Branding plays a vital role in the running of a successful business. Many entrepreneurs choose to "build up" a new brand by manufacturing its own products. However, in some cases that might create a problem. As an option retailers may simply sell products manufactured and branded by other companies, including based on the White Label concept.
The White Label concept is understood as a concept that involves the production of goods or services by one company and the use of these goods and services by another company under its own brand. The White Label strategy is widely used in the production of electronics, foods, software, etc.
E-commerce should be mentioned in this connection. It is a new way of conducting business that breaks down nearly all barriers created by international frontiers and enables you to trade your product/service/good across borders. This enables a company to spread across more markets than they would ordinarily be capable of doing in a typical four brick walled company. You can discover what E-commerce is within the scope of White Label relationships by clicking the link to our previous article here: https://www.agplaw.com/what-is-a-white-label-agreement/
What are the advantages and disadvantages of the White Label Agreement model?
When choosing this model, the parties to the White Label Agreement encounter some particular advantages and disadvantages.
The reseller obtains a possibility to quickly start-up in any market and to reduce its own costs in connection with the production process. In this case the reseller may focus on its primary business and earn additional profit from the partnership program without investing huge amounts of money in developing new and complementary products. However, the reseller may not interrupt and influence the manufacturing process as all the technologies and design are part of the manufacturer's sphere of responsibility.
The manufacturer may sell its own products and services without paying additional costs with respect to advertising and promoting its products. Moreover, the option of the White Label Agreement allows the manufacturer to expand the range of customers of its goods and services, to form a successful business model to offer to the other potential similar partners. As disadvantages for the manufacturer we may indicate that recognition of products brings benefit not for its own goodwill and business reputation but for the reseller's goodwill and reputation. In addition, there are difficulties in getting direct callback from customers with respect to its products as all the contacts with the customers are maintained through the reseller. Another important aspect is selling its goods and services to the reseller for a lower price in comparison with the situation where it would sell it independently.
Which terms shall be included in the While Label agreement?
This agreement is used between the original creator of products and services. That is, transferring a license to the reseller (White Label License Agreement).
The terms of a White Label agreement typically include the following terms:
- Relationship between the parties and its legal nature;
- Manufacturing of products;
- White Label license and its terms;
- Packaging and documentation;
- Rights and obligations of the reseller and the manufacturer;
- Product warranties;
- Marketing materials;
- Repair services and customer support;
- Orders and pricing;
- Product quality control;
- Intellectual property rights;
- Division of profits between parties;
- Typical terms of agreement which may be found in every contract such as force majeure, limitation of liability, term and termination, confidentiality, assignment and other terms required for inclusion into the contract.
Which aspects should be taken into the account by the parties with respect to the White Label agreement based on White Label Agreement Law?
The parties to the White Label Agreement shall regulate the following aspects:
- Whether the manufacturer is allowed to communicate directly to customers of its goods and services (typically not allowed);
- Whether your contracts provides exclusivity for parties (for instance, the manufacturer may be restricted in its right to resell products within a particular geographic region or within a specified period of time to other resellers or under your own name);
- Whether the making of product changes or modifications is allowed;
- Which performance progress is required from the parties in the first year and in all subsequent years;
- How the costs and expenses should be split between the parties (for instance, who shall pay the cost of marketing materials, freight and transport costs, taxes and duties, etc.)
- Whether the manufacturer retains ownership to the product recipe or formulation and the reseller – all intellectual property rights;
- Whether the products comply with valid quality standards;
- Who bears product liability;
- Which amount of products and services will be supplied by the manufacturer for its reselling by the reseller, etc.
When drafting a contract you need to regulate all the relationship with your counterpart, prevent and minimize all possible legal risks and liabilities and ensure all the terms of the contract comply with applicable legislative provisions. At AGP we are experienced in drafting various types of contract for individuals and corporations. Whatever role you occupy, you will definitely obtain competent professional legal assistance with respect to drafting a White Label agreement, which will secure your legal rights and interests. We also provide a service of legal analysis of those contracts which you, as a manufacturer, are proposed on a "take it or leave it" basis and help to develop a risk mitigation strategy.
Western experience shows that the concept of the White Label Agreement opens up new possibilities for both major and start-up companies. The most important thing is to evaluate the potential of the above-mentioned model within the scope of your particular business in order to use it in the most efficient way to implement new technologies, develop new areas and find new customers. However, you should be aware of all the risks, perspectives, advantages and disadvantages in connection with it. AGP & Co is always ready to provide you with proficient legal advice of our lawyers to help you mitigate all the possible risks and build a successful business deal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.