Collaboration is a key strategy for growth of many companies in certain sectors, such as energy, technology, and life sciences, where research and development is critical to maintaining a competitive advantage, but can be incredibly expensive to undertake. By working together on R&D, companies can both contain costs and bring together the best ideas and information from both parties.
But as with any contractual agreement, it’s all about the fine print. A collaboration to conduct R&D can take on many different names and structures. Most commonly, they are called joint development agreements, but they also may be called development agreements, strategic alliance agreements, research and development agreements, and development and license agreements. Each of these agreements share the core principles of collaboration but serve different purposes. Joint development agreements need to be carefully structured before any work begins. The structure of such an agreement can take on any one of the numerous forms, depending on the parties involved, but all such agreements should answer the same basic questions and should provide the necessary protection for the participants’ intellectual property.
What Should a Joint Development Agreement Address?
- Regardless of the ultimate structure of the deal, the same core issues are important:
- Who owns the intellectual property developed through the collaboration?
- How does the other party access that intellectual property? and
- What happens to such intellectual property when the collaboration ends?
The first thing a joint development agreement should address is ownership of the intellectual property created by the joint development. What does each party own exclusively, and what do they co-own? This needs to be spelled out in specific detail in a signed agreement. For example, the parties can agree to one party owning all the intellectual property, but providing exclusive rights of commercialization in certain fields to the other party. In another instance, the parties can agree to each owning any intellectual property that is directly related to its background intellectual property that was brought to the collaboration, and the remaining intellectual property being jointly owned by both parties. Here, it is important for the parties to understand the background IP contributed by each party to the collaboration and what background IP was not contributed.
The joint development agreement should also address how ownership disputes should be resolved. In the United States, intellectual property rights are granted by federal agencies and governed by federal law, but ownership of intellectual property is controlled by state law. Therefore, the forum and format for dispute resolution is a key provision.
Beyond ownership, the joint development agreement should clearly address the rights of each party to use, license, and otherwise exploit the innovations developed through the joint development. The parties can agree to specific technological areas or specific products for each party’s exclusive use and certain technological areas of co-exclusive use. The parties can also carve out geographical turfs in which each party can operate exclusively. During the discussion regarding division of rights, the parties should also clearly define the obligation (or the right) to file, prosecute, and maintain patent applications, copyrights, trademarks, and other registered intellectual property developed through the collaboration. The parties should also specify any restrictions (such as no reverse engineering), if needed.
In the absence of an agreement among the parties in the United States, each inventor (and, thus, his assignee) has the right to use, license and otherwise exploit the invention without accounting to the other co-inventors. Also, if there is no agreement between the parties, all inventors who make any contribution to a single claim of the patent have a presumption of ownership of the entire patent.
Joint development agreements typically have a limited lifespan. So, an agreement should spell out, up front, the terms of disposition of the intellectual property developed through the collaboration to ensure the smoothest possible transition for all parties.
When the collaboration ends, each party should be able to secure at least the intellectual property that it needs to continue with its business. The parties should also define the scope of the licenses to the intellectual property developed through the collaboration and any improvements that result from that. For example, the parties may provide for a license to improvements made by one partner after the end of the joint development project. This license may be limited to only those improvements that are needed for the second party to exploit its intellectual property or a jointly-owned innovation. This arrangement ensures that even when one party obtains a later patent on an improvement, the other party is not curtailed from enjoying the fruits of the jointly developed innovations. As another example, parties may structure a non-compete provision for a specific time period after the end of the joint development agreement. However, such provisions must be sufficiently limited (by duration, geography and/or subject matter) or they may be deemed unenforceable.
Confidentiality is Key
A joint development agreement must be based on mutual trust, and nothing can bring that trust to an end faster than a breach of confidentiality. All parties involved must take great pains to protect not only their own confidential information, but that of their collaborators.
Typically, confidentiality is protected with a non-disclosure agreement (NDA) that is placed ahead of the discussions for the joint development project. Confidentiality provisions balance the needs of the disclosing party to protect the confidentiality of the disclosed information for as long as possible with the needs of the recipient to limit the obligations and avoid dealing with stale information. Moreover, certain disclosures are subject to obligations of confidence under applicable law, for example, the laws governing personally identifiable information or protected health information or nonpublic personal financial information. When executing a later joint development agreement, the parties should ensure that either the terms of the NDA govern the joint development agreement or the NDA is subsumed in the confidentiality provisions of the joint development agreement. Disclosures of trade secrets among the parties should be protected so that such confidential information enjoys the entirety of protections available under state and federal law.
Different Types of Joint Development Agreements
While all joint development agreements should address the issues listed above, there is no one-size-fits-all template. This certainly is true in sectors such as energy, technology, and life sciences, where companies often enter into R&D agreements with a range of different partners. The agreement varies depending on the type of partnering entity.
- Peer Joint Development Agreements . These agreements usually govern projects involving two entities of substantially equal bargaining power. For example, two energy companies may want to work together to develop better technology for extracting oil. These companies would be focused on certain aspects, such as each party maintains ownership of all background technology and any technology it develops independently during or after the collaboration. These parties may work under a framework of joint or sole ownership of jointly-developed innovations and parse access and commercialization rights based on their business needs. In certain instances, the parties may agree to co-exclusive rights for licensing the technology in support of their product lines.
- Company-Contract Lab/Research Organization (CRO) Joint Development Agreements . Unlike the previous example, the company in this example is usually paying the costs of the joint development and may negotiate to own all the jointly-developed innovations. The CRO may negotiate to own any improvements to its own practices that it can use with other customers.
- Company-University Joint Development Agreements . These agreements involve considerations unique to universities. For example, inventors at a university are incentivized to publish research results, which may conflict with the company’s need to maintain trade secrets. Furthermore, university policies may not permit assignment of ownership of inventions made by university personnel or using university equipment and resources. So, securing exclusive licensing and enforcement rights may be more critical than negotiating ownership. Developing the financial terms, such as royalty rates, for such exclusive rights may be challenging especially when the joint development project is at an early-stage.
- Joint Ventures . A joint venture is a special type of joint development agreement in which not only do parties provide and share research capabilities and resources, but they also create a new corporate entity with its own governance. This arrangement requires careful monitoring of the rights and obligations of the contributing entities versus the joint venture due to the conflicting missions of protecting the business interests of contributing entities and maximizing value of joint venture. Termination of the licenses from the contributing entities is heavily negotiated, as loss of access to the core IP can cripple the joint venture. Third-party rights may also be acquired by the joint venture and this may further encumber the jointly-developed intellectual property.
In the absence of an agreement among the parties, joint IP ownership is a very complex and expensive issue to resolve after the fact. There is no harmony in the laws of various countries regarding the rights of the parties with respect to internal use, commercialization, enforcement, and accounting of profits among joint owners of the different types of intellectual property. A strong, specific joint development agreement is the best defense against costly, damaging conflicts with R&D collaborators. A successful joint development agreement contains the terms right for the deal using appropriate contractual language and is signed before the start of the project. Such a well-crafted agreement will enable both parties to start, perform, and end a joint development agreement while protecting their valuable IP and advancing their mutual business interests.
Karthika Perumal, Ph.D., guides companies in all aspects of technology law with an emphasis on the protection, acquisition, and monetization of intellectual property. She advises clients on joint development agreements and other patent and transactional matters in the healthcare and energy sectors across a wide range of technologies, such as biotechnology, biomedical devices, pharmaceuticals, chemicals, oil and gas processing, and software.