JUNE / JULY 2004
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Using Joint Ventures for Technology Projects
by William S. Wyler
Schwartz, Manes & Ruby
Why a joint venture? There are many reasons. However, the two most common reasons are 1) to share the financial obligations on a project, which is too expensive for a single participant, and 2) to bring different areas of expertise together, for a project in which none of the participants have all the required areas of expertise. A joint venture can permit a company to participate in a development project it could never undertake on its own. However, when the joint venture involves high technology products careful preparation is even more important than.
Any agreement to form a joint venture must clearly define a number of issues, some obvious, some not. Several additional issues are specifically related to technology issues.
1) How profits and losses are divided, including determining how much must remain in the joint venture for R&D and marketing, both of which are priorities with technology products.
2) How liability issues are shared or divided. With technology products this issue is more complex than usual, since thought must be given to dealing with intellectual property infringement and misappropriation claims.
3) Who owns patents, trade secrets, and copyrights for ideas, developments, inventions, information, products, or other intellectual property, which is developed by the joint venture, if the joint venture is terminated? Who is entitled to sell, use or create new products with the intellectual property?
4) How are the trademarks and good will pertaining to the joint venture’s goods or services to be shared, if the joint venture is terminated?
5) What happens if one or more of the joint venture members fail to meet their obligations?
6) How are disputes settled? There are often disputes concerning the joint venture agreement. However, there are also disputes over joint venture operations, which are not covered by the agreement. There must be a mechanism for settling those issues without disruption of the joint venture operations.
There are clearly more issues to review, than these few. However, these issues are those important to technology ventures, which are often overlooked or not sufficiently thought through.
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