Tech Innovation – To buy or to collaborate?

What are some key issues to consider when entering into a collaboration?

Comfort on technology – A clear understanding of the IP considerations in the technology being used and generated provides the foundation for successful collaborations. While the technology may work perfectly for the licensor party, the licensee party must ensure it meets their specific needs, whether in a different market or for different purposes, and determine if modifications are necessary. The consequences of the technology failing to meet agreed-upon specifications are highly negotiated. Parties should agree on the scope of performance and IP warranties and include provisions for remedies.  From the licensor party's perspective, it is crucial to clearly define the scope of these warranties and indemnities to avoid excessive exposure. For example, indemnities should exclude scenarios where the licensee party uses the technology for unauthorised purposes, makes unauthorised modifications, or combines it with third-party technologies.

Project improvements – New IP may emerge and it is critical that this is identified (and registered where necessary) and it is agreed who will own it and how the parties can use this new IP going forward. This is key for avoiding disputes following any successful conclusion of a collaboration, and even more so if the collaboration terminates unexpectedly. Consideration of confidential information is also critical, as the parties will be sharing their confidential/commercially sensitive information at an early stage. Newly created IP in the collaboration may take the form of confidential information/know-how/trade secrets. The success of the collaboration may therefore depend on ensuring the information is kept secret. Contractual and internal arrangements should protect against the release or misuse of this information.

Ongoing relationship – Compared to technology acquisitions, where the IP is usually acquired outright and the parties enjoy a "clean break" post completion of the transaction, collaborations rely on the parties' continued cooperation, often for a significant period of time. We are also seeing an increased interest on collaboration follow-ons, where the same parties collaborate on new projects, which can be related or unrelated to their previous project. The appetite for follow-ons depends on the success of the initial collaboration and the relationship between the parties during the collaboration life-cycle.

Exit arrangements – Long-term collaborations can sometimes turn sour as parties' goals and priorities shift over time. It is crucial to clearly define termination triggers and their effects. Parties should align on common termination concepts such as what constitutes a "material" breach and change of control, as well as bespoke triggers like unachieved milestones. A well-thought-out exit plan is essential to ensure a smooth break-up, which should address matters such as whether a party can continue to use certain technology or data owned by the other party (and, if so, on what terms) and whether a party requires transitional services to minimise disruption to its operations (and, if so, on what terms).

Disputes – In collaborations, we often see that arbitration is the agreed dispute resolution procedure, with a key advantage (compared to litigation in courts) being that disputes should remain confidential. However, in 2024, some collaboration disputes made their way into the public domain.  On the branding side, we saw the continued trials and tribulations of the dispute between Kanye West and Adidas over their "Yeezy" brand collaboration. It is critical in collaboration agreements to prepare for the worst. The parties and their advisers should consider all potential outcomes at the earliest stage, both the successful ones (on how to share the gains), and also the unsuccessful ones (on how to share the losses), as well as risk and information sharing throughout the collaboration.  

Collaboration over acquisition – What does 2025 hold?

As well as adopting collaborations over acquisitions due to their innate advantages, parties may be driven towards collaborations over acquisitions due to other external factors or constraints in 2025, such as foreign direct investment rules, competition law and taxation.

We expect the changing geopolitical landscape will continue to bring new challenges and opportunities to technology collaborations.  The full effects of the Trump administration's policies on IP collaborations between the US and jurisdictions worldwide remain to be seen, and will vary depending on jurisdiction and sector.

Looking ahead, we expect parties to focus increasingly on collaborations in order to develop novel technologies, as an alternative to technology acquisitions.  When doing so, in our view, it is most critical for the parties to be clear on their objectives at the outset, and these should be clearly laid out in advance in the documentation - in particular the IP they are contributing to the collaboration (which should be appropriately safe-guarded).

The value of collaborations should not be under-estimated, with a significant number of collaborations in 2024 valued at over $1 billion. Whilst collaborations can be more complex to negotiate compared to technology acquisitions, the opportunities for innovation can be much more profound. We expect a strong 2025 for technology collaborations.