This article has been written by Vishakha Bhandakkar pursuing the Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. This article has been edited by Smriti Katiyar (Associate, Lawsikho).
A collaboration agreement (also known as a collaborative agreement, co-operation agreement or a strategic alliance agreement) is a legally binding agreement or contract between two or more parties that want to collaborate on a commercial project. It is formed when at least two entities having their distinct businesses come together for a particular business purpose. It is a document that describes the terms and conditions of the collaboration, including work responsibility, profit sharing, confidentiality, dispute and termination of the contract if a dispute arises. A collaborative project could either be contractual or entity-based. In a contractual collaboration, the parties collaborate only for one specific project, whereas in an entity-based collaboration, the parties form a distinct legal business entity.
The content of the agreement and how the agreement benefits the parties
The content of collaboration will vary depending on the nature of the collaboration. For example, a technology or data transfer project will have terms related to intellectual property, a real estate project will have terms describing protection and preservation of property, whereas a research project will have provisions describing the development, creation of know-how and confidentiality. For example, the 2014 collaboration of Uber with Spotify where users can link their Uber and Spotify accounts which would allow them to play a Spotify playlist on their journey in an Uber. Through this collaboration, Uber and Spotify were able to capitalize on what each of them had to offer. This helped both parties in strategic marketing and to increase brand recognition.
What is the necessity of a collaboration agreement?
A Collaboration agreement defines and regulates the relationship of parties involved in a project. It ensures that the parties understand their terms, expectations, obligations, responsibilities and limitations. It is necessary to have a collaboration agreement in writing so that all the key issues are addressed, and any conflict or disagreement can be managed and avoided. It helps to avoid uncertainties by defining the nature and scope of the relationship of the parties. This will help the collaboration achieve its goals and deliver results efficiently.
Things to keep in mind before drafting a collaboration agreement
- Ensure that the terms of the agreement have been negotiated from the beginning.
- The parties must communicate their goals and ask each other leading questions to develop understanding in the collaboration.
- It must be discussed expressly as to what shall happen at the end of the term and agreements thereof must be put in the record.
- Verification of certain important aspects such as ownership of intellectual property.
- Consider what will happen if the partnership is good before it starts, provided the members’ bargaining power.
- The parties must ensure that they follow the agreement’s obligations, maintain records of compliance and exercise their rights if and when necessary.
Important clauses in a collaboration agreement
Terms that are important and are used repeatedly must be defined in the definitions clause of the agreement, and this offsets any ambiguity and provides better clarity and understanding.
Aspects such as goals, objectives, purpose and expectations of the parties must be clearly specified. This will give a direction to the agreement.
Responsibilities and Obligations
The rights, responsibilities and obligations clause will set out the contribution and resources of the parties at the beginning of the project. It will also show what is expected of the parties throughout the collaboration period .
Duration, Period and Schedule
The execution date, duration of the project (fixed period or ongoing basis), the end date of the collaboration along with a schedule and timeline must be set out in the agreement. The parties may extend the duration after the expiration of the initial period.
Representation and Warranties
Representations are assertions and statements of facts regarding the business activities in the collaboration and warranties are securities to make good the loss if any of the statements made are not true.
Funding and financing of the project, amount each party has to pay, provision for when there is a breach of the payment obligation, how and when parties can expect to get their return on investment and profit distribution.
Non-disclosure and protection of confidential and commercially sensitive information and content, the extent to which the parties can use such content should be drafted into the agreement.
Intellectual Property Rights
Protection of intellectual property created and owned by the parties before entering into the collaboration, ownership and use of intellectual property created during the collaboration and the restrictions thereto, grant of license by one party to another for the use of such intellectual property.
Data protection clause for protection of data that is collected, stored, used and processed to ensure that the parties comply with applicable data protection laws.
Limitation of liability
A clause limiting the liability that might arise due to performance or non-performance of obligations of the parties.
Provisions for dispute resolution process and governing laws.
The termination clause in case the project fails or stalls, lock-in periods and exits. The collaboration agreement has to be filed with the sub-registrar for it to be a legally enforceable document. It has to be executed and stamped in the state the agreement is signed.
A collaboration agreement contains many key elements. These are important for parties who come together for expertise, financial resources and intellectual property rights to achieve common goals. It is important that the parties invest enough time, energy and effort to finalize the terms of the agreement. While a collaboration agreement is a private commercial agreement, and there is no statutory legal obligation to have one in place, it ensures that the gains and risks of parties are well defined, and recourse can be taken in the event of a dispute.
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