This article first appeared on North West Business Insider’s Blog
Necessity is the mother of invention, and I have seen evidence of this in the past few months – with an increase in collaboration.
Recently we have increasingly been asked to advise on commercial partnerships or collaborations – two parties bringing different pieces to the party to create something new and innovative, and sharing in its success. Of course, commercial partnerships are not new, but what is driving the increased demand?
They say that necessity is the mother of invention, and I have seen evidence of this in the past few months – with an increase in collaboration.
Typically, as lawyers we advise one ‘side’ of an arrangement; the supplier or the customer, the agent or the principal, the supplier or the distributor etc. More recently however, we have increasingly been asked to advise on commercial partnerships or collaborations – two parties bringing different pieces to the party to create something new and innovative, and sharing in its success.
Of course, commercial partnerships are not new, but what is driving the increased demand? In my view, it could be a combination of 3 things:
- Less fear of getting it wrong. While organisations face exceptionally tough times, business has not been running as normal. So, the thinkers out there have looked for opportunities: how can they make their business work in these circumstances? Sometimes this involves working with another organisation. What is the worst that can happen, given the situation in which we all find ourselves? Might as well go for it and make the approach!
- Community Spirit. The sense that ‘we are all in this together’ has perhaps led to organisations becoming more willing to open a dialogue and work together to see what they can achieve.
- Time is of the essence. The need to diversify quickly has meant organisations have looked for pre-existing capabilities in other organisations rather than take time to develop them in-house.
Collaboration comes in several different guises, most notably:
- commercial collaboration where two (or more) parties act in their own capacity but work together on a specific project
- the joint venture or ‘JV’ where two (or more) parties set up a separate corporate vehicle (usually a company) through which to pursue the new project or endeavour
- other profit-sharing arrangements such as an introduction agreement whereby the introducer shares its contacts with the other party in return for a commission on any resulting business
If you are considering a commercial collaboration, getting the basics right is essential:
Selecting your ‘partner’
Are you both on the same page as to your ultimate goal? Do you understand each other’s capabilities and limitations? Are you both enthusiastic about and invested in this project’s success? You don’t want to waste time developing an idea with an organisation that is not committed. You will need open discussions which might include disclosing commercially sensitive information. Entry into a mutual non-disclosure agreement at the outset is essential if this is the case, however the disclosure of extremely sensitive or valuable information should be treated with caution.
Once two parties are ready to partner, and agreed the key commercial details, you need to enter into a commercial Collaboration Agreement. Since the subject-matter of the agreement is co-operative, the general rule is the agreement should be mutual without bias in favour of either party. Getting this wrong and presenting a heavily one-sided contract is likely to upset your partner and contradict the collaborative nature of your arrangement.
The exact form of the Collaboration Agreement will depend on the nature of the arrangement, but it should deal with (amongst other legal matters):
- what each party’s contribution and responsibilities will be (financial and operational)
- how the profit split will work, how it is calculated and paid out
- whether any licencing of intellectual property is required and importantly, who will own/rights to exploit any intellectual property rights created during the collaboration
- information flow (including data protection considerations) and project management
- the risk being assumed by each party – who is insuring for what and how is each party’s liability to the other capped
- the protection of confidential information
- what happens on project termination
It has been interesting to see so many new collaborations spring up and flourish. With the right professional advice behind your collaboration it can undoubtedly support and create interesting new business opportunities.
I hope that this inspiring ingenuity is a long-term trend that outlives the pandemic.