Another Business Is Selling Your Product Under Its Brand - Who Is Responsible When Something Goes Wrong?

Your business has developed a product, platform or service, and another company wants to offer it to its own customers under its own brand. This is generally known as a white-label arrangement.

It can be a useful way for both businesses to grow. The white-label partner can offer something it has not had to build from scratch, while the provider can reach more customers without selling to each end user directly.

The arrangement can become more complicated, though, when something goes wrong. If a customer asks for a refund, the product fails or the white-label partner promises something the provider never agreed to deliver, it may not be immediately clear which business is responsible.

That is why a white-label agreement needs to do more than deal with branding and intellectual property. It should also make clear how the customer relationship works, what each business is responsible for and how issues will be handled if a customer makes a complaint or claim.

Who Is Actually Selling To The End Customer?

A useful starting point is to look at the arrangement from the customer's perspective.

Imagine your software company provides a project management platform to a consulting agency. The agency adds its own branding and offers the platform to its clients as part of its service.

The customer may pay the agency, accept the agency's customer terms and contact the agency when they need support. Behind the scenes, however, your business still provides the underlying platform under a separate agreement with the agency.

Those two relationships need to work together.

It should be clear who is contracting with the customer, who collects payment and what each business is actually promising. In some arrangements, the end customer may only have a direct contract with the white-label partner. In others, they may also agree to terms relating to the underlying provider or platform.

The agreement between the provider and white-label partner can allocate responsibility between those businesses, but it does not necessarily determine every right an end customer may have. The customer's own contract and applicable laws can also matter.

Before getting too deep into indemnities and liability clauses, then, there is a simpler question worth answering:

Who has promised what to whom?

Do The Promises To Customers Match The Deal Behind The Scenes?

This is one of the easiest areas for a white-label arrangement to come unstuck.

Say your agreement with the white-label partner promises 99.9% platform availability, but the partner tells customers the service will always be available.

Or your team provides support during business hours, while the partner advertises 24/7 technical support.

Perhaps your agreement provides a service credit after certain outages, but the partner promises its customers a full refund.

The white-label business can then find itself owing customers more than it is entitled to receive from the provider.

This is why it is useful to look at the whole contractual chain rather than treating each document separately.

The white-label agreement sets out what the provider is required to deliver. The partner's customer terms set out what it promises to customers. Its website, proposals and sales materials may create further expectations.

Ideally, those promises should line up.

There can also be legal issues where a business makes inaccurate or unsupported claims about the product it is selling. In the US, advertising generally needs to be truthful and non-deceptive, and businesses should have a reasonable basis for objective claims about a product or service.

For a white-label arrangement, that can make it worth setting boundaries around what the partner is allowed to say. For example, can it promise features that are still being developed? Can it give customers its own performance guarantees? Do certain product or security claims need the provider's approval?

You do not necessarily need to approve every piece of marketing. The important point is that the partner should understand what it can promise and what sits outside the deal.

Who Handles The Customer When Something Goes Wrong?

The next question is practical: if the customer has a problem, who deals with it?

Where the product is fully white-labelled, the customer may not even know there is an underlying provider. It may therefore make sense for the white-label partner to manage the customer relationship and provide first-line support.

If the issue turns out to involve the underlying product, however, the partner may need help from the provider.

The agreement can set out how this works in practice. For example, the reseller may handle customer communication while technical issues are escalated to the provider. The parties can also agree on response times, escalation procedures and who has authority to offer refunds, service credits or replacements.

The important point is not simply deciding who answers the customer's email.

If the white-label business has made commitments to its customers, it needs enough support and appropriate rights under its agreement with the provider to meet those commitments.

Otherwise, there can be a gap between what the customer has been promised and what the provider is actually required to deliver.

How Should Responsibility Be Divided If There Is A Claim?

Not every customer problem starts in the same place.

Sometimes the underlying product is the issue. Software might contain a bug, a physical product could have a manufacturing defect or material supplied by the provider could infringe somebody else's intellectual property.

Other problems may come from the white-label partner. It might make an unauthorised marketing claim, modify the product incorrectly or use it outside the agreed purpose.

Some situations may involve both businesses.

Rather than simply saying one party is responsible for “all customer issues”, the white-label agreement can allocate particular risks based on where they arise.

For example, the provider might take responsibility for certain claims caused by defects in its product or infringement in material it supplied. The white-label partner might take responsibility for claims caused by unauthorised changes or representations it makes independently.

This is where indemnities and liability clauses can become important.

