Why do joint development agreements come up?
Startups often encounter joint development agreements (JDAs) when a key customer or strategic partner wants to collaborate on building something new — like a custom version of the startup’s product or a new feature set tailored to key customer’s needs. These joint development arrangements can also arise in strategic alliances where both parties contribute technology, know-how, or engineering effort to create a co-branded or co-owned solution they plan to release to market. While these deals can unlock great opportunities (and revenue), they also come with significant legal and business complexity.
What are the most common pitfalls?
One major issue with joint development agreements is how intellectual property (IP) will be handled. A common — but risky — approach is to make all new IP “jointly owned,” which may sound fair in a term sheet but often creates long-term headaches. Joint ownership without clear use rights or exit provisions can often lead to disputes, block commercialization, or deter future investors or acquirors. Defining who owns what — especially when existing background IP is modified or integrated — is difficult and needs to be handled with precision.
How can your brand and IP be compromised?
Many JDAs involve joint marketing, co-branding, or customer-facing collaboration. If not tightly controlled, this can dilute your brand or create confusion in the market about who owns the product. Further, if your strategic partner is not contributing quality engineering and products to the joint offering, there’s a risk your reputation as a quality provider is damaged. There’s also a real risk of exposing sensitive trade secrets or proprietary technology to a third-party partner, especially during technical collaboration. Care should be taken to only expose what is absolutely necessary to achieve the joint offering. Once exposed, it can be hard to claw back control or prove ownership.
How should founders protect themselves?
Companies should start by consulting with legal counsel to clearly define in the JDA ownership of background IP (what each party brings to the table), foreground IP (what’s developed together), and usage rights for each. It is most often prudent to avoid joint ownership of IP if possible — instead, assign ownership of each development with licenses as needed. Companies should include robust confidentiality obligations in the JDA and consider phased development milestones to limit exposure. Above all, involve counsel early: JDAs are not standard contracts, and a poorly negotiated one can affect your company’s value and roadmap.