CHAPTER 15
Operating the JV during negotiation of the JV’s terms is placed on issues relating to capitalization and management, it is important for the parties to remember that the JV will become an independent operating entity with a life of its own. As such, the parties should be sure that the documents cover the key points relating to the actual operation of the JV, including the responsibilities for the functional activities of the JV (e.g., research and development, manufacturing, or distribution); operational matters, such as legal compliance, insurance, staffing and other similar issues; accounting and financial reporting matters; and other covenants relating to operation of the business and the activities of the partners.
ALTHOUGH A GOOD DEAL OF THE EMPHASIS
Functional Activities The key functional activities of the JV—such as research and development, manufacturing, marketing, distribution, or services—may be conducted by personnel employed directly by the JV, by one or both of the parties pursuant to ancillary agreements between them and the JV, or by third parties. For example, one party may agree to contribute part of its existing technology to the JV as consideration for its ownership interest, and then may enter into a research and development agreement with the JV to perform the additional work required to create new products that can then be marketed by the JV. Similarly, one or more of the partners may enter into a distribution agreement with the JV relative to the sale of the JV’s products. When the JV structure uses ancillary agreements with the parties to fulfill the functional needs of the JV, the negotiation of each agreement generally raises the same sorts of issues as would arise in any other context. However, if the functions are to be performed by JV personnel, many of whom may be loaned or assigned to the venture by the parties, it becomes important for the parties to lay out their expectations in the JV documents, including the business plan. For example, if JV employees are to be involved in development work, it is usually a good idea for the parties to agree on a development plan and to include covenants in the JV agreement regarding those matters that typically arise in a technology agreement, such as ownership of inventions, and duties to perfect and protect all of the legal rights of the JV in the technology. LICENSING ARRANGEMENTS
A license facilitates the transfer of valuable legal rights and technology or other intellectual property from one party to the other to further the purposes of a strategic business relationship, including a JV. A licensing arrangement is created when one party (the “licensor”) owns or otherwise controls the right to use a valuable legal right and grants to the other party (the “licensee”) the right
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