Portfolio Development and Innovation

It is often necessary or desirable for two companies to partner up to develop technologies. One context that frequently arises is when a component supplier is developing a product for an original equipment manufacturer (OEM). In these cases, the design of the component is driven by the OEM’s needs and specifications, but the component supplier is expected to develop the technology to meet those needs. The parties often sign a joint development agreement. It is often expected, or at least hoped, that protectable intellectual property will emerge from the collaboration. The question is how to determine who will own what.

Sometimes, the OEM will want to own much or all of the IP. Whether that is acceptable to the supplier depends on the leverage of the parties with respect to the deal that is being pursued. Assuming that is not acceptable, the parties have to decide how to allocate the IP.

The parties may use different IP allocation schemes, but one scheme draws the line at their respective technological fields. So, let’s say a 3D printer supplier and a resin manufacturer work jointly on a particular resin that is intended to work well with the printer. The resin supplier wants to own the resin developments, and the 3D printer supplier wants to own any improvements related to the printer itself.

The first issue is to make sure that the parties do not compromise their ownership of their pre-existing IP rights. The resin supplier may have patents on some of its formulations, and the 3D printer supplier may have patents on different equipment and 3D printing methods. In that case, whatever agreement they enter into should clearly delineate what they own and that they are not transferring any pre-existing rights unless they desire to do so. Such pre-existing IP is sometimes called “Background IP” in joint development agreement. Note that in some cases, one party may need at least a non-exclusive license to the other party’s Background IP in order to commercialize the jointly developed technology.  

The thornier issue is what to do about improvements that arise during the collaboration. While an agreement could be drawn that simply says the resin supplier owns resin improvements and the 3D printer supplier owns printer improvements, there are significant practical problems that stem both from the nature of the technology and the way patents work because one likely patentable invention is one that combines aspects of the formulation with particular illumination parameters (e.g., particular LEDs with particular wavelengths, illumination periods, parameters related to providing a fresh layer of resin before illumination begins, etc.). In this case, there is joint IP that is not separable by technological field. The parties can agree to allocate that type of joint IP to one party or to co-own it.

While co-ownership may seem fair, it can be problematic because one party has to control the prosecution of patent applications in the US Patent and Trademark Office. Also, there may be disputes about whether to sue particular infringers, and both parties will need to join in an infringement suit. Co-owners cannot sue without the participation of the other owner.

These sorts of issues can be worked out in an agreement, but the point is that understanding the technical nature of the expected improvements, the IP that may result, and what the parties will need to do to enforce their rights must be thought through in some detail to come up with language that captures their intent. When these deals are being struck, the business people may exert pressure to get a deal done so that the technical work can proceed. However, this is not a place to cut corners, and any time and money saved in the agreement phase will surely be dwarfed by the time and expense of litigation should a dispute arise.