Now more than ever, companies must think outside the box and innovate in order to remain competitive and relevant in a constantly changing technology landscape. A previous article in this series addressed how to protect innovation through non-disclosure agreements (NDA). However, a joint development agreement (JDA) is also an important tool in the in-house lawyer’s toolkit.
As with timing of execution for an NDA, a JDA should be executed by the parties prior to the start of any development. The first reasons for doing so, and perhaps the most important, is the need for the parties to agree on ownership of future IP. Certainly the parties may agree that one entity will be the sole owner of all jointly developed IP, which eliminates many of the joint ownership issues, apart from obligations with respect to perfection and assignment of patent rights. However, the complexities of the issues of joint ownership make it necessary to agree to more detailed terms.
Under U.S. Patent Law, an inventor is the owner of a patent unless the inventor’s rights are assigned through an agreement (even an employer must have a validly executed assignment of rights from its employee in order to own the rights to the invention). Without an agreement, the inventor is free to exploit the invention in any way, including transferring rights to competitors. This is technically true even in a joint inventorship. As an owner under the law, one co-inventor does not have to answer to the other when exploiting the invention. However, most recipients of the transferred rights will require a representation that the rights are free and clear from any claims of ownership.
Consequently, to minimize these risks, the agreement should explicitly set forth the terms of joint patent ownership. For example, the JDA should set forth how management of the patents will be handled (e.g. shared or handled by one party), how costs will be allocated between the parties during IP procurement (e.g., before the USPTO) and during litigation, and how exploitation of the invention will be handled.
By executing the JDA early, both parties will also be in agreement on the rights and obligations with respect to existing IP, if any. This is not always a consideration, since the parties may not necessarily have any existing IP with respect to the technology involved. When there is existing IP, though, the receiving party is typically granted a limited license (and sometimes the right to grant a limited sublicense) to make, use and/or sell the invention. This is usually done so that the benefits of the collaboration are not hampered, but the IP owner’s patent rights are also not fatally impacted (in other words, to avoid a “patent exhaustion”).
Also laid out in the JDA should be a clear description of indemnification obligations. Indemnification addresses the parties’ obligations of reimbursement for handling third-party claims of infringement based on the developed product. Depending on the terms of the agreement, it will require one or both parties to indemnify the other party for any losses resulting from the infringement claims. In a typical scenario, the risk is allocated to the party that is providing the technology or product accused of infringement.
Collaboration with external parties is a valuable way to foster innovation by bringing new perspectives and new ideas. However, involving external parties is not without risk with respect to proprietary information and intellectual property rights. These risks can be mitigated by ensuring that the parties have the proper agreements in place. An NDA preserves confidentiality and, in turn, trade secrets and patent rights. If the circumstances warrant it, a JDA should also be executed to address the existing patent rights of each party and the parties’ obligations and rights with respect to future IP. Of course, having a joint NDA and JDA is always possible. Whether the agreements are separate or combined, ensure that you always work with the Law Department to draft and execute the proper agreements early in the collaboration. Without these agreements in place, your organization may be at serious risk of jeopardizing the proprietary information and intellectual property rights which are vital to your competitive advantage.