A Brief Introduction About the White Label Agreement
The white labelling model is a common business practice. Under this, products or services are manufactured by one entity but are marketed and sold by another. It gives the impression that the products/services have been developed by the seller. Such an arrangement works for companies that are good at creating products but lack a wide customer base. They can allow another company with a strong market hold to rebrand the product/service and sell it as their own. This practice is common in electronics, food, fashion, and software industry. For instance, in large retail stores, products with the retailer’s brand name are white labelled products (such as Whole Foods Market’s ‘365 Everyday Value’). Some other company manufactures them but they are sold as if they are manufactured by the retailer.
To allow such usage of products, a white label agreement is required. It is a formal contract between the manufacturer of the product/service and the reseller. It lays down the conditions of the arrangement such as payments to be made and obligations of the reseller.
Purpose of a While Label Agreement
Also known as a white label partnership agreement, it details the provisions that will govern the relationship between the manufacturer and the reseller. It lists which party will retain what intellectual property. It gives the manufacturer the power to place certain restrictions on how the reseller can use the products. Since everything is written, the parties can refer to it whenever there is a doubt. This smoothens the operations and avoids misunderstandings.
White Label v/s Private Label
Sometimes, people use these two terms interchangeably. However, there is a slight difference between the two. Under private label, the products are made for a particular seller. He can modify the product to suit his requirements, rebrand it and sell it further. Whereas in a white label, the products are sold to many retailers. They can repackage the products under their brand name but cannot alter them.
Contents of White Label Agreement
The agreement typically contains the following terms:
- Names of the parties
- Date of entering into the agreement
- Description of white labelling service- including the specifications of the product
- Restrictions
- Pricing of the service
- Payment details
- Term of the agreement
- Relationship between parties
- Obligations of the reseller
- Representations and warranties
- Limitation of liability
- Confidentiality
- Termination of the agreement
- Ownership of intellectual property
- Dispute resolution
- Governing law
- Signature of the parties
How to Draft the White Label Agreement
Consider the following points when drafting a white label agreement:
- Clearly define what is being offered under the agreement. This includes what products/services are being given to the reseller for white labelling, their details, time of delivery and provisions that make the license to rebrand the products non-exclusive and non-transferable.
- State if there are any restrictions on the reseller. For instance, in a white label software agreement, the developer can restrict the reseller from decompiling the software and obtaining the source code.
- Mention the amount to be paid under the agreement, if it is to be paid according to a schedule and the mode of payment.
- Define the relationship between parties. The clause should state that the agreement does not establish an agency or partnership between them. This clarifies its legal nature.
- Include a provision stating the reseller’s obligations, such as cooperating with the manufacturer, using the product/service according to the agreement and complying with all applicable laws.
- State that both parties are under an obligation to maintain confidentiality under the agreement and not disclose any information to a third party. This protects their sensitive business information.
- Mention the circumstances under which the agreement can be terminated. This provision should also include the action to be taken if termination occurs.
- An important provision is to allot intellectual property rights (IPR). The manufacturer should retain all the IPR associated with the product/service. Similarly, the reseller should retain the IPR in the repackaged goods.
- Include standard boilerplate terms such as dispute resolution clause and governing law of the agreement. It is usually the law of the state where the manufacturer has its office.
Benefits and Drawbacks of White Label Agreement
Benefits:
- The reseller can focus on marketing and selling the products without worrying about making them from scratch. This also reduces its costs. Similarly, the manufacturer does not have to worry about the additional costs of promoting the product.
- Since the reseller has control of marketing and packaging under the agreement, it can increase its value among customers.
- The agreement allows the manufacturer to broaden its customer base by selling to various resellers.
Drawbacks:
- The reseller is dependent on the manufacturer for its products. At times, the products are unable to match the reseller’s expectations. Additionally, the reseller cannot modify the product/service.
- The packaging of white label products is often basic. It can give an impression to the customer that the product is of inferior quality.
- Most times, the agreement is drafted by the manufacturer. So it may get better terms for itself if the reseller does not have enough negotiating power.
What Happens If the Agreement Is Violated?
Under a white label agreement, the manufacturer can limit its liability as well as the reseller’s action to sue it for certain reasons. If the agreement is violated, the reseller loses the right to use the manufacturer’s product/service. The parties can decide how they wish to settle disputes arising out of violating the agreement. They can choose to settle them together through discussion or opt for mediation or arbitration. If that also fails, a party can sue the other in the local court.
A white label agreement has become an important business instrument for entities. It serves both sides- those who are experts at creating products/services and those who are adept at marketing them. It also helps the customer by giving him more choices and better prices.
[Also Read: How to Create a Distribution Agreement]