Take one company that needs more resources to successfully exploit its intellectual property, add another company that has the needed resources of capital, technology, management etc., but not the great idea, and, if you’re lucky, a new legal entity is born: a joint venture!
When clients come to you with a proposed joint venture, you’ve got to be ready to discuss the key issues involved in exploring and structuring this new entity. Here are 15 critical issues to discuss with your potential joint venturers:
- Purpose and anticipated term of the venture;
- Respective roles and allocation of responsibilities of the parties;
- Governance, decision-making, and resolution of deadlock;
- The parties’ initial and ongoing contributions to the venture (in cash, tangible property, staffing, management, advertising credits, intellectual property, or other forms);
- The manner of contribution of intellectual property rights, i.e., an outright grant or assignment, or a license;
- Allocation of expenses and revenues from the venture between the parties;
- Antitrust issues, particularly when the prospective principals are major existing or potential competitors;
- Bankruptcy—addressing what happens if a principal files a bankruptcy case;
- A software or other technology escrow to protect one party against the failure of the other to perform or to continue to maintain key items of software owned by the first party and licensed to the joint venture;
- Allocation of ownership of intellectual property created in the venture;
- Potential liabilities of the parties, contractual limitations on liability, indemnification;
- Exit strategy, ideally tied to a clear definition of success and failure of the venture based on milestones and measurable metrics;
- Eventual distribution of intellectual property rights and other assets on termination of the venture;
- Tax considerations, especially if the transaction is cross-border or if a new entity is being formed; and
- Export restrictions on any applicable software, encryption, or other technology.
For an in-depth look at each of these issues, along with discussion of joint ventures and strategic alliances generally, check out CEB’s Intellectual Property in Business Transactions, chap 6.
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