There is also a distinction between who the customer can make a claim against and which business ultimately bears the cost between the provider and white-label partner.

A customer might bring a claim against the white-label business because that is the company it purchased from. If the underlying problem was caused by the provider, the white-label partner may then look to its agreement to see whether it can recover some or all of that loss.

The agreement may use indemnities to deal with particular third-party claims, liability caps to limit certain exposures and carve-outs where particular risks are treated differently.

The right structure will depend on the arrangement. A SaaS platform, professional service and physical consumer product will not necessarily need the same approach.

It is also worth thinking about how claims will actually be handled. If a serious customer complaint or third-party claim comes in, when does one business need to notify the other? Who manages the response? Who controls any legal defence or settlement?

Depending on the product or service, the parties may also need appropriate insurance, such as general liability, professional liability, product liability or cyber cover.

Does The Type Of Product Or Service Matter?

Yes. “White label” describes the commercial setup, but the risks can be very different depending on what is being sold.

For software and online services, the focus may be on service levels, downtime, licensing, cybersecurity, customer access and support.

For services, there may be more emphasis on who actually performs the work, the standard they are expected to meet and what the white-label partner can say about the service.

Physical goods can bring additional issues around manufacturing, labeling, safety, recalls and warranties.

For example, state commercial laws based on Article 2 of the Uniform Commercial Code can imply warranties in certain sales of goods, including an implied warranty of merchantability where the seller is a merchant. Federal warranty requirements under the Magnuson-Moss Warranty Act may also apply to certain written warranties on consumer products.

How these rules apply will depend on the product, the state, the parties involved and the particular transaction.

The broader point is that an agreement written for a SaaS platform may not properly deal with the risks involved in supplying physical products, even though both businesses describe what they are doing as white labelling.

The agreement should reflect what is actually being supplied.

What About Customer Data?

Customer data can add another layer, particularly where software or digital services are involved.

The end customer might provide information to the white-label business, while the provider's platform actually stores or processes it.

Both businesses should understand how that information moves through the arrangement, who can use it and what the customer has been told.

They should also consider what happens if there is a security incident and which business is responsible for handling any required notifications or customer communications.

Privacy requirements in the US can vary depending on factors such as the states involved, the type of information being processed and the businesses themselves. If significant customer data is involved, it may therefore be worth looking at the privacy side separately rather than relying on a short clause in the white-label agreement.

Sprintlaw can also assist with Data & Privacy documents and reviews where a business needs to work through those obligations in more detail.

What Happens To Existing Customers If The Deal Ends?

Ending the agreement between the two businesses does not necessarily make the end customers disappear.

Imagine the white-label partner has hundreds of paying customers using the platform when either side decides to end the arrangement.

Do those customers lose access immediately, or can they continue using the product until the end of their subscriptions? Who tells them what is happening? Who deals with outstanding refunds or complaints? What happens to their accounts and data?

There may also need to be a transition period where the provider continues supplying or supporting the product while the white-label partner moves customers elsewhere.

Another issue is what happens to the customer relationship itself. Once the arrangement ends, can the provider contact those customers directly, or are there contractual restrictions on doing so?

There is no single approach that works for every deal, but these questions are worth answering before the relationship ends.

Otherwise, terminating one commercial contract can create a much larger customer problem.

Before You Launch, Follow The Customer Journey

One useful way to review a white-label arrangement is to follow the experience from the customer's point of view.

Who do they think they are buying from? What have they been promised? Who helps them if something goes wrong, and what happens if the product or service is no longer available?

Then look at those same questions from behind the scenes.

If the white-label partner has promised something to the customer, does its agreement with the provider give it what it needs to deliver that promise? If a problem arises, is it clear which business takes responsibility? And if the relationship ends, is there a plan for customers already using the product?

Thinking through that customer journey can reveal gaps that are easy to miss when the agreement is reviewed only clause by clause.

White-label arrangements can be a useful way to expand what a business offers or reach more customers. The important thing is making sure the relationship behind the brand is clear before a customer problem puts it to the test.

Need Help With A White-Label Arrangement?

If your business is providing or reselling a product or service under another brand, it is worth checking that the agreements behind the arrangement line up with what customers are actually being told and promised.

Sprintlaw can help you prepare or review the contracts involved and work through issues such as customer responsibility, support, warranties, liability, data and what happens if the relationship ends.

If you would like a consultation on providing or reselling a product or service under another brand, you can reach us at (888) 449-8437 or team@sprintlaw.com for a free, no-obligations chat.