Intellectual Property (IP) in Joint Ventures
A joint venture is often interesting for companies that have been active in their market for a longer period of time and that want to tap into new markets or achieve synergy and scaling benefits by working together in a joint venture. Then the joint venture partners each become a shareholder in the newly formed entity, the joint venture (JV).
In joint ventures agreements, provisions explicitly acknowledging and confirming the contribution and/or use of intellectual property rights and technical know-how are often forgotten.
A pity, because IP-related issues usually play a major role in joint venture agreements. After all, it is essential that consideration is given to questions such as: will the rights regarding the business plan, data, the product, the product name or design, be transferred to the JV by a contributing partner, or does the JV only acquire a (exclusive) right of use (i.e. license)? Who will be entitled to the newly developed intellectual property rights? What happens in the event of an exit or termination of the JV?
IP rights in joint venture agreements
If it is the intention of the parties to transfer (certain) intellectual property rights to the joint venture, or to grant the JV an exclusive license for the use thereof, this generally has to be recorded in writing. This is because many types of intellectual property rights, such as trademarks or copyrights, are subject to the statutory requirement of having a written deed or agreement. In addition, the various types of intellectual property rights often have their own specific laws with rules that may vary from country to country.
The most common intellectual property rights in joint venture agreements are the following:
- Patents: these are relevant for new, technical inventions (a registration is required for patents);
- Trade names: these are relevant for protecting the company name under which the JV will operate (a trade name right requires the use of the trade name);
- Trademarks: these include, for example, names or logos that distinguish the product or service of the JV from competing products (a trademark requires a registration and needs to have distinctive character in order to become registered);
- Copyrights: these are relevant, for example, when it comes to ‘works’ such as software (source code), designs and product design (the work must have its own, original character and bear the personal stamp of the creator);
- Designs: these are relevant for new designs, drawings and other external design elements (registration is usually a requirement, as well as novelty and individual character of the design)
- Database rights: this is relevant in the case of a collection of data in which a substantial investment has been made.
Other relevant (property) rights in joint venture agreements may include:
- Domain names: which are usually superseded by trademark and/or trade name law; and
- (technical) Know-how and trade secrets: which are not regarded as separate intellectual property rights, but which do have an independent legal basis in the Dutch Act on the protection of trade secrets. You can read more about this Act on the protection of trade secrets in the Netherlands in our previous blog.
When preparing a joint venture agreement, it is important to have insight in which IP rights will be important to the JV. Are these IP rights (partially) contributed by a JV partner or should they be developed in the context of the collaboration in which the JV will ultimately be the beneficial owner?
License or transfer of IP?
Intellectual property and certain (technical) know-how are often contributed or transferred to the joint venture. The intention is usually to transfer these rights in the name of the JV. Thereby the contributor shows a significant trust in the JV and the other JV partners. This is all the more true when the transferring partner does not have a majority controlling interest in the JV. The contributing JV partner should thus be aware of the associated risks. After all, once intellectual property rights have been transferred (in writing) to the JV, as of then, the JV determines what happens with these IP rights. In principle, a transfer is irreversible, since the possibility of dissolution and/or annulment of the transfer agreement is usually contractually excluded. If the transferring JV partner does not have a majority stake in the JV, he will effectively also lose control over the IP rights.
In order to limit these risks, an (exclusive) license is preferred compared to a complete transfer of IP rights and know-how.
After all, a license only provides a limited/temporary right to use the IP rights and any know-how. The license should then automatically expire when the JV agreement is being terminated, when the contributing partner resigns, or when certain milestones have not been achieved. With a license there is also no risk of losing the IP rights and know-how. A license (right of use) therefore offers more security and flexibility.
Another alternative to risk mitigation could be a ‘reversed transfer’ (or sale and lease back construction). This can be stipulated in the event of termination of the JV, the exit of the contributing partner, or the failure to meet contractually agreed milestones. Should such a situation arise, the previously contributed rights will revert back to the joint venture partner and the JV could instead, for example, obtain a limited right of use from this former joint venture partner.
Conclusion: start at the end of the JV!
It may sound strange, but in short, the above means that already at the start of the collaboration, consideration should be given to the possible termination of the JV. Most of the IP-related procedures in the Netherlands that I encounter in my practice are directly or indirectly the result of a collaboration that initially started enthusiastically, but turned out to be less rosy down the road.
Precisely when the atmosphere between the future partners is good, it is easier to think about the possible consequences if the cooperation ends. This also forces the parties to take a critical look at the JV’s business case: what is needed to achieve goals, what foreseeable dependencies and risks exist and how can these be dealt with?
In short, when drawing up the JV agreement, think about a potential exit!
If you have a question about intellectual property rights, please contact Chantal Bakermans of Penrose.
Law firm Penrose, Amsterdam.
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