Considerations of Forming a Technology-Based Joint Venture

Considerations of Forming a Technology-Based Joint Venture

A “joint venture,” or JV for short, can range from a contractual arrangement like a co-marketing effort, to a separate new legal entity in which the parties contribute technology, IP, funding and employees to a new legal entity.

The most typical reason to form a JV is to access foreign markets or develop combine the capabilities of two entities in a particular market or product, rather than doing a full-blown merger between those entities. In a JV one or both parties may contribute intellectual property or technology to the venture.  It is important to undertake due diligence regarding the quality of the IP/technology that is being contributed in terms of whether it achieves its intended purpose.  No less important is understanding whether the IP is valid and enforceable in the area that the JV intends to operate in order to provide the JV with competitive advantage and whether the JV will have freedom to sell its product or services free from infringement claims by third parties.

How Different Countries Enforce Intellectual Property Protections

Another aspect to consider for a joint venture operating in a particular country is whether the country enforces intellectual property protections in law and in practice.  The risk of technology theft in some countries is real, and unless there is a culture of protection, and the legal scheme to enforce it, doing a JV in a particular county, that involves technology transfer within the country, may involve too much legal risk.

Also worth considering is whether the country permits IP rights developed within that country to be transferred out of the country.  If part of the business plan of the JV is to develop intellectual property that is licensed to third parties in other countries, the ability to license or transfer technology out of the joint venture could be critical.

Developing Your IP Strategy for the Joint Venture

Besides due diligence, it is also important to negotiate in advance what the IP strategy is for the joint venture.  What technology or IP will each partner contribute to the joint venture, what IP will the joint venture develop and what rights will each partner have to the IP developed by the joint venture, during its operation and if it dissolves?

One approach is to have the most sensitive technology remain with one of the parent companies and have them develop improvements and provide services to the venture in order to minimize the risk of IP leakage until the venture is proven out or to manage country-specific risk.  Another approach is to transfer technology to the JV, have the JV own the technology it develops, and provide access to the parent companies only on an arms-length basis.   This works best when the JV is a separate commercial entity that can stand on its own and has its own research, development, and commercial capabilities.

Implications when the Joint Venture Terminates

Finally, it is important to understand what happens to intellectual property rights after termination of the JV.  Is one JV party able to license the other JV party’s background IP?   Who owns the IP developed by the JV?  Is it split by field of use or does one party have the ability to buy it from the other party, and on what terms?

These are important considerations to work out while the parties are in a honeymoon phase and they become very complicated to negotiate without parameters, especially if the termination occurs as the result of a disagreement between the JV partners regarding the operation of the JV.

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Larry Fox

Larry Fox

I enjoy putting deals together and acting as a trusted adviser to my clients. I have represented a broad range of companies from startups to Fortune 500’s. I am fortunate to work on a wide variety of matters including complex business agreements, intellectual property licenses, joint ventures, strategic partnerships, mergers, acquisitions, and company formation, financings and governance. I also serve as outside general counsel, responding to the day-to-day legal needs of my clients. Read Larry's Bio.

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