With the increasing popularity of Open Innovation, technology companies are recognizing that little value is derived from innovating in a vacuum or spending previous time and scarce resources reinventing the wheel. Consequently, joint technical collaborations are fast becoming the norm. The benefits are both manifold and manifest: synergies of technological expertise and business strengths are achieved, intellectual property can be pooled, innovation and corresponding bring-to-market timelines are accelerated, development costs are reduced, just to name a few.
At the same time, joint development is also fraught with risk, since innovation is suddenly split between two or more legally distinct entities. Each brings different assets and objectives to the table, and they often operate in different markets and manners. Add to this that many collaborations take place between a David and a Goliath scenario, and it’s easy to see why joint development can become a risky proposition for both players, but especially the smaller. Yet there are ways to minimize many of these risks and drive joint collaboration towards a win-win for both parties. Some of the major risks of joint development are:
- Implied Licenses. First and foremost, the parties to a collaborative endeavor should keep in mind that joint ownership can arise without express agreement between the parties and/or by default operation of patent and copyright laws. This joint ownership may extend not only to the object of collaboration, but also to pre-existing intellectual property and future/derivative works. Since the primary value of most intellectual property rights derive from their exclusivity, it can be a nonstarter for many to suddenly find out they co-own some strategic innovation.
- Leak of Intellectual Property. Parties to a joint-development project may bring trade secrets or other confidential information to the table. Trade secrets derive their actual or potential economic value purely from the fact that the information is not generally known to others and is subject to reasonable efforts to maintain its secrecy. Since a trade secret loses its exalted status the minute it is broadcasted as the result of a leak (or published under an open source license), any and all collaborative sharing of secret information increases the risk that the confidential information will be misappropriated without legal recourse to the damaged party. Thus trade secrets and confidential information should be shared on a need-to-know basis only, even (or especially, some may argue) in a collaborative context. See Psst! Can you keep a secret? for more information about Trade Secrets and The DNA of NDAs.
- Undefined Background Intellectual Property. Background IP exists before the collaborative endeavor takes place and can also extend to what is created independently outside of the collaboration during the Term, a concept often overlooked. Such pre-existing technology or proprietary content is typically combined into an integrated product or solution. Consequently, joint development runs the risk of “tainting” one or both parties’ pre-existing intellectual property ownership rights, unless those rights are contractually defined. Furthermore, the collaborative product could be tainted by co-ownership rights of consultants, advisors and other third party collaborators and contributors.
- Uncertainty Regarding Foreground Intellectual Property. Foreground IP is generated during the collaborative development. In joint development scenarios, it’s often quite difficult to separate each party’s respective contributions. The parties may co-develop modules of software code at a granular or strategic level. Joint ownership arises by default from many such development activities, unless the parties explicitly provide otherwise.
Clearly, joint development arrangements can put collaborators’ respective intellectual property rights at risk if not well thought out and can sometimes put a strain on the collaborator’s relationship over time. However, there are preventative steps and best practices which can serve to control and mitigate these risks.
- Who contributes what? The first step in protecting collaborators’ intellectual property rights is to identify each party’s respective expected contribution on the front end. Clearly define each party’s required contributions to the joint effort, be it capital, manpower, expertise, or business resources and assets such as marketing and positioning. Whenever technology is being contributed, license agreements should be formalized.
- Who owns what? Who is licensed under what? The next step is determining which party will own or have licenses to intellectual property resulting from the collaboration. Parties may seek sole ownership, joint ownership with undivided interests, or a license. These rights may be exclusive for a period of time or within a specific territory or industry. Beware of the lure of owning all the IP at all costs; it is more important to be able to use, leverage and enforce the IP, even as a licensee, than to own it with strings attached.
- The Joint Development Agreement. The third step in protecting jointly developed IP rights is setting clear expectations via contract. The agreement should assign and allocate all costs, benefits, risks and rewards to the appropriate parties, as identified in the steps above. For example, marketing rights and patent-filing obligations should be assigned. Royalty arrangements should be formalized. Any possible third-party rights to background and foreground IP should be defined to reduce the risk of subsequent taint by putative co-owners. Terms for ending the collaborative relationship should be defined, including survival of post-termination ownership and license to pre-existing IP and incomplete works. In case of any potential dispute, an initial mediation among the respective executive sponsors should be built in, as these individuals may not want the collaboration to fail and are more likely to compromise. If that doesn’t work, arbitration is generally preferable to litigation as the parties don’t want to expose their problems publicly in a way that could deter other collaborators to be. Finally, confidentiality, non-disclosure and non-compete clauses or agreements may also serve to preserve and protect the parties’ rights and expectations towards pre-existing, collaborative and future/derivative works.
A collaborative agreement may prove inadequate if it simply restates the law and stipulates that each party owns the technology it develops in the course of the collaboration. In the event of a dispute, and the absence of solidly-drafted joint development agreement, IP rights and obligations will be allocated according to a judicial determination of each party’s creation and contribution to the collaborative product. However, as we’ve seen, these lines are often blurry where innovators are dancing close, in tune and in sync with each other and missteps can come easily.