Do you have a business idea and want to work with another company to merge technology, to improve research and development, promotion and sales? Then it is worth considering setting up a joint venture. The Joint Venture shall establish two or more business entities for a specific project or other business activity. Joint ventures may be informal or formal, they may be set up only for a short period of time or for a long period of time. They are often concluded for the purpose of a production or research activity, but they may also be designed for a further purpose: the Joint Venture enables the pooling of resources as a larger entity has more power in the industry and more resources to ensure the success of the company. It enables the pooling of expertise, allows for greater economic efficiency and encourages future growth of enterprises.
Did you know how Google Earth came about? You weren’t wrong if you thought about joint venture. Google Earth is the product of collaboration between Google Inc. and NASA Ames Research Center. The new Supra car that we could admire in the Fast and Furious film franchise was created by a collaboration between BMW and Toyota. The two companies jointly designed several other cars, such as the new BMW Z4 model. Toyota also teamed up with Mazda in March 2018 to use the best of the two companies’ technologies. The joint venture created a job opportunity for 4,000 people.
All joint ventures, however, don’t enjoy inside a harmonious and successful corporation.
Legal risks of an unclear IP ownership agreement may be easily ignored in the early stages due to enterprises’ strong eagerness for co-operation. In the case of joint ventures and co-operative ventures, in addition to IP licensed by shareholders, or given by them as capital contribution, the ventures may create new IP during their period of existence. However, if the joint venture or co-operative venture agreement does not clearly specify in whom the IP ownership should be vested upon termination of the agreement, disputes may arise when the joint venture or co-operative venture arrangement terminates. Disputes may arise due to an imbalance of commercial interests that may result from the parties’ different understandings regarding exercise of specific IP-related rights, or poor understanding of tasks divided between partners or due to failure among co-owners to reach consensus regarding their licensing to third parties, …
FORMS OF JV and IMPORTANCE OF NDA AGREEMENT
You can set up a joint venture in different forms.
One form is a strategic alliance based on one or more contracts governing the relationship between the parties and the development of common intellectual property. It is appropriate where cooperation has a limited scope and a certain duration. The documentation is simpler, the NDA and JDA signature are required. The NDA is a non-disclosure agreement that treats confidential information to both parties and is not intended for third parties and serves as the protection of business information. And the JDA is Joint development agreement.
Vesta and Amdocs are companies that both provide services to national and international mobile phone networks. Companies teamed up in a strategic partnership to improve the user experience of prepaid mobile services. They made the NDA. Vesta shared confidential information about the payment solution for MetroPCS, which used Amdocs payment platform. The strategic partnership failed, and Amdocs nevertheless provided MetropPCS a payment solution. The Vesta argued that it was not possible for Amdocs to develop a payment solution so quickly without using some significant portion of the confidential information provided to Amdocs by Vesta in connection with the parties ‘collaboration project. Vesta sued Amdocs for breach of contract, theft of trade secrets, and fraud. Amdocs argued that the court must dismiss the lawsuit because Vesta did not describe any trade secrets it shared during the project. The court rejected the objection and confirmed that the complaint properly defined the trade secrets at issue.
Even if the joint venture does not occur, there may be a legal dispute. Litigation may present challenges for parties when the joint venture involved sharing confidential and trade secret information. That is why NDA agreement is so important! It can prevent the theft of trade secrets and help ensure that a JV partner cannot later claim independent discovery, denying trade secret theft.
JOINT DEVELOPMENT AGREEMENT
it is typical for the parties to execute something akin to joint development agreement (JDA). JDA is a joint development agreement for an enterprise that lays down the conditions for the parties. The JDA should narrowly define the purpose and scope of joint development. It should define the development, use, ownership, protection and enforcement of intellectual property rights to be formed as part of the joint venture. It should determine the financial risks and liabilities relating to intellectual property and the rights and obligations following the termination of the JV. The Joint Undertaking may also be established as a separate legal entity (for example, limited liability) governing the development of intellectual property. Such cooperation is more appropriate when the parties are in a longer and more complex relationship. In this case, a greater burden on the administration is possible, as a separate legal entity must be managed. In both cases, the participants in the joint venture receive management, profits and losses under the joint venture agreement. When contributing IP to a JV, include a “no guarantee of success” clause to protect the contributing part(ies) from claims that the contributed IP did not fulfill the intended purpose.
It is really important to understand what is being contributed and what isn’t, what is the purpose of joint venture, and define ownership, control, and maintenance of joint IP. Are there any weaknesses in the IP that could affect JV’s ability to exploit it? How will trade secrets or know-how be treated upon dissolution of JV? Will the other venture partner need access to this information? If contributed IP is subject to a granted patent, registered copyright, or registered trademark, what if legal protection is lost or challenged?
The JV agreement should clearly define any IP that is not contributed and make clear whether any license to such IP is granted to the JV. Each category of IP has nuanced rules for licensing, which must be considered when drafting the license agreement based on the desired enforcement obligations/arrangement. Joint ownership can create issues with enforcement and commercial exploitation of Joint IP, so it is a good idea to avoid joint ownership of IP where possible, except where ownership can be clearly divided among different geographies or fields of use. Be cautious when drafting terms related to termination of the JV and ownership of the joint IP, particularly when one party’s contributed IP is confidential information that is embedded in the joint IP. Careful consideration must also be given to the delineation of the works to be carried out by each joint venture member.