The following article appears in the journal JOM, 49 (2) (1997), p. 68. JOM is a publication of The Minerals, Metals & Materials Society

Understanding Joint Technology Development Arrangements

There is an increasing trend in business today toward the joint development of technology by two or more corporate partners. Whether these arrangements are called joint development agreements, joint ventures, corporate partnering, or other names, there are some basic legal considerations that must be considered when a joint development of technology is employed.

Typically, the motivating factor for a joint-development arrangement is that each of the parties brings a needed piece of the technology puzzle to the table. For example, one company may have excellent basic research, but not the practical development expertise needed to launch a successful product. Another common situation involves the joint adaptation of an existing product to a new market. For example, a maker of printing inks may partner with a company that owns glass-decorating equipment and process technology in order to develop a better printing ink for glass bottles.

The joint-development arrangement is usually embodied in a written contract between two or more partners. The contract is the framework on which the relationship is built and must be negotiated and drafted carefully and completely in order to be effective. The contract may govern the relationship of the parties for many years and may be referred to when conflicts or other issues arise. Thus, it is important to raise and negotiate the major points at minimum of the contract in order to avoid uncertainty and potential time-consuming and expensive litigation.

An issue that arises in any joint-development arrangement is the contribution of each partner to the project. In the written contract, each partner's contribution can be set forth in a list or table that is either part of the main contract or an appendix to it. This can include the scope of the work, where the work is to be performed, a schedule for the completion of various tasks, and which partner will perform each portion of the work. An important consideration is so-called background technology. Often, one or more partners will own patents or trade secrets that must be used if the joint development is to be a success. In this case, licenses may have to be granted under the contract, or if a new entity is formed for the joint development (such as a joint venture company), licenses may have to be granted to that new entity. As with any legal document, the more specific the listings of each partner's contribution, the better the contract.

A very important, but often overlooked aspect of a joint-development arrangement is the ownership of any intellectual property rights arising out of the development work. For example, during the term of the contract, if an employee of partner A and an employee of partner B jointly create an invention, who owns the resulting technology? There are a number of ways of resolving technology-ownership issues. The key point is that the issues must be raised in negotiations, and the resolutions reflected in the language of the contract.

One example of a possible resolution of the technology ownership question would be to determine that those inventions that are created as a result of work on the contract solely by an employee or employees of partner A are owned by partner A; inventions that are conceived during the term of the contract solely by an employee or employees of partner B are owned by partner B. In the case of inventions conceived jointly by an employee or employees of both partners, the invention can be owned in joint, undivided interests by partner A and partner B, meaning that either partner can practice the invention without accounting to the other.

A further consideration is territory for ownership of the invention. In some cases, one partner may want ownership of all inventions in a specific country created during the term of the contract, whether created by their company, the other company, or jointly. Finally, the contract may also specify that although one partner may own the invention, the other may have a license to use or practice the invention either for a royalty payment or royalty-free. The license can be either exclusive or nonexclusive.

Ancillary to the ownership issue is the responsibility of the partners to file, prosecute, and maintain patent applications on the inventions. Usually, the owner of the invention is given the first right to file, prosecute, and maintain (as well as pay for) patents throughout the world. In the event of joint ownership, the partners may share in the costs of the patents. If the first right is not exercised, the contract usually requires that notice be provided to the other partner or partners, and the notified partner or partners then have the right to file, prosecute, and maintain the patents. In that case, it is conventional that the partner who undertakes the expense of filing, prosecuting, and maintaining the patents will assume ownership of them.

Another major issue is termination. This issue is often avoided because it is akin to discussing with your future spouse what happens if you get divorced. Unpleasant as it may seem, full discussion concerning how a contract is to be terminated and the ramifications of such termination will avoid many later problems that can lead to costly and time-consuming litigation. Termination clauses must be drafted carefully and completely because it is those clauses that are the most carefully reviewed once a relationship starts to go wrong.

Termination clauses should specify how and when one partner can end the relationship. Often, the contract can be terminated only by breach of contract by the other partner, subject to a period of time (usually 30 days) to remedy the breach. The termination clause should set forth detailed procedures regarding how notices (preferably in writing) should be made to the other partners and, importantly, the effective date of the notice (i.e., effective upon sending the notice or effective when the other party receives the notice). There should also be clear provisions as to ownership of the tangible assets (e.g., laboratory equipment) brought to the arrangement. Furthermore, any continuing rights to use the background technology or technology developed during the term of the contract should be spelled out.

For more information, contact A.B. Silverman at Eckert Seamans Cherin & Mellott, 600 Grant Street, 42nd Floor, Pittsburgh, Pennsylvania 15219; (412) 566-6000; fax (412) 566-6099; e-mail ARNIE@TELERAMA.LM.COM.