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Marketing Obligations

■ Tire greatest source of disputes and potential litigation arising from joint marketing agreements are misunderstandings about the parties’ respective obligations to market and promote the relationship. These types of disputes arise more frequently where the agreement contains only vague or ambiguous marketing obligations (e.g., the parties will use their best or commercially reasonable efforts to promote the good or service being marketed). These types of provisions should be rejected in favor of specific language with respect to the obligations of each party to promote the good or service that is being marketed (e.g., each party shall include promotional materials for the good/ service in all of the products that it sells to customers) or as the parties “may mutually agree upon from time to time.” In addition, it is always a good idea to agree on specific marketing efforts in which the parties will engage and to include those efforts in an exhibit to the agreement.

■ A common mistake is to attempt to include too much detail about the parties’ intended marketing obligations in the body of the agreement. The specifics about those efforts should be set forth in an exhibit. The exhibit can describe everything from joint press releases, to joint participation in seminars and industry events, to the development of hyperlinks between the parties’ websites, to approved content for advertising, to the number of advertisements that will be conducted each month.

■ If the parties are unable to specify an intended marketing activity in detail, it should be written as “subject to the parties’ mutual agreement.” This will minimize the potential for disputes over an obligation that cannot be readily described in detail at the time of contract execution.

■ Unless the parties have agreed otherwise, express language should be added to the agreement making clear each party will bear their own expenses in engaging in the marketing activities.

Referral Arrangements

■ Many joint marketing agreements include language governing referrals made from one party to the other of prospective customers. These provisions may be for the benefit of either one party or both.

■ Referral provisions should clearly define who is a “referral” and who is not. For example, referrals should clearly be defined to exclude any individuals, entities, or organizations who are current customers of a party or who have been independently contacted by the party independent of the referral or joint marketing relationship.

■ Tire referral provision should always specify a period (usually twelve months) following the date of the referral after which no compensation will be due to the referring party if the referral later purchases products. For example, most agreements impose a time limit of twelve months following the date of the referral. If the prospect becomes an actual customer during that time and purchases products, the referring party will be due their compensation. However, if the prospect does not become an actual customer until after the twelvemonth period has lapsed, the referring party will be due no compensation.

■ In general, compensation for the referral is paid to the referring party. That compensation is usually based on some percentage of the net revenue derived from the sale of the products to the referral. Other compensation models, such as a fixed fee, are also possible. In any event, compensation is normally based only on the sale or license of products, not professional or support services.

■ Audit rights should be included in every agreement in which referral compensation will be paid. This is to ensure the amount of referral compensation is accurately computed. If only one party will be the referring party, a standard audit provision should be included that provides for shifting of the cost of the audit to the other party if the audit identifies an underpayment of more than a specified amount (e.g., 5%—15% of the fees due). If the referral arrangement involves referrals of prospects from the other party to your company, it is in your best interests to limit onerous audit provisions, particularly those in which the other party or its auditors are granted the right to access your facilities and systems. In those cases, it is often better to include a less intrusive obligation to simply provide reasonable documentation regarding the calculation of the referral compensation.

Confidentiality

Since the parties will likely be exchanging product information, marketing plans, customer names, and other sensitive information, the agreement should include a strong confidentiality clause. As discussed in Chapter 3 (Nondisclosure Agreements), the provision should make it clear that it takes precedence over any prior nondisclosure agreements entered into by the parties and that such prior agreements are terminated in lieu of the confidentiality provisions of the joint marketing agreement.

 
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