As the pace of innovation within the auto industry accelerates, traditional automotive manufacturers and suppliers must adapt to the changing landscape.
Many are exploring strategic partnerships with traditional computer/software companies or with some of the more recent entrants into the automobile space.
Such strategic partnerships present a variety of challenges. While there is no guaranteed formula, the most important element for any successful partnership is for the parties to align their expectations in three critical areas including the overall nature of the relationship, division of intellectual property and path to commercialization.
Alliances between auto manufacturers and computer/software companies often bring together two companies used to being one of the proverbial “800-pound gorillas” in their respective spheres and, therefore, being able to dictate terms.
In order to avoid future conflicts, the parties must agree on the nature of their relationship. Is it a collaboration in which the parties will develop new technologies?
Is it an arms-length relationship of convenience between parties who each bring fully developed and complementary technology to the table? Is it a partnership of equals or a traditional purchaser/vendor relationship?
Reaching a shared understanding of the nature of the relationship will inform the parties’ rights and expectations for the road ahead.
Regardless of whether a partnership involves existing technology or development of new technology, the parties must have a shared understanding (formalized in a contract) regarding division of IP.
In most cases, parties retain their own background IP. The main area of contention usually is ownership of “new” IP developed during the relationship.
In more traditional purchaser/vendor relationships, new IP often is considered a “work for hire” owned by the purchaser. In other models, division of IP varies widely.
In some cases, the parties may share ownership. In others, ownership may depend on the nature of the IP and the system/component to which it relates. Furthermore, agreement on a conceptual framework is only the first step.
As so often is the case, the devil can be in the details. Even if the parties agree in concept, in practice, divisions may not always be so clear.
For example, it may not always be obvious what constitutes new IP versus an extension or improvement of existing IP. Discussing and, to the extent possible, defining their understanding of these often nebulous concepts in advance gives parties a better chance to avoid conflict in the future.
Finally, parties should have a shared vision of how the fruits of their partnership will be commercialized. Do the parties intend to have an ongoing relationship whereby one party supplies a product to the other? Will the relationship be exclusive?
Do the parties intend to go their separate ways to commercialize new technologies on their own? By reaching agreement at the outset, the parties can align their contractual rights with their expectations.
If one party intends for the other to supply a product for commercial use, such obligations should be defined in the parties’ agreement.
Otherwise, it may find that the intended seller is no longer interested in doing business with the buyer or, because it has effectively locked up the buyer through the incorporation of exclusive IP, it only is willing to do so at exorbitant prices.
Alternatively, if one party wishes to commercialize the technology independent of its partner, it must have the necessary IP rights to do so.
Ultimately, all strategic partnerships will present their own unique circumstances and challenges. By reaching agreement on critical issues at the outset, both parties can maximize the chances that the partnership will be successful and mutually beneficial.
Nicholas Ellis (above, left) is senior counsel and litigator with Foley & Lardner LLP, where he is a member of the Business Litigation & Dispute Resolution Practice and the Automotive Industry Team.
