Compared with a typical research and development cycle the acquisition of IP often requires less resources (time and money). Depending on the IP status and asset maturity, the likelihood in a merger or acquisition increases that the developed products or services achieve commercial viability.

However we face limitations for mergers. Especially if two major market players think about collaboration opportunities, the selectable options might be restricted for example by anti-trust regulations. Hence, we need to search opportunities underneath full-scale mergers or acquisitions. More reasons/need for (sole) IP collaboration...

What are potential models for IP collaboration?

IP Licensing: Permission to use Intellectual Property transferred between two parties, the IP provider/owner and the recipient/licensee. For example technology licensing is an agreement where the owner of a technological Intellectual Property (the licensor) allows the other party (the licensee) to use, modify, or sell the technology, usually in exchange for compensation. More tightened, the licensor allows the licensee in a component business a product with embedded technology rights, i.e. to install and resell a core processor from the licensor in a computer produced by the licensee.

Contract R&D: One party sets the ambition, establishes the objective and pays. The other party conducts research to meet the objective. The roles and responsibilities are clearly set within the contract. We know them from all kind of supplier – customer relationships.

Joint Venture: Companies enter a JV and combine their IP assets as key contributions. An IP joint venture can involve patent and/or trademark sharing. It can be extended to an R&D JV. Limitations to a certain field of technology can occur. Such joint ventures are common.

Joint Ventures are the most collaborative models listed here, having four lifecycle stages:

  • Pre-contract, before the signature of the joint venture agreement
  • Contract, signing a joint venture agreement
  • Implementation, fulfilment of the JV contractual obligations
  • Termination, end of the JV contractual obligations

All stages incorporate distinct challenges. The JV parties must agree on the value of the contributed IP assets and balance contributions somehow in the contract. During the life of the partnership they have to work together. In this stage the JV partners assess regularly their respective responsibilities and royalties to adjust and maintain successful business collaboration. Joint ventures often operate like startup businesses incorporating similar uncertainties and risks. Even at the very beginning of the JV endeavor it has to be clarified how the exit of a partner and the termination of the JV will be organized and how the existing IP assets will be shared.

IP consultants involved in a transaction have the following responsibilities:

  • Understand the transaction and its implications for the involved parties, especially with regard to the IP assets and related liabilities
  • Conduct an IP due diligence (IP DD) to identify exactly what each company is contributing to the JV and to establish the legal strength of the IP rights
  • Assemble the DD results with insights from a technological analysis and a commercial assessment to an IP assessment of all parties, i.e. to determine if they cover the required technical field, products/services and geographic region
  • Develop an IP landscape for the JV and suggest options for future development Create the JV business model
  • Support contract creation and negotiation, including representations, warranties, covenants, licenses, transition agreements, exit rules
  • Support and coordinate post-closing IP tasks, i.e. prosecution and maintenance

Case study: Competitors turn into IP partners

In a project we saw two global players active in the same segment as major suppliers to the manufacturing industry. Developing new products and services based on similar technologies and addressing the same customer segments, both parties weakened their mutual IP position by opposing heavily to patents of the other company in the past. As the market situation becomes more challenging and new competitors emerge, both players feel that they need to protect their technologies and products more comprehensively. The companies decided to switch from an attitude of confrontation to a new age of collaboration. Due to expected conjoint market share they would not get an approval to merge their respective businesses in full. Instead they intended to work together as partners rather than to continue to hinder or even destroy IP value mutually as bearish competitors. Both parties entered discussions on creating an IP and R&D joint venture while keeping the product/service commercialization separate.

We were asked to run an IP assessment to determine the strengths and weaknesses of both parties' IP portfolios that will be transferred to the JV. The intention was to provide an unbiased view on the portfolios that cover the respective technologies and to perform a qualitative assessment split in three parts.

  • The legal assessment covered all aspects related to the selected IP rights status, ownership, patentability for pending decisions, freedom-to-operate analysis, scope of protection, potential circumvention and breadth of coverage, detectability and enforceability. The different patent families under consideration were evaluated and ranked in the appraisal.
  • In the commercial assessment we outlined the industry attractiveness market-, demand-, development-, and competitor-wise. We evaluated the position of both contributing parties with regard to market access, customer relation and value chain contribution. Recommendations were developed to enforce the identified strengths and to overcome the important weaknesses.
  • The technology assessment and patent landscape part comprised a thorough search definition of relevant attributes. The tool-based IP literature analyses retrieved existing and potentially new competitors, as well as stakeholders active in the same, alternative or adjacent technologies. We identified main levers from the patent landscape to drive the value chain and the technology development further.

Finally, the overall comparison confirmed the joint venture creation. The JV can become an enabler to leverage synergies, to benefit commercially and to resolve existing IP's legal weaknesses in the future.

Patent pools offer a particular way of IP sharing but not necessarily for collaborating. Patents are aggregated from different patent holders. The IP rights are made available to pool members and can be licensed even to non-members. The creation of a patent pool can save patentees and licensees time and money. In case of blocking patents, it offers a reasonable way for making the invention available.

Building a patent pool and other transaction types like acquisitions or target searches can be appropriately encouraged by an IP assessment. For example if a company pursues a sale of a subsidiary or business unit an IP assessment makes sense to design the carve-out transaction successfully. The carved-out business often shares IP assets with its parent and other affiliates. In this case, the assessment including an IP due diligence becomes critical to identify the assets transferring to the target company and those remaining with the seller. All parties have to determine licensing or other ways of providing IP to the carve-out or its buyer company, either for a transitional or long-term period.

Conclusion: Joint ventures and especially IP JV offer a valid opportunity for both partners to achieve their objectives in the collaboration without too much liabilities and risks. Based on clear contract terms the companies are able to benefit from the joint IP efforts in a fair manner. IP terms should not be too restrictive, and be creative enough to allow for the full economic potential to be unlocked by each of the partners. IP assessment results are valuable to determine the best way to create, run and even terminate transaction-based collaboration models.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.