The IP considerations in relation to joint ventures can vary considerably in complexity, depending on the nature of the JV. At the simplest end of the spectrum is a JV that operates wholly independently from its shareholders in terms of intellectual property rights. At the most complex end of the spectrum is a JV where there is a high degree of IP inter-dependency between the JV and the shareholders, for example where the purpose of the JV is to develop new technology starting from base technology contributed by each shareholder and where the shareholders will have the right to use the JV's new technology in their own businesses.
For all JVs, the following questions should be considered at the outset, bearing in mind that the default position at law and in a typical template shareholders' agreement is that the JV will have no rights to use any shareholder's IP and no shareholder will have any rights to use the JV's IP unless those rights are conferred under a separate licence.
Name and branding
What will the JV be called and will its operations involve the use of the name or brand of any of the shareholders?
If a shareholder's name or brand is to be used, the JV will require a licence from the shareholder permitting and defining the terms of that use. The licensing shareholder will require appropriate controls on the scope and manner of use of its brand and to regulate issues such as who may apply for trademarks registrations, domain names and social media handles relating to the brand (and what happens to these on termination of the licence), and how third-party infringements of these rights are to be handled. Most importantly, the parties will need to agree on whether the licence is royalty bearing or royalty-free (and tax (transfer pricing) implications will need to be considered) as well as the circumstances in which the licence will terminate (typically the licensor will insist on the licence terminating if it exits the JV, but see “exit of a shareholder” below).
If the JV will be jointly branded with the names of both shareholders, the complexity is increased. The JV will require licences from each shareholder and those licences will need to address the extent of permitted co-branding. Where co-branding is contemplated, the parties should consider whether a separate JV governance regime is required to facilitate decisions in relation to the JV's branding and it is not uncommon to have a separate “brand committee” for this purpose.
The JV’s rights to use shareholder IP (other than brand rights)
Aside from branding, does the JV need to use any IP or confidential information of any of the shareholders in order to carry on the agreed business plan?
If the answer to this question is yes, an appropriate licence will need to be put in place and, again, the parties will need to agree on whether this is on a royalty-free or royalty-bearing basis and the circumstances in which it can be terminated. A common area for discussion is the breadth of rights covered by the licence – whether the licence covers only specifically identified rights (typically the licensor’s preference) or more generally covers any rights that the shareholder may have from time to time. In some circumstances – for example where the shareholder is licensing-in to the JV particularly valuable proprietary software for a specific JV-use case but with wider application for the shareholder’s business, that shareholder may push to retain ownership (insofar as legally permissible) in any developments made by the JV to the licensed IP (a so-called “grant-back” clause).
IP developed by the JV
The default position (assuming that there is no shareholder licence containing a “grant-back” clause) is that the JV will own any IP that is developed for or by it using its employees or contractors (subject to the terms of the agreement with the contractor). If it is likely that development work will be performed for the JV by personnel of any of the shareholders then this should be documented under a service agreement or secondment agreement containing appropriate IP transfer provisions to the JV.
Shareholders’ rights to use the JV’s IP
The parties should also consider whether the shareholders should have rights to use the JV’s IP and if so on what licence terms. Typically, this is only the case where the reason for establishing the JV includes the development of technology or rights which are intended to be of benefit for the shareholders’ respective businesses and where that use will not compete with the JV’s own use.
Exit of a shareholder
Thought should be given at the outset to what would happen if a shareholder which will be licensing important IP to the JV ceases to be a shareholder. In particular, where the exiting shareholder may terminate the licence, the impact of this on the JV’s ability to carry on its business would need to be factored in to any valuation mechanism relating to that shareholder’s shares. The parties should also consider whether any licences granted by the JV to the shareholder (if applicable) should survive in any circumstances, for example, if all shareholders are disposing of their interest to a third party.
Termination/winding up of the JV generally
The default position will be that the IP owned by the JV will be treated in the same way as any of its other assets on a dissolution or winding up. The parties should consider whether a distinction should be drawn such that on a solvent winding up of the JV there will be triggered an automatic grant of a licence to the IP to the shareholders, or an option for a particular shareholder to purchase or be granted a licence in respect of the IP.