Cobranding Requires Strong Contract Protections

Cobranding agreements can further the public's awareness of brands through their association. Legally, the precise terms of the contract become crucial. Capital One learned this the hard way when 3 years into its 5-year cobranded credit card arrangement with Kmart, the retailer filed for bankruptcy protection. Capital One sought to terminate the agreement, claiming that Kmart's bankruptcy materially breached their contract. The bankruptcy judge, however, agreed with Kmart that it was in compliance with the contract and could continue to meet its obligations thereunder while in bankruptcy. In the end, the best protection for cobranding efforts is to consider carefully the negative possibilities of associating with other brands and to provide, specifically, for these future contingencies in the written agreement. This, Capital One and its lawyers apparently had failed to do.