Collaborating Can Create Legal Headaches if the Appropriate IP Agreements Are Not in Place

If you run a small business, you have probably given some thought over this recession to how you might be able to collaborate with other businesses to generate some additional revenue for your business. I know that this is definitely something that I have been thinking about for my practice, and it is something that I get calls about regularly from other small firm attorneys and businesspeople. But, if you have been giving this idea some thought, have you considered the legal issues that could arise from such a collaboration, and any agreements you may need to put the plan into motion? If the answer is "no," then you may be stepping into a legal minefield.

Regardless of the business you are in, when parties collaborate, there is a high likelihood that intellectual property is going to be at stake in the collaboration. Now, I get told all the time by small businesses that "they would love to work with me, but they aren't in the right kind of business," but the truth of the matter is that most businesses do in fact create intellectual property, regardless of the industry that they are in. For example, most businesses have trade secrets and confidential information to protect that they don't want their competitors to exploit, which might include such items as customer lists, know-how, business plans for development, and product ideas. Also, most businesses have copyrightable works to protect, which might include such items as a web site, business cards, advertising materials, and presentations. Finally, most businesses have marks to protect, which includes such items as logos, slogans, and company branding. Thus, since most businesses have intellectual property, it is logical to think that intellectual property issues could arise in the context of any collaboration, and that these issues probably need to be addressed through agreements prior to launching the collaboration. If such issues are not addressed, then there is a high risk that the parties will end up in an argument that could develop into a legal dispute over the ownership rights in what was contributed to collaboration, or in the alternative, over what was created through the collaboration.

So, what should you consider if you are thinking about a collaboration?

Well, first and foremost, you need to think about any trade secrets and confidential information that will be exchanged by the parties in the context of the collaboration. Who will be providing information to whom? What information will be provided? Each party should give careful consideration to what will be supplied to the other party, and then the parties need to draft and enter into an agreement which reflects those plans. Contrary to popular belief, all confidentiality agreements are not equal, so you should make sure that the agreement you sign is appropriate to the particular collaboration at issue.

Second, you need to think about whether you need a separate legal entity to deal with the collaboration, or if an agreement is going to be adequate to define the rights and responsibilities of each party. This typically depends on the plans for the collaboration. Is this a one-time collaboration, or an ongoing, multi-year collaboration? Is the work going to be limited in scope or extensive? Agreements are usually adequate to deal with a collaboration if it is limited in scope, but if your plans are to really to establish an ongoing collaboration with multiple projects under the same umbrella, then establishing a separate legal entity may be more appropriate.

Third, you need to think about what intellectual property, if any, each party is contributing to the collaboration and what intellectual property, if any, is likely to come out of the collaboration. In collaborations, it is common for the parties to each contribute confidential information and trade secrets to the collaboration, and it is also common for them to contribute inventions or copyrightable works into the collaboration. Is this contribution permanent, or is it really only a limited authorization or license to use the intellectual property? If it is permanent, then the transfer should perhaps be drafted as an assignment or exclusive license. Each party's contribution needs to be defined precisely and then the parties need to define the nature of the contribution and document it through the appropriate type of intellectual property agreement. The same is true with respect to what comes out of the collaboration: the parties need to determine what will be generated from the collaboration, and who will own the rights to what is generated.

You should note that if joint ownership is chosen to deal with the IP generated through the collaboration, that this arrangement brings with it its own problems, as each party will have the right to commercialize the IP itself without the other party. Although this can be dealt with by agreement, the parties will have to work out all the possible issues in advance very carefully, in order to avoid any potential problems arising down the road.

All and all, collaborations can be an excellent manner of generating new revenue for a small business, but they are a little more complicated to get up and running correctly than most business owners realize, as a lot more issues need to be addressed up front than the average business anticipates. While some do successfully ignore those issues without getting sued, you do so at your own peril:you run the risk of stepping into a legal minefield that could go off at any time if you fail to deal with all the prospective issues that could arise before you move forward with the collaboration.