Commercial joint ventures are essentially contractual joint ventures. A commercial contract such as a collaboration contract or a joint research and development contract underpins the joint venture.
The terms of the joint venture are contained in the contract. Therefore it is very important to clearly define the rights and obligations of the parties at an early stage in the collaboration and to include those provisions in the contract. This reduces the risk or misinterpretation of the terms of the collaboration.
The contract should address the following matters:
1. It is very important to clearly define the scope of the collaboration and the respective party’s rights and obligations. If the collaboration is a joint development venture then it is important to clearly define the scope of the development and each party’s input into the development process.
2. The parties should identify any background intellectual property rights (“Background IPR”) which they have already developed prior to the joint venture and which will be used in the joint venture development. In general each party will retain exclusive ownership of their respective Background IPR. The parties will then need to determine upon what terms the Background IPR can be used by the joint venture partner both during the joint development collaboration and after the development has been completed.
3. The purpose of many joint ventures is to develop a product or service. Many joint venture contracts contemplate development or intellectual property during the period of the collaboration. The intellectual property developed during the period of the collaboration is generally called foreground intellectual property (“Foreground IPR”). It is very important at the outset of the collaboration for the parties to determine what Foreground IPR will be developed and whether any or all of the Foreground IPR will be jointly developed or exclusively owned by the party developing it. If the Foreground IPR is exclusively owned by either party then the other joint venture partner would generally expect to receive a licence of such Foreground IPR to enable it to exploit it both during the period of the collaboration and possibly after the term of the collaboration. It is important to carefully consider and negotiate the terms of ownership and use of Foreground IPR.
4. It is also important to include confidentiality obligations on each party to the joint venture. Both parties will generally disclose their own confidential information to the other party to aid the collaborative process. Therefore the party that receives such confidential information should only be able to use and/ or disclose such confidential information in accordance with certain defined parameters. This will protect each party’s confidential information.
5. The collaboration agreement should clearly define the duration of the joint venture and also grounds upon which each party can terminate the collaboration prior to concluding the joint development process. The term of the collaboration should be until such time as the joint development project has been completed. In general the contract can be terminated early/ prior to conclusion of the project where for instance either party is in material breach of the terms of the contract, or where a party is in repeated breach of the contract, or alternatively where a party enters some form of insolvency process.
6. The collaboration agreement should also state what happens in the event that the contract is terminated early upon one of the grounds specified in point 5 above. In such circumstances, both parties should retain all their respective Background IPR and any licence to the other party would generally terminate. Any Foreground IPR would be owned by the party developing it and any Foreground IPR developed by the parties jointly would be jointly owned.
