Joint Operating Agreements: Key Provisions, Common Areas ...media.straffordpub.com/products/joint-operating... · 9/4/2019 · Joint Operating Agreements: Key Provisions, Common

Joint Operating Agreements: Key Provisions, Common Areas of Dispute, and Minimizing Performance RisksLiability Allocation, Mitigation of Fiduciary Duties, Duration and Termination, Default and Nonperformance, Disputes and Claims

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WEDNESDAY, SEPTEMBER 4, 2019

Presenting a live 90-minute webinar with interactive Q&A

James B. MacDonald, Shareholder, Stevens & Lee, King of Prussia, Pa

Glenn L. Stein, Member, Chiesa Shahinian & Giantomasi, West Orange, N.J.

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STAFFORD WEBINAR:

JOINT OPERATING

AGREEMENTS

Glenn L. Stein

Chiesa Shahinian & Giantomasi PC

973-530-2164

[email protected]

6 | ©2019 Chiesa Shahinian & Giantomasi PC

ABOUT CSGWith great pride borne over 45 years as a regional law firm, Chiesa Shahinian & Giantomasi, formerly Wolff &

Samson, continues to advance our client’s legal and business success through in-depth insight and creative

solutions. As respected legal and business advisors, our attorneys play an integral role working closely with clients

from a diverse range of industries on matters big and small, on a local, regional and national basis.

CSG clients benefit from our ability to provide practical, value-added counsel across a broad spectrum of disciplines -

- the type of representation that leads to innovative and enduring solutions. The firm is accountable and careful with

its clients’ time while maintaining an uncompromising focus on their business goals.

Over the past four decades, we have expanded into a close family of more than 150 attorneys, with depth in those

key areas most important to our clients. CSG is uniquely positioned to maximize results through collaboration among

firm members, associates, counsel and staff, each dedicated to sharing years of wisdom, knowledge and judgment to

benefit the firm’s collective capabilities.

Our attorneys represent clients ranging from Fortune 10 corporations to family-run businesses, across a myriad of

industries and practices, including highly experienced practice groups in corporate, litigation, government, real estate,

intellectual property, environmental, fidelity and surety law, white collar, public finance, trusts and estates and

renewable energy.

We invite you to learn more about how CSG can help you develop cutting-edge solutions delivering long-lasting

value.


TOPIC OVERVIEW – KEY PROVISIONS, COMMON

AREAS OF DISPUTE, MINIMIZING PERFORMANCE

RISKS▪ What Are Joint Operating Agreements?

▪ Pre-Transaction Considerations

▪ Role / Responsibilities

▪ Exit / Termination

▪ Due Diligence (J. MacDonald)

▪ IP Ownership / Rights / Responsibilities (J. MacDonald)

▪ Management (J. MacDonald)

▪ Dispute Resolution (J. MacDonald)

▪ Q&A


WHAT IS A JOINT OPERATING AGREEMENT?

▪ Governs operational relationship between two or more strategic

partners

▪ Share resources, knowledge, other assets to achieve mutually

beneficial goals

▪ Maintain autonomy

▪ Many labels:

▪ Joint Operating Agreement

▪ Joint Development Agreement

▪ Strategic Alliance Agreement

▪ Co-Development and License Agreement

▪ Contractual relationship

▪ Not a JV

▪ No distinct jointly-owned legal entity


ALLIANCE / JOINT DEVELOPMENT

AGREEMENT

Company B

Development

Product /

Service

Money ($)Money ($)

Money ($)

and/or other

assets

Money ($)

and/or other

assets

Company A


JOAS / STRATEGIC ALLIANCES ON RISE

▪ Recent PwC analysis: Global number of alliances and JVs at highest level

since start of century.

▪ 49% of CEOs planning new strategic alliance or JV

▪ 42% - M&A

▪ 21% - Outsourcing

▪ 16% - Sale / market exit

▪ Why?

▪ Organic growth is hard!

▪ Traditional growth models (M&A / capital raising)

▪ Time consuming

▪ Costly

▪ Investment risk

▪ JOA provides benefit of affiliation/partnership without full commitment

– partners maintain independence


PRE-TRANSACTION CONSIDERATION 1:

WHY NOT “GO IT ALONE”?

▪ 1+1=3 (the goal)

▪ Each partner gains from the opportunity:

▪ Supplementing internal assets / capabilities

▪ Sharing of resources

▪ Personnel

▪ IP

▪ Financial

▪ Quicker execution / project roll-out /

achievement of goals / Less upfront expense

▪ “Test Drive”



PARTY STRENGTHS / WEAKNESSES

▪ Who brings what to the table?

