Joint Ventures Present Potential Rewards AND Risks

What are the most basic qualities characterizing a good joint venture?  I would argue that the most important keys are business synergies and a shared vision of what the companies want to achieve and how they can achieve more working together than working alone.  Equally important – and sometimes lost in the early optimism and desire to move quickly – is understanding and agreement as to:  (i) what each company is and is NOT bringing to the JV and what its responsibilities will and will NOT be; and (ii) what each company can do outside the JV – both during and after the JV’s existence.

Why is it so important to decide and define these things?  Because, chances are, if this is a truly strategic joint venture, these are the things that each party may want to pursue on its own (outside the JV), and they may very likely be directly related to, and often competitive with, the purposes and products of the JV.  This means that several key provisions of your JV documents must be carefully considered and drafted.  Some of those are as follows:

• Ownership of (and Rights to) Pre-Existing Intellectual Property – who owns the IP that each party brings to the table, and separate from ownership, does the JV (or even the other party) have any license or use rights to that IP during or after the JV’s existence?

• Ownership of Jointly-Developed IP – similarly, who owns the jointly developed IP, and what use rights do the parties have during and after the JV’s existence?

• Confidentiality and Use of Information and IP – what can the parties do with the confidential information and IP of each other and the JV?

• Assignment of Inventions – Are each of the parties (and their employees?) required to assign all inventions and IP resulting from their joint efforts to the JV?  Only those relating to the business activities of the JV?  What about after the JV’s existence?

• Non-Compete – what exactly can the parties do and not do during and after the JV’s existence?  Compete with JV?  Compete with each other?  And what does compete mean?

• Non-Solicitation – who can the parties do business with during and after the JV’s existence and what kind of business?  Pre-existing customers?  Non-competitive products?  Anyone and anything?  Etc.

Joint ventures present exciting opportunities. Just remember to carefully define the parties’ rights and responsibilities to avoid disagreements in the future.


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