Adventures in Intellectual Property

By: LuAnne R. Morrow, JD Borden Ladner Gervais LLP

The joint venture in the energy and resources industry is a very common way for businesses to combine their expertise and assets to accomplish a common project, which may not be possible for one party to accomplish on its own. There are many benefits to be derived from such a relationship, but there are also many issues that arise and that need to be addressed at the outset of the joint venture. One of the key areas that is often overlooked by joint venture participants is intellectual property, such as patents, patentable inventions, trade secrets, research, software (the subject of copyright), and trade-marks. Awareness of the potential issues related to intellectual property, its value to a joint venture and properly addressing these issues in the joint venture agreement are keys to successfully capitalizing on intellectual property in joint ventures.

Joint Ventures

A joint venture is an association of corporations or other legal entities who agree by contract to engage in a common undertaking for joint profit. The parties combine their resources but do not intend to create a legal partnership. Typically the parties to a joint venture (or the “venturers”) contribute money, property, effort, intellectual property, knowledge, skill or other assets to a common undertaking such as a large construction project or resource play.

The venturers typically agree to some level of mutual control or management of the project and share in the profits. Joint ventures are limited to a specific undertaking.

Due to the nature of joint ventures they may often be construed as partnerships, either under a statutory definition such as that in the Partnership Act or in common law. In fact it is common for parties to choose to create a formal partnership rather than a joint venture to bring clarity to such relationships and to allocate liability.

It has been suggested that joint ventures should be given a more formal statutory legal definition, which may be a sign of their popularity and their pitfalls.

Intellectual Property Issues

At the outset of a joint venture one or more of the venturers may have intellectual property that they have developed, own or license and which they intend to contribute to the joint venture. In many cases the express reason for parties to form a joint venture may be to pool resources to develop intellectual property to solve a particular production problem or environmental concern. Another typical scenario may entail a party with the intellectual property who does not have the financial resources to put the intellectual property to use in a project and joins with other parties to share those costs. When embarking on a joint venture the parties should have a clear understanding of what intellectual property they own and what they will share or contribute to the joint venture.

The venturers should also agree as to who will own any improvements to existing intellectual property and new intellectual property that is developed during the course of the joint venture project, how it will be determined what has been developed, who will protect that intellectual property and how it will be shared among the venturers. Venturers need to also consider what will happen to the intellectual property when the joint venture is complete or if it is terminated – will the parties be able to continue to use the co-developed intellectual property? Will royalties or other licensing fees apply?

Pitfalls Unique to Joint Ventures

When a joint venture fails to consider or manage the intellectual property needed for the project there are numerous pitfalls the venture can fall into. For example, it may be unclear who owns the intellectual property contributed to the project, improvements on such intellectual property or new property that is developed. Such ownership disputes can be costly and protracted and sideline an otherwise profitable project.

Another common pitfall that joint ventures, and partnerships, often fall into is confusion over when employees are acting on behalf of the joint venture or one of the venturers. This is a concern in multiple contexts but in intellectual property it can cause confusion over ownership. Intellectual property created in the course of employment is typically owned by the employer, if it is not clear who the employee is acting for at the time of creation it may be unclear who owns the intellectual property. That issue can be further complicated by scenarios where individuals are employed by a venturer and contracted to the joint venture. Contractors own their intellectual property unless they have expressly agreed to assign it, so if the joint venture does not have adequate agreements with contractors ownership may reside with more than one party.

Intellectual property created in the joint venture may continue to generate revenue after the project is concluded, for example by way of licenses to third parties. A common pitfall is the failure of joint venture parties to account for such profits and create a mechanism for collecting and distributing them after the joint venture is concluded.

Joint ventures must also prepare for the costs associated with protecting intellectual property. Applying and securing a patent is a lengthy and expensive process. Failure to determine who will manage that process and how the costs will be shared can lead to costly disputes. Failure to stop others from using the intellectual property of the joint venture without authorization may also result in the property losing its proprietary nature and value, and the venturers should determine who will be responsible for enforcing intellectual property rights among the venturers.

Trade-marks may also present pitfalls for joint ventures. Trademarks must be consistently used and if used by more than one party such use must be by way of a license subject to certain controls. Failure to address the trade-marks used by the joint venture may result in loss of rights in such trade-marks.

Best Practices

Include Intellectual Property Terms in the Joint Venture Agreement First and foremost the joint venture agreement must contemplate intellectual property contributions, ownership, development, and protection at a minimum. All intellectual property is not created equal and the venturers should seek expert counsel who understands the differences in the law pertaining to patents, trade secrets, industrial designs, copyright and trade-mark. An agreement pertaining to the ownership for one form of intellectual property may not apply to another form and special considerations concerning disclosure and who developed the property can have long term impact on the protection afforded to certain forms of intellectual property.

Create an Intellectual Property Management Plan for the Joint Venture

As part of the planning for the joint project intellectual property should be considered and made part of the plan. Progress reports on the venture should include updates on intellectual property and there should be an individual designated to manage the intellectual property of the venture to ensure it is dealt with in accordance with the joint venture agreement.

Clarify Employee Roles

It is often the case that an employee of one of the venturers will have employment duties related to the venturer company and to the joint venture project. When such an employee is employed in research and development, software development or invents or creates, or has access to trade secrets as part of their job they need to have a very clear understanding and separation of their duties. This can be accomplished by clear job descriptions, minimizing the number of employees who have responsibilities to the joint venture and one of the venturers, having employees work in separate offices and use separate computers to delineate between their roles, or having employees who create intellectual property be employed by a separate entity.

Create a Jointly Owned Separate Legal Entity to own Intellectual Property

Many joint ventures choose to create a legal entity that the venturers control to hold all of the intellectual property of the joint venture. Such an entity will license the intellectual property to the various venturers and applicable third parties, be responsible for managing and paying the costs for filing for protection of the intellectual property by way of patents, trade-marks, industrial design or copyright registrations, enforce the rights in the intellectual property, control the flow of trade secret information and manage its protection and be the licensee of any intellectual property contributed by the venturers to the project. The separate legal entity can also be a practical way to manage any ongoing royalty arrangements or profits from the intellectual property developed in the joint venture after the project is complete and a good way to manage liability and shield potentially one of the most valuable assets of the joint venture.

Think Ahead

Research and innovation play an increasingly important role in the energy industry and more and more joint ventures will be formed with the express intent to capitalize on new innovations or to pool resources to create new solutions. Failing to address the unique issues that arise around the development, ownership, use and protection of such intellectual property can be costly and detract from the success of the venture. Taking the time to understand the issues and address them will pay off in the venture and possibly well beyond.

LuAnne Morrow is a trademark agent and lawyer at Borden LadnerGervais LLP. Her intellectual property law practice specializes particularly in the areas of trademarks, copyright, patent licensing and trade secret protection. www.blg.com