There are many reasons why parties might want to put in place a collaboration agreement between them – mostly to formally document the commercial project that they are considering collaborating on, to make sure that it is clear how the responsibilities and obligations are to be divided, to set out who owns what and to make sure that all parties know what to do if things go wrong and a party wants to raise a dispute or to stop being part of the venture.
- What are collaboration agreements?
- When are collaboration agreements used?
- Are collaboration agreements legally necessary?
- What is usually included in a collaboration agreement?
- How to put in place a collaboration agreement?
What are collaboration agreements?
A collaboration agreement is a legally binding agreement between different parties that want to co-operate together or work collaboratively on a commercial project that sets out how the parties will work together, divides the benefits, responsibilities and obligations created by or for the project between the parties as well as setting out what happens if the parties cannot agree or want to stop collaborating on the project and to terminate the agreement.
When are collaboration agreements used?
Collaboration agreements are used by parties wanting to create a contractual joint venture. The content of a collaboration agreement will differ depending on the nature of the venture: if for example the project involves real estate then there will be specific provisions to protect the property being used in connection with the project; if the project is a tech project then there will be specific provisions to set out who owns and has responsibility for the intellectual property created in the project, as well as setting out the terms of any licence for use of that intellectual property; and if the project is a research project there will be specific provisions addressing how each party is to use, develop, protect and create know-how and confidential information.
Are collaboration agreements legally necessary?
Collaboration agreements are private commercial arrangements between parties and there is no statutory legal obligation to have them in place. Whether you may want a legally binding collaboration agreement will depend on the risks that you are taking as part of the project and how much time, money and resources you are giving to the project not to mention what you are hoping to gain from the project. Putting a written legally binding commercial agreement in place is a way to ensure that the risks you take are managed and that you have some recourse (for example, you may be able to bring a claim for damages or specific performance under English law against the other party or parties) if the collaboration goes wrong.
What could happen without one? If you do not have a written agreement in place, English contract law can still apply to verbal agreements but there is less certainty as to how your arrangements will be interpreted and ultimately if there is a dispute, without a written agreement it may be harder to prove what the intention of the parties really was at the time that the terms were agreed. Another point to think about is that if your project requires third party financing or insuring, then funders, lenders and insurers are more than likely going to want a legally binding agreement in place so that there is something concrete for them to refer to when providing their services.
What is usually included in a collaboration agreement?
Set out below are the main terms that are usually included in a collaboration agreement:
Details of the joint project:
Details of the project will often be included in the agreement in the form of a specification annexed to the agreement or provided in a schedule to the agreement. The specification will usually set out the contribution and resources required by each party at the start of the project and indicate what is expected of the parties throughout its duration. The more detail that is provided, the clearer the parameters of the project will be and may save any renegotiations or clarifications on terms at a later stage once the project has begun. This approach can work both ways however – it may be beneficial if the negotiations are difficult or the outcome is in your favour, but it may also be useful to keep flexibility to further discuss how parts of the project will work once the parties have a better idea of how the project is going;
Collaboration period and schedule:
The term of the collaboration can be set out in the main body of the agreement (this could be for a fixed period or on an ongoing basis until terminated by a party) and accompanied by a schedule and timeline of key project deliverables;
Confidentiality, exclusivity and permitted use:
Each party will want to protect any information that it provides to the other parties that contains confidential or commercially sensitive content and so obligations not to disclose and to protect such information should be drafted into the agreement. The agreement should be clear on the extent to which the parties can use this type of information as well as setting out limits on the use of each party’s business information and customer data and contacts (this may be solely for the purpose of performing the project but can be wider if the parties agree). The agreement should also be clear on whether the parties to the agreement can carry on activities that may compete or be of a similar nature to the project. One point to note is that any restrictive provisions will need to be carefully drafted to ensure that they are in accordance with EU and English competition law requirements;
Reporting and project management:
The key to any good collaboration is arguably strong communication and the parties to the collaboration may want the agreement to set out formal reporting requirements of each party and at a high level, meeting schedules. The nature and extent of the reporting requirements will depend on the project specifics;
Payments by each party:
Key provisions to include are terms relating to how the project will be funded and the amounts that each party has to pay throughout the term of the agreement. Documenting what happens if more money is needed for the project, if one party does not pay when they have an obligation to, and how and when each party can expect to get its investment back is very important. If a party breaches its payment obligations under the collaboration agreement, then the other party or parties may be able to claim for damages from a court for any loss that they incurred as a result of the non-payment by the breaching party. If one party is committing a lot of resources or making a big investment into the project, they may ask for an indemnity against any loss that they suffer in relation to certain aspects of the project. An indemnity is a contractual obligation given by one party to another party to compensate that party for any loss that has been or might be incurred by that party and any loss incurred can be recovered by the indemnified party as a debt. Payment terms also could include practical provisions around invoicing arrangements;
Intellectual property rights:
