Software development intellectual property joint ventures

IP Joint Ventures

Intellectual property joint ventures can work brilliantly in the new world.  Many software developments are as a result of joint venture arrangements pooling technical expertise with marketing and financial resources. But, not all intellectual property joint ventures work without a hitch. Based on our experience, we have shared our thoughts on where we see these collaborations go off the rails.

One of the biggest problems lies in the intellectual property ownership in joint ventures. The commercial reality is that where there is no agreement in place any intellectual property resulting from the joint venture may be jointly owned. This rule applies even if this is not what the parties intended.

Intellectual property joint ventures feature in many industries. We have seen a marked increase where software development is the primary purpose of the venture. Technology fields where software development and joint ventures work well include:

• Mobile applications;
• Financial reporting software;
• Robotics;
• Artificial intelligence;
• Augmented reality;
• 3D holographic technology; and
• Drones

The need to collaborate often brings together large businesses with smaller specialist software houses. We do work for the smaller specialist software houses and often see how easy it is for them to be bulldozed by large corporates with their own in-house teams if they don’t have good lawyers..

Intellectual property joint ventures – 3 areas to consider

If you are involved in software development you should think about:

• Disclosure
• Contribution; and
• Ownership.

We have given a snap shot of what all this means as a guideline to help you structure your joint venture agreement for success.

Intellectual property joint ventures – disclosure

The first step to any intellectual property joint venture is for you to disclose the intellectual property (IP) you are bringing to the table.  Disclosure should be made before new intellectual property rights are created under the software development. The point of disclosure is for you to ring fence your own intellectual property.

Identification of the IP disclosed

How the pre-joint venture intellectual property is identified depends on the nature of the intellectual property right. For example, software can be identified using design drawings, notes, coding and flowcharts. Patents can be identified by patent applications and patents numbers.

Existing intellectual property should be set out in the joint venture agreement and signed off by you and the other members of the venture.

IP Joint Venture risk areas

Your risk in skipping over disclosure is that use of new or enhanced intellectual property that is created using existing intellectual property will require the consent of the original creator. A requirement to obtain consent post collaboration will decrease the value of the software created.

A further risk is if consent is not given, use can give rise to a potential intellectual property infringement. In the case of software, this will be protected under copyright. Copyright is not capable of registration. This means there is no record of ownership if not recorded.

Intellectual property joint ventures – contribution

An intellectual property joint venture agreement should identify your contribution to the joint venture. You also need to be clear about who else is doing what.

Commercial risk areas

We find that disputes frequently arise concerning the income resulting from the monetisation of the intellectual property. Where there is no agreement, any income will be split equally. However, if you have made a bigger contribution you may want to specify a larger share of any income. A joint venture agreement can detail any income sharing arrangement.

Intellectual property joint ventures – ownership

The default position is that combining the ideas of multiple persons results in the joint ownership of the ideas or intellectual property. The implications for you are that without an express agreement, exploitation including assignment and licencing of intellectual property is fraught with practical problems. The rules on consent of all the joint owners vary across different jurisdictions and between different types of IP rights.

Risk areas

Disputes often arise where agreement can not be reached on how the IP should be exploited and to whom. A typical problem is that in the UK joint owners of copyright in software cannot licence the work without the consent of all the joint owners. Lack of agreement and consent can stifle business development and growth.

You may have different ideas about how to take the software developed to market.  Where there is no agreement in place for the ownership of the software developed under the collaboration agreement much time is wasted battling these issues out.

Solutions to potential risks

Software to be developed can be assigned before it is conceived. One solution is therefore to address the ownership of software at the start.

Specific rights can also be divided between you and the other parties to the joint venture. For example you may wish to retain the right to licence the software, whereas the right of assignment can be subject to the consent of all the parties.

We advise including provisions within an intellectual property joint venture agreement covering key issues such ownership, assignment, licencing, enforcement and infringement.

Bigger picture

Non-intellectual property issues can and should  also be addressed in intellectual property joint venture agreements. Some examples include:

Project timings

Many collaborative works follows a critical path. Timings tend to be tight with key milestone along the way. Failing to hit milestones can give rise to a payment for damages particularly where there is a knock on effect. If you are subject damages payments we suggest a period for rectifying the position is drafted into the agreement before the payment becomes payable.

Civil liability

In a joint venture agreement for the development and testing of drones, the liability for trespass when testing, or accidents and damage to property can be included.

Trouble shooting

If you are involved in technology involving robots you will need to trace back the responsibility. Often, errors cannot be attributed to anyone person. So, you need to consider the use of provisions addressing contributory fault.

Insolvency

An important provision and often overlooked is what happens to a contributor’s share of the intellectual property in the event he becomes insolvent? If there is no agreement dealing with this point, the share could end up in the hands of a liquidator.  We draft the agreement giving each collaborator the right to buy another collaborators share of the intellectual property should certain events take place.  Events include death, disability, bankruptcy or liquidation.

New markets

The collaboration may take the software into new market areas not thought of at the start. You may find that new product ideas arise.  A successful collaboration will have addressed this possibility at the planning stage.

Sale of IP

You may find that opportunities for outright sale arise earlier than expected. We often advise clients to create company at the outset to hold the intellectual property arising from the joint venture.  The company is often known is a special purpose vehicle(SPV). When it comes to selling the intellectual property, a potential buyer will buy the shares in the SVP.  The complexity of assignment or licensing is stripped out and the buyer acquires the Company and the intellectual property in one go. This is almost always more attractive to a potential buyer.

See also our general service page on what to consider and include in a joint venture agreement.