading to expensive litigation and reputational damage.

3. Legal provision regarding Derivative works

Under the Copyright Act, 1957, a derivative work is a new creation based on an original copyrighted work. Ambiguity arises when the agreement fails to specify who owns this "new" IP.

Section 17 of the Copyright Act generally designates the author as the first owner, but in a co-branding context, the "author" could be a joint team from both companies. If the work is deemed a "work of joint authorship" under Section 2(z), neither party can exploit the work independently without the other’s consent, leading to a potential deadlock.

Furthermore, if a licensee creates a derivative work that significantly enhances the brand's value, they may later claim ownership or equitable rights over that improvement, challenging the original licensor’s exclusivity

4. Joint Ownership vs. Sole Ownership Deadlocks

Co-branding agreements often default to "joint ownership" of any IP created during the partnership to ensure a sense of fairness. However, joint ownership is frequently a "legal trap" rather than a solution. In India, the rights of co-owners are often governed by the principle that each owner has an undivided share in the property.

In the context of patents or trademarks, this means that while one co-owner might be able to sue for infringement independently, they often cannot assign or license their share to a third party without the express consent of the other co-owner. This lack of unilateral control can paralyze a brand’s ability to pivot or enter new markets. Without a clearly defined "Grant of Rights" clause, parties may find themselves in a situation where the "goodwill" generated by the co-branded product is inextricably linked to both brands, making it impossible for either to walk away with the full value of the collaboration.

5. Trademark Coexistence and "Honest Concurrent Use"

The Trade Marks Act, 1999, provides for the registration of trademarks to distinguish the goods of one person from those of another. Co-branding complicates this by intentionally blurring that distinction. Ambiguities often arise regarding whether the co-branded mark should be registered as a "collective mark" or if the parties should rely on "trademark coexistence agreements."

Section 12 of the Trade Marks Act allows the Registrar to permit the registration of identical or similar marks by different proprietors in cases of "honest concurrent use." While this can be a strategic asset, it also creates a risk of "reverse confusion," where consumers believe the smaller brand is actually the source of the larger brand’s products. If the co-branding agreement does not strictly define the "permitted use" under Section 2(1)(r) and Section 48, the licensor risks losing control over their mark’s reputation. As seen in “Himalaya Drug Company v. SBL Ltd.,"courts give significant weight to how parties define their coexistence, but any ambiguity in the contract can lead to a finding of "deceptive similarity" that invalidates the mark.

6. The Post-Termination "Divorce" and Residual Rights

The most critical point of ambiguity occurs during the termination of the agreement. Many contracts focus on the "marriage" but neglect the "divorce." When the license to use a partner’s logo expires, there is often a "sell-off" period.

Key questions that frequently remain unanswered in poorly drafted agreements include:

● Post-Termination Improvements: If Brand A improved Brand B’s manufacturing process during the partnership, does Brand A own that process now?

● Domain Names and Social Handles: If a joint social media account was created (e.g., @BrandAxBrandB), who keeps the followers? These digital assets often fall through the cracks of traditional IP law, leaving both parties to fight over the digital remains.

● Sell-off Periods: Can one party continue to sell remaining inventory bearing the other’s logo after the contract ends?

● Data Ownership: In the digital age, co-branding often involves shared customer databases. If the agreement is silent, both parties may claim exclusive rights to the "leads" generated during the partnership, leading to privacy and commercial disputes.

Under Indian law, the termination of a license does not automatically signal the end of a partner's influence. Partners may resist relinquishing control or continue to use the IP under the guise of "exhaustion of rrights." ithout explicit "termination triggers" and "post-termination obligations," such as the mandatory destruction of marketing materials or the assignment of derivative works back to the lead brand, the "divorce" can become a permanent drain on resources.

7. Mitigation Strategies: Drafting for Precision

Sometimes, courts may interpret a co-branding agreement as a "de facto" joint venture or partnership if the language is too broad. In a legal partnership, assets are often viewed as communal. If a court rules that the co-branding arrangement was a partnership, the individual brands may lose exclusive control over the assets they brought into the deal. This is a nightmare scenario for a major corporation that suddenly finds its core trademarks tied up in a partnership liquidation process.

To navigate these ambiguities, legal practitioners must move beyond generic templates and draft bespoke clauses that anticipate the lifecycle of the collaboration. Effective strategies include:

o Explicit Ownership of Improvements: Clearly state that any "improvements" or "derivative works" created by the licensee shall automatically vest in the licensor, or vice versa.

o Defined Grant of Rights: Use precise language to limit the scope, territory, and duration of the IP license, ensuring it does not inadvertently grant permanent rights.

o Registration of User Agreements: Under Section 48 of the Trade Marks Act, registering the partner as a "registered user" provides a clearer statutory framework for the relationship than a mere private contract.

o Clear Exit Triggers: Define objective metrics for termination, such as quality failures, insolvency, or "change of control" of the partner entity.

Conclusion

Co-branding agreements are powerful tools for market expansion, but their success is contingent upon the clarity of their legal architecture. Ownership ambiguities—whether arising from the creation of derivative works, the complexities of joint ownership, or the lack of a post-termination roadmap—can transform a profitable alliance into a liability. In the Indian context, where the legal system emphasizes territoriality and strict registration requirements, parties must prioritize the precise definition of IP rights at the pre-launch stage. By treating the co-branding agreement not just as a marketing document but as a comprehensive IP management framework, brands can ensure that their most valuable assets remain protected long after the partnership has served its purpose.