Whether a collaboration agreement needs to include detailed provisions relating to intellectual property will depend on the nature of the project and the intellectual property that is used or created during the term of the project. There are many types of intellectual property, including copyrights, trademarks, design rights and patents. The parties will want to include provisions that protect any intellectual property rights that are owned or created by them before they entered into the collaboration and agreements often include specific provisions stating that ownership of this type of ‘background’ intellectual property remains with the party that created and owns it. The parties will need to decide how intellectual property rights created during the course of the project will be treated – whether they will considered to be jointly owned or whether one party will own the intellectual property and grant the other party or parties to the collaboration a licence to use the intellectual property for the purposes of performing the project. A licence may also need to be granted to the parties’ contractors, advisers or consultants. As well as the provisions discussed so far, the parties are likely to want to document what happens if their intellectual property is or may be infringed by a third party and to require notification by the other party in the event that they become aware of an actual or potential infringement. A party that is using intellectual property under a licence may also ask to include an indemnity against any loss they incur or might incur in connection with a third party claim that the licensed intellectual property that they are using is breaching that third party’s intellectual property rights;
Following the implementation of the Data Protection Act 2018, there are obligations on businesses to adequately protect any information that it has collected, uses, stores or processes that might allow an individual to be identified and businesses need to make sure that they have got systems and processes in place that enable any transfers of this data to be monitored and protected. Any projects in which this personal data may be shared, used, stored or transferred should include comprehensive data protection provisions in the collaboration agreement to make sure that all parties to the collaboration are compliant with the updated data protection laws;
A non-solicitation provision may be required if one (or more) party(ies) to the project collaboration is concerned that the other parties to the project may try to ‘poach’ their employees, sub-contractors or consultants. The way that a non-solicitation clause is usually drafted is to set out a period of time in which the other parties cannot approach or solicit a party’s employees, consultants or subcontractors. There are strict legal guidelines as to what that period should be (it has to be reasonable – this could be a certain number of months after the project has finished, for example) and how the clause as a whole should be drafted (it has to be reasonable and should be protecting a legitimate interest of the party seeking to enforce it) and it is advisable to have these types of provisions drafted or reviewed by a legal professional, otherwise the clause might be struck out by a court and so not enforceable by the party trying to rely on it. These provisions may also include compensatory payments to the party whose employees are leaving to join another party that is working on the project, but that is a matter of commercial bargaining between the parties to the collaboration agreement;
Limitation of liability:
Depending on the exposure of the parties in connection with the project and the resources of each party, there may be a decision in the collaboration agreement to include provisions limiting any liability that might arise as a result of the performance or non-performance of the parties’ obligations under the collaboration agreement. This could involve including a cap on the total liability that a party will have (usually defined as a monetary sum) in connection with the project or the collaboration agreement, excluding any liability for losses that did not occur as a direct result of the event or claim, or excluding any liability that a party can exclude to the extent that this is allowed by law – there are some liabilities (for death or personal injury caused by negligence or for a breach of statutory implied terms in consumer contracts, for example) that cannot be excluded by law;
The parties should be clear on the process that they need to follow if a dispute arises between the project team, in particular in which forum the disputes should be heard and resolved (this could be between the senior management of the parties, by votes of the project team or ultimately in court or formal arbitration proceedings). If all parties have an equal say into project arrangements, the parties might want to think about what happens if there is a deadlock in decision making, in particular how to progress the project and unblock decision making; and
The termination provisions in a contractual joint venture are arguably some of the most important terms of the contract. Each party should think carefully about what happens if the project fails, stalls or goes wrong and what that means for them and their investment. Parties may want to be able to terminate the agreement early before the project has finished, or to tie all parties into a ‘lock-in’ period where they have to commit to a certain amount of time (and possibly investment) in the project before they can opt to terminate. There may be provisions for termination if a project milestone is not reached, or if the other parties breach a major obligation under the agreement and usually any commercial agreement will allow a party to terminate the agreement if the other party goes insolvent. The list of reasons that allow parties to terminate the collaboration agreement or the project will vary depending on the project, but it may always be worth thinking about what happens if the parties cannot agree and reach a deadlock situation with decision making and whether this if unresolved could lead to a right to terminate. The collaboration agreement should also set out what happens if one party does choose to exit the arrangements. This can involve setting out what happens practically to shared resources, existing supplier or customer relationships or agreements or shared confidential information. The parties also need to think about whether any continuing collaboration is necessary after termination and for how long (for example, any continuing commitments that still need to be performed).
How to put in place a collaboration agreement?
A collaboration agreement is a private commercial agreement between parties who are free to agree how project arrangements should be formulated. There are a number of online templates available setting out how a collaboration agreement may be drafted however caution should be taken when using these resources without any professional guidance, particularly for participants that are investing a lot of money or committing a lot of time or resources to the project and so have a lot to lose if the project does not go smoothly. A properly drafted collaboration agreement can help to mitigate any risks that might arise as well as protecting each party’s existing ownership of its assets. A well thought out collaboration agreement can facilitate a project and provide value by setting out a course for the parties to follow to progress with their arrangements and meet their goals.