▪ Financial resources

▪ Distribution network / Sales force

▪ Technology / IP rights

▪ Cross-sector/industry alliances

▪ 62% of strategic alliances from 2011-2017

▪ 41% of M&A activity

▪ Technology / IP driven

▪ Cell phone companies / media content providers

▪ Auto manufacturers / fuel cell technologies



FINANCIAL COMMITMENT / RETURNS

▪ Determine each party’s investment obligations

▪ Upfront contribution or milestone-based?

▪ Budget?

▪ Product commercialization

▪ Pricing

▪ Return of capital / revenue sharing

▪ Commercialization plan

▪ IP licenses

▪ Exclusivity concerns



LONG TERM – TERMINATION / EXIT▪ When and under what circumstances does JOA terminate?

▪ Defined Term

▪ Termination Rights

▪ For convenience

▪ Upon breach (notice / cure considerations)

▪ Rights upon termination?

▪ Purchase/sale trigger

▪ IP-related rights

▪ Post-Termination Obligations

▪ IP-related obligations

▪ Product-related obligations

▪ Restrictive covenants



THIRD PARTY ISSUES/CONCERNS

▪ Any restrictions from pursuing JOA / Alliance?

▪ Organizational / governing documents

▪ Credit facilities / loan documents

▪ Investment-related documents

▪ Current commercial, product supply, distribution or

development arrangements

▪ Regulatory concerns


PRE-TRANSACTION CONSIDERATION 6:NDA AND TERM SHEET/LOI

▪ Have NDA in place

▪ Spend time on Term Sheet / LOI

▪ Carefully drafted and heavily negotiated

▪ Particular attention to:

▪ project goals

▪ party obligations

▪ management/decision-making terms

▪ exclusivity concepts

▪ product/service commercialization terms


ROLES / RESPONSIBILITIES

▪ Party contributions / roles

▪ What will each party do for the project?

▪ Capital contributions

▪ Industry contacts / introductions / supply chain

▪ Marketing / administrative support

▪ IP / technology contributions or product development

▪ Use of facilities / equipment / personnel / testing

▪ Party roles in managing project


EXIT / TERMINATION

▪ Clearly determine termination trigger events.

▪ Set term (with “evergreen” provision)

▪ Default termination

▪ Material breach

▪ Notice and cure

▪ Non-Default

▪ Project failure

▪ Management / major decision deadlock

▪ Change of control

▪ Insolvency / Bankruptcy


EXIT / TERMINATION

▪ Effects of Termination

▪ Continuing obligations

▪ IP-related / licenses

▪ Sell-off of products

▪ Indemnification obligations

▪ Restrictive covenants

▪ Non-compete

▪ Non-solicitation

▪ Confidentiality

▪ Purchase / Sale Rights


THANK YOU

Glenn L. Stein

Member

Chiesa Shahinian & Giantomasi PC

973.530.2164

[email protected]

James B. MacDonaldStevens & Lee

(610) 205-6054

[email protected]

September 04, 2019

SL1 1602631

© Stevens & Lee

mailto:[email protected]

22

• Informative Process to Quantify Risk.

– Similar to M&A Diligence w/ some notable differences

– Continuing Independence of JV Partner

– Ongoing Relationship = Greater Focus on Internal Diligence /Introspective Analysis

• General Areas of Focus

– Legal/Regulatory

– Financial

– Operational

– Industry Reputation / Branding

23

• Appoint a Team

• Determine Scope

– Budget

– Areas of Focus

– Contributions

• Identify Chain of Custody and Use of Information

• Prepare an NDA and Consider Special Terms

– Non-Solicitation

– Limited Exchange

– Trade Secret Exposure

– Lock-Ups / No Shop?

24

• Objectives

– Success Factors

– Limits on Contributions

• Necessary Internal Authorizations and Decision-making

• Budgetary Commitment

• Competing Initiatives

• Management and Operational Resources

• Overlap within Organization

25

• Review of material financial statements

– Contributions

– Maintenance of ongoing commitments

• Litigation and Product Liability Exposure

– threatened or pending claims, lawsuits, or administrative proceedings

– Claim history / warranty issues

• Intellectual Property

• Ongoing third party commitments re contributed/shared assets

• Third party consents and approvals

• Insurance

26

• Historical and Future Commitments Affecting Contributions

– capital expenditures

– other obligations

• Availability / Need of third-party valuations /appraisals or other reviews

– request previously prepared materials

• Vetting of Anticipated Personnel Resources

27

• Relevant JV partner projections and budgets

• SEC filings of the JV parties and other companies in shared markets

• General Industry Sources

– Trade publications

– Web presence

– Customer satisfaction surveys

– Blogs and Social Media

– Third-party industry research reports

• Prior Initiatives / Relevant Information from Past Associations

28

• Sherman Act Requirements 15 U.S.C. §§ 1-2

• Clayton Act Requirements 15 U.S.C. §§ 13-18

• DOJ/FTC Guidance

– Antitrust Guidelines for Collaboration Among Competitors,

2000 (https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf)

