A primer on joint development agreements

Whether you’re combining hardware and software, developing a technology alongside a strategic partner, or building a product that depends on someone else’s expertise, climate companies often need to build alongside another organization. Once both sides are contributing to something new, you need to be clear about what each party owns going in, what happens to the IP you develop together, and what each side can do with the IP after the relationship ends. A well crafted Joint Development Agreement (JDA) is where this can all come together. 

Elke Trilla is a corporate attorney at Wilson Sonsini and focuses on early-stage climate and tech companies. In the fourth part of our series with the team at WSGR, we sat down with her to discuss how founders can protect the IP they already own, define rights around jointly developed intellectual property, and plan for what happens if the joint relationship doesn’t work out as planned.

When does a joint development agreement come into play?

 A JDA is used in a few different situations. You might be developing technology with a corporate partner, relying on another company’s technology or technical expertise, or working with a national lab and using its people or facilities.

JDA is distinct from a license

A license is designed to allow a company to use or access intellectual property that already exists and is owned by another entity. Essentially, a license grants permission to use IP owned by someone else, generally in exchange for a fee or other compensation. You will see licences in many contexts and counterparties are often universities, existing laboratories and other companies. 

A JDA is a distinct contractual creature because parties are coming together to build, or attempt to build, something entirely new. The terms of IP ownership, or lack thereof, included in the JDA (including existing IP and jointly developed IP) can make or break the success of the ultimate project and what rights each of the parties have, or don't have, to use, sell, transfer and otherwise monetize the jointly developed IP.  

Early talks with JDA partners

A JDA works best when the scope of the collaboration is clear and both parties understand what happens to the technology once that collaboration ends.  

In the earliest days of negotiating terms, you'll want to understand the interest and long-term expectations of all parties to the JDA, their ultimate vision of success for the JDA and their ultimate use case for the jointly developed IP.  Make every effort to fully understand what the other side is contributing, whether that’s existing technology, technical expertise, or access to facilities.

Take the time to think through as many best case and worst case scenarios and work with counsel to draft contractual terms to best protect your interests and ultimate goals with the jointly developed IP. 

Watch out for too much overlap. If the JDA relationship would make your companies or the jointly developed technologies, so intertwined that they become difficult to separate later, it may be worth considering other transactions like an asset acquisition or merger. 

Know where the leverage sits 

A JDA between similarly situated startups looks very different from one between a startup and a much larger strategic partner. If, for example, you depend on a major car manufacturer to get your battery technology into vehicles, that changes the negotiating dynamic.

That imbalance matters when you’re negotiating what happens to the IP you already own, what gets developed together, and what each party can do with it after the relationship ends.

Before you sign a JDA 

Define your background IP

Before you start negotiating the JDA, be specific about the IP each party already owns and is bringing into the relationship. Broad descriptions create room for disagreement later about whether something existed before the collaboration or was developed jointly. Be as specific as possible and memorialize background IP in the JDA. 

Ahead of time, think through the scenarios where your background IP will iterate or be enhanced as a result of the work conducted during the JDA. It will be essential you draft carefully to ensure that the background IP you brought to the table, with any and all improvements, remains yours following the end of the JDA. 

Get aligned on the end goal

Talk candidly with your counterparty(ies) about what each side ultimately wants from the relationship and jointly developed IP during and after the JDA ends. This is also the time to correct any misunderstandings about what your technology can and can’t do, so both sides go into the relationship with realistic expectations.

Discuss future use of jointly developed IP

A well structured JDA will include clear rights to the jointly developed IP after the JDA ends, including scope of use, field of use, geography, exclusivity, royalties etc. Clear boundaries make it easier to understand exactly what each side can do with the technology you develop together. 

For example, you might agree that one party has rights in North America while the other has South America for five years. Or one party might sell into solar while the other focuses on wind. Defining those boundaries upfront reduces the chance that you end up competing over the same technology later.

Get the right counsel

Not all lawyers have the same expertise. If you’re working on highly technical legal documents, like a JDA, make sure your counsel understands your technology, your business and has sufficient relevant experience drafting similar agreements.  Ambiguity around ownership, use rights, or the scope of the relationship creates room for disputes later, so make sure the legal and commercial terms work together.

Crosscheck and comply with your existing obligations

Review all material corporate and investor documents in anticipation of entering into a JDA. Any existing rights, obligations and limitations need to be understood and negotiated carefully when you structure the joint development relationship and draft the JDA. Waivers, consents or notices may be required before you enter into the JDA. 

Public funding can add another layer. If government dollars are supporting your company’s work generally, the grant may place superior conditions and limitations on a newly entered into JDA.   

If you have non-dilutive government funding from agencies like the Department of Energy, EPA, DoD, or ARPA-E, review the grant terms before entering a JDA. Such rights may include march-in rights, change-of-control provisions, or other restrictions that affect what you can do with federally funded technology. Depending on how the JDA is structured, giving another party rights in that technology could create complications under your existing grant or private investment.

Think through what could go wrong and allocate risk 

Before you sign the JDA, spend time with your co-founders thinking through the ways the relationship could break down. What if the other party uses your IP outside the agreed scope? What if they start selling into a market you thought was yours?

Your legal team may not know your market or technology well enough to anticipate every scenario, so bring those risks to them and make sure the agreement accounts for them. Ultimately, the JDA is there to allocate risk before there’s a dispute.

Build in an escape route

Once you anticipate what happens if the collaboration isn’t working out, build those circumstances into the JDA upfront. For example, the agreement could include an early termination point at six months if the relationship is no longer meeting the conditions both sides agreed to.

Just as importantly, decide what happens to the jointly developed technology once the relationship ends. One option is to give each party a royalty-free, worldwide license to continue using it after termination, so neither side is left managing an ongoing accounting relationship.

After the JDA is signed

Treat the JDA like an operating document

Signing the agreement isn’t the end of the work. Your JDA might require testing protocols to be agreed within the first 90 days, or make the next phase of development contingent on hitting a specific milestone.

Pull those requirements out of the contract and map the deadlines, milestones, and responsibilities somewhere the operating team can actually track them. Carefully track and identify the milestones and obligations buried in the agreement so they don’t get overlooked while the team is focused on building.

In more mature relationships spanning multiple projects, you might have a separate governance committee overseeing the agreement and its milestones. That can be useful, but it also comes with additional administrative and reporting requirements. The more complex the relationship, the more important it is to treat the JDA as something you actively manage, rather than a document you file away after signing.

Elke Trilla is a corporate attorney formerly in the Boston office of Wilson Sonsini Goodrich & Rosati, where she advised high-growth technology companies on formation, venture financings, and mergers and acquisitions. Her practice has a particular depth in capital-intensive climate and energy businesses, including structuring blended capital stacks that integrate venture equity with non-dilutive funding sources. Elke is recognized for her work with underrepresented and emerging founders navigating early-stage capital formation, and has been named to the Boston Business Journal's 40 Under 40, Boston's 50 Most Influential Attorneys of Color, and the Hispanic National Bar Association's Top 40 Lawyers Under 40, among other honors.