Joint Development Agreements: Proceed with Caution!

Companies that wish to produce new technologies have basically three options: (a) develop the technology, (b) purchase or license it, or (c) jointly develop it with others. That third option is popular, as it allows two companies to share their respective strengths, resources and expertise and benefit from a synergistic business relationship. It is also risky, because each party relies on the other and may be required to share sensitive trade-secrets, know-how and other intellectual property rights. However, handled properly, the risks can be minimized and a mutually beneficial relationship can flourish.

Typically, such collaborations utilize a succession of agreements, starting with an NDA, followed by a Joint Development Agreement, then perhaps Manufacturing, Purchasing and Licensing Agreements. This article will focus on the Joint Development Agreement.

First, the agreement should clearly identify the parties and their objectives. What is the goal of the collaboration? What technology is being developed? Do the parties plan to manufacture or sell products? Where? When? Which party will have such rights and will they be exclusive? What is the expected timeframe? What are the milestones? Greater certainty up front will reduce future disagreements.

The agreement should describe expected roles, responsibilities, rights and contributions of each party. Identify the expected contributions of capital, personnel, equipment, intellectual property and other assets. Who bears responsibility for what expenses? Who will handle regulatory requirements? Will insurance be required? How will profits and losses be shared? Are warranties expressly disclaimed?

The agreement should specify requirements for protecting confidential information, including information resulting from the collaboration.

It should state a term for the relationship and means of termination or buyout (although the latter can be difficult to agree upon in advance).

And it must address complex issues relating to intellectual property. Typically, the agreement will distinguish between Background IP (pre-existing or arising independently of the collaboration) and Foreground IP (arising from the collaboration). The parties may desire for each to retain ownership of its respective Background IP and the parties to jointly own all Foreground IP. Or they may allocate rights based on time period, geographic territory, industry, or some other criteria.

Regardless, the parties should carefully evaluate all issues regarding intellectual property and explicitly address them. With respect to Background IP, each party should grant a non-exclusive license to the other for purposes of the collaboration. With respect to Foreground IP, will each party have the right, or responsibility, to prosecute, maintain, license and enforce patents?

Under the US Patent Act, each of the joint owners of a patent may make, use, offer to sell, sell or import the patented invention in/into the United States, without the consent of and without accounting to the other owners; but, cases hold that all co-owners must join as plaintiffs in any action to enforce the patent. However, those presumptions may be overcome by express language to the contrary.

Additionally, that’s just U.S. law – other countries may vary – and laws operate differently with respect to copyright, trade secrets and other intellectual property rights, so best practice clearly dictates defining such rights and obligations specifically in the agreement.

Finally, as with all contracts, the agreement should carefully describe the mechanics of dispute resolution, including jurisdiction, venue, governing law and possible mediation or arbitration. Joint ventures can be extremely fruitful, but one should use extreme care to manage the risks.


Any questions? Please contact our Taiwan business attorneys.

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