– Antitrust Guidelines for the Licensing of Intellectual Property, 2016 (https://www.justice.gov/atr/file/883941/download)

• Controlling Case Law– Texaco Inc. v. Dagher, 547 U.S. 1 (2006)

– Needle, Inc. v. National Football League, 560 U.S. 183 (2010)

https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf

29

• Anti-competitive Regulations

• Data Privacy

• Restrictions on Foreign Investment / Ownership of Assets

• Dispute Resolution / Governing Law / Enforceability of JV Agreements

• Employment Law Concerns

• Currency, Tax and Tariff Issues

• Political Environment

• Anti-Corruption / Anti-Bribery Laws (FCPA,15 U.S.C. §§

• 78dd-1 to 78qq)

30

• Forms of Contribution

– Background IP of the JV Partners

– Third-Party IP Needed for Operations

– Ancillary IP-Related Contributions

Lab/Facility Resources

R&D Commitments

• Importance of Clearly Defining Contributions

– Define Rights to Dominant IP re Improvement Contributions

– Clear Exclusions

• Detailed and Accurate Logs and Recordkeeping

31

• Assignment or License?

• Ownership and Grantbacks of Newly Created IP, Improvements and Derivative Works

• Territorial

• Field of Use

• Personnel Use and Disseminations / Trade Secrets

• Quality Controls

32

• Exclusive Ownership/Control – Noninfringment

• Encumbrances / No Liens

• Maintenance Activities (up to date)

• Original Creation / Authorship

• Proper Assignments

• Open Source

• No conflicts

• Third Party Consents and Authorizations

• No Implied Licenses

• Sufficiency / Expectations of Results

33

USA UK Japan

Patents Do not need permission of other Joint Owners to license to others. Do not need permission to use for Joint Owner’s self.

Need permission of other Joint Owners to license to others. Do not need permission to use for Joint Owner’s self.

Need permission of other Joint Owners to license to others. Do not need permission to use for Joint Owner’s self.

Copyrights Do not need permission of other Joint Owners to license to others. Do not need permission to use in business for Joint Owner’s self.

Need permission of other Joint owners to license to others. Need permission to use in business for Joint Owner’s self.

Need permission of other Joint owners to license to others, which permission cannot be unreasonably withheld. Need permission to use in business for Joint Owner’s self, which permission cannot be unreasonably withheld.

34

• Joint Ownership should be avoided whenever possible (Enforcement and Commercialization Risks)

– Different Default Rules Create Different Results

– Copyright

– Patent

– Jurisdiction

• Avoid Comingling – Lucent v. Gateway, 543 F.3d 710 (Fed. Cir. 2008)

• If inventors agree to cooperate, without more, each inventor owns undivided interest in entire patent– Ethicon v. US Surgical, 135 F.3d 1456 (Fed. Cir. 1998); cert. denied, 119

S.Ct. 278

35

• Managements Structures Vary by Project Size and Complexity– Covenants to govern performance

– Joint Project Teams

– Key Operational Personnel

– Project Managers/Leads

– Steering Committees

• Project teams– Perform work and execute development plan

– May execute specific functions in complex development plans (e.g., joint patent team, testing team, marketing team, etc…)

36

• Appointment of Key Personnel

– Consistency

– Change Process

• Steering committee adds high-level governance functions to regulate development activities

– Creation of Work Plans

– Dispute Resolution

– IP Management

– Budgetary and Financial Matters

– Change Control

37

• Dispute Resolution

– Informal

Negotiation

Steering Committee

– Escalation Process

– Formal

Usually a function of risk, cost, location, governing law and venue

Court

American Arbitration Association

International Chamber of Commerce Dispute Boards

JAMS

THANK YOU

38

Documents

Joint Operating Agreements: Key Provisions, Common Areas ...media.straffordpub.com/products/joint-operating... · 9/4/2019 · Joint Operating Agreements: Key Provisions, Common