Strategic Alliances in Technology: Addressing IP Ownership and Licensing Challenges

In strategic alliances, two businesses decide to work together not based on the buildings they own or the number of employees they have, but rather the value of know-how, the technology, the designs, and the software is what really drives the businesses. Intellectual property in such a strategic alliance is the lifeblood of the businesses. The alliances combine their own expertise, reduce costs, and accelerate market access through research collaborations, technology sharing, or joint ventures. However, such strategic alliance of businesses often creates complex IP challenges, including issues of IP ownership and licensing. Therefore, the absence of clear terms of ownership and licensing leads to IP disputes, loss of competitive advantage, or even termination of the alliance.

What are these strategic alliances?

Strategic alliances are agreements made between two independent entities to establish cooperative arrangements that pursue common objectives by utilizing their resources while remaining legally independent. These alliances can be as joint ventures, R&D collaborations, or technology partnerships, without full transfer of IP ownership and rights.

In India, the Indian Contract Act, 1872, is the main legislation governing these agreements, while the IP law, such as the Patents Act, 1970, Copyright Act, 1957, and Trademarks Act, 1999, regulates the IP rights involved, respectively. Globally, legal frameworks such as the TRIPS Agreement and the national IP laws of the countries involved govern the delineation of the IP rights and their management.

IP Ownership Challenges

There are IP ownership challenges often emerging from the unclear terms of the arrangements of the strategic alliances.

• Uncertainty on Foreground and Background IP
  One of the primary challenges arising in the alliances is the issue in differentiating the Background IP and the Foreground IP. The Background IP includes all the pre-existing IP of each entity, whereas the Foreground IP includes the IP created during the collaboration of the entities. Disputes often arise when the contributions are built upon the existing IP technologies or when they overlap with such pre-existing IP, creating complications in determining the ownership of the new IP contributions during the alliance.

• Joint Ownership
  During the tech collaborations or other alliances, the parties to the arrangement often jointly develop IP. However, the laws on joint ownership of IP vary across jurisdictions. For example, under section 50 of the Indian Patents Act, each co-owner has the right to exploit the invention independently, but cannot assign or license the patent without the consent of the co-owners, impacting the commercialisation efforts and limiting market reach. This provision is similar in most jurisdictions, including Singapore. However, in jurisdictions like the US, Patent law allows each co-owner can independently license the patent without the consent of the co-owners, potentially weakening the other co-owner’s commercial interests. So, it is suggested that the parties involved in joint inventorship make a clear agreement on the commercialisation of IP, including licensing or transferring.

• Employee and Third-Party Contributions
  In alliances involving research, innovation may arise from the contributions of the employee or third parties, such as subcontractors. The parties are required to have proper assignment clauses to ensure that the ownership of the innovation remains with the contracting entities; otherwise, it would remain with the individuals, making ownership of IP complex.

Licensing Challenges

Licensing IP in strategic alliances also presents complex challenges that are necessary to address. The scope of license, term, exclusivity, territorial limits and sublicensing terms must be carefully considered to further the  objectives of the alliances.

• Territorial Limits and the Scope
  The scope of the license must align with the interests of the parties. It must not be narrowly drafted, preventing a party from using the IP in emerging markets. Conversely, a broad license may undermine the competitive position of the licensor. Thus, in strategic alliances, the license terms must be drafted to align with the business goals. Further, the terms must also clearly define the territorial extent of the license. The licensor may limit the use to a specific territory or may allow global exploitation of IP, subject to the conditions laid down by the licensor.

• Termination and rights post-termination
  The use of IP may not always be terminated upon the expiry of an alliance. The licensing terms must clearly specify the terms of post-termination obligations, including confidentiality and continued use. Without such provisions, the licensee may continue to exploit the IP that was jointly developed or allowed during the alliance. Therefore, it undermines the exclusivity and impacts future collaborations. Thus, the licensing agreement must clearly define the terms of termination and post-termination rights.

• Sublicensing rights
  Sublicensing, though allows for extended market reach, can greatly impact the exclusivity of IP, its quality and risk of misappropriation. Despite express terms on sublicensing, the licensor could lose control over the IP due to the failure to monitor the use of the IP. Thus, clear and definite sublicensing terms are required to ensure that oversight is maintained while maintaining the revenue flow.

Strategies to mitigate IP risks:

• IP due Diligence: The parties must conduct early IP due diligence before entering the alliances by evaluating the IP portfolio, verifying ownerships, and evaluating possible IP infringements.
• Clear contractual terms: The contracting parties must frame and draft clear contractual definitions and terms, aligning with their interests.
• Tailored licensing clauses: Parties may adopt flexible licensing models aligning with their objectives, which includes the terms of scope of license (exclusive, non-exclusive, field-limited, or time-bound).
• Confidentiality and Non-disclosure Safeguards: Trade secrets and know-how must be protected through robust Non-Disclosure Agreements and confidentiality clauses, preventing misuse and unauthorised exploitation of IP.
• Dispute Resolution Mechanisms: Parties may include arbitration clauses specifying the jurisdiction and applicable law, preferring neutral forums such as the Singapore International Arbitration Centre (SIAC) or WIPO Arbitration Rules.

Conclusion

It is clear that the strategic alliances thrive on shared innovation, but with clear and precise contractual terms governed by a legal framework complex IP challenges can be mitigated. The key lies in a proactive approach to defining ownership, licensing terms, and enforcement structures.

• Sanjay Sethiya is the Founding Partner at Law Square, Advocates & Solicitors.
• Kandukuri Lakshmi Priya is an intern at Law Square and a 4th year student, Alliance University, Bangalore.