Co-Marketing Agreements and Cross Selling Energy Products and Services

While co-marketing arrangements have be utilized for years in competitive products and service industries, they are just now starting to receive attention among utilities and other energy service providers for there potential use in the marketing of diversified energy products and services. While the fundamental terms of these business arrangements may appear somewhat basic from a pure contracts law perspective, companies considering co-marketing arrangements should not underestimate the significance of the joint undertaking and the role that the co-marketing agreement can, and should, play in defining the relationship and responsibilities between the parties. Management from each party should take the necessary time to define and document the nature and scope of their proposed business arrangement in considerable detail, in order for each to have a clear understanding of their respective roles, responsibilities and rights, as well as to minimize the potential for, and protect each party's interests in the event of, future disputes.

In defining the nature of the business arrangement, it's important to indicate the limits of the arrangement in terms of form (e.g. independent contractor relationship, not joint venture, partnership, etc.) and to clearly define the scope of the products and services which are included and the responsibilities of the parties relative to marketing and support services and expenses. Management of the co-marketing activities should be jointly undertaken through a committee which is comprised of senior management representatives of each party. The management committee should meet at regular intervals over the term of the agreement and establish sales targets, goals and other performance measurement criteria. The geographic boundaries, as well as the exclusivity or non-exclusivity, of the arrangement should also be clearly defined. Non-competition and confidentiality provisions and prohibitions against solicitation of the other parties employees need to be carefully drafted and given enforceable "teeth" in order to protect a party's business interests in the event the arrangement does not work out as planned.

Customer product and/or sales agreements should also be standardized as much as possible, with the actual contract negotiations and execution undertaken directly by the party whose products and/or services are being sold. This will permit the party whose products and services are being sold to verify financial assumptions, as well as the customer's understanding concerning the products and/or services sales arrangement, including any associated performance guarantees or warranties. Information, products or material that is developed during the course of the co-marketing arrangement should remain the joint property of the parties and should be prohibited from being used by one party after termination of the arrangement without the express written consent of the other party. Indemnification provisions should also be carefully drafted to insulate each party from liability associated with the other party's products and/or services.

Voluntary, at-will, termination provisions may make sense for some business arrangements, while not for others. In order for the overall arrangement to be successful, it will be necessary for each party to expect and receive some minimum level of resource commitment from the other party in order to justify, or even perhaps make, the decision to commit the necessary resources needed to make the arrangement successful. Thus, while early at-will termination provisions may appear to be attractive at first in terms of flexibility to exit an arrangement on short notice, they may also serve to deter some of the broader business objectives of the parties. Carefully examining the pros and cons of a potential co-marketing arrangement or partner in advance should provide a comfort level that reduces the need for early "no-cause" termination provisions. The necessity of incorporating such provisions may be a sign that entering the arrangement is premature.

Compensation and fee arrangements need to be carefully tailored to insure that a party is incentivized, but not overcompensated, for the value they bring to the co-marketing arrangement. Having each party being responsibility for their individual sales and marketing expenses may make sense in most circumstances, but it can also serve to limit the ultimate effectiveness of the arrangement. A degree of shared responsibility for some minimum level of co-marketing expenses typically makes sense in terms of attempting to strike a balance between the need to control costs and increase market awareness of the co-marketed products and services.

Parties considering co-marketing arrangements involving utility holding company subsidiaries also need to be conscience of potential regulatory and antitrust issues that may arise in connection with a decision to enter into an exclusive arrangement involving a regulated utility and the marketing of products and services within its service territory or, in the case of a non-utility holding company subsidiary, entering into an exclusive arrangement within the service territory of the non-utility subsidiary's affiliated public utility.

Careful planning and attention to contractual detail will enhance the potential usefulness of co-marketing arrangements in the energy services industry and constitute a first step in the evaluation and development of more significant long term strategic business relationships.