When two or more companies or entities work together to develop or promote a project, they spell out the terms of their cooperation in a joint development agreement (JDA). This is an extremely important document that defines the parties' rights and responsibilities as they engage. A JDA should be drafted by attorneys and set out the ground rules, including exclusivity and payment of expenses, among other issues.
What Is a JDA?
Any time two people or companies work together on a project, it is essential that their legal rights and responsibilities be spelled out in a carefully drafted contract. A joint development agreement (JDA) is one term used for this type of contract, and it can be used for almost any joint endeavor, from developing real estate to working on intellectual properties.
These agreements are also called development agreements (DAs) and joint venture agreements. However a joint venture agreement is often viewed as a broader concept that can include an actual merger of two legal entitles.
One common use of a JDA is to describe an agreement between a landowner and a developer where the owner contributes real estate to the project and the developer pays all or most of the construction cost. The parties share the proceeds in a manner agreed upon between them and set out in the JDA.
JDAs are essentially contracts, so to be legally enforceable they must contain all of the required elements of a contract. A binding contract is defined as a legal agreement between two or more parties that contains certain required elements. Contracts are made when one entity offers something to another entity and that offer is accepted. For example, when a company offers a person a job and they accept it, that creates an employment contract.
Some contracts must be in writing to be legally binding, but others may be oral. Legal experts often recommend that all contracts be reduced to writing to make the terms clear and easier to enforce. This is particularly true for complicated arrangements. Most, if not all, JDAs are written agreements drafted and reviewed by lawyers.
Elements of a Contract
All contracts must contain certain legal elements. First, there must be an offer from one party and an acceptance by another party. The offer should contain sufficient details to describe the project clearly enough that the acceptance signals a meeting of the minds, that is, a similar understanding among all the parties about the basic elements of the contract. Vague language can lead to misunderstandings about the deal and prevent a meeting of the minds.
Consideration is also a critical element of a valid contract. Something of value must be exchanged by the parties in order to form the contract, and this is termed consideration. It includes money, services, property or products. The parties must be legally capable of contracting and the contract must not be for an illegal purpose.
These are the essential elements required to make a binding contract. Every joint development agreement must contain these elements.
Joint Development Agreements for Land
One of the most common types of JDAs are those used to develop land. This is usually an agreement between someone who owns real property and wishes to earn revenue from it and someone who wishes to develop it. While landowners can develop the land themselves, they may not have the finances or know-how to do so. A joint venture is an attractive option since it relieves the landowner of construction costs and many legal issues by bringing in another party with knowledge of the development process.
When a landowner joins with a developer in a JDA, the developer usually brings the capital and the expertise for the project. The developer benefits because they do not have to purchase the land to create a development, while the landowner transforms their raw land into a developed property that is far more valuable and brings in more revenue.
Elements of a JDA for Land
While the concept of a JDA for land development may sound easy – one party contributes the land, the other develops it – drafting a JDA is anything but simple. In order to protect the rights of all parties, the arrangement must be spelled out in a written contract detailing the terms and conditions of the agreement. These generally include a declaration as to title and ownership for the landowner, as well as plans for developing the property, the deliverables, the effective date, the method of financing the development, the time frame for the deal, statutory compliance responsibilities, and the accounting methods to be used. It is equally essential to include clear provisions about how profits are to be divided and when and how they are to be calculated.
The essential elements of a JDA for land include:
- Permission to enter and work: The JDA for land specifies that the landowner gives the builder/developer permission to enter the property and perform work there for the purpose of creating the development. No ownership interest or title to the land is transferred to the developer. However, the developer is often given a General Power of Attorney to raise funds, obtain licenses, deal with local authorities and do other ancillary jobs necessary to carry out the construction.
- Title to land: Under the JDA, only the developer is given the right to develop the land. The landowner remains the sole owner of the property throughout the project. The JDA does not pass any ownership or title interest to the developer.
- Division of profits: The developer and the landowner can agree to share the profits in any manner that suits them. Often, the profit sharing is based on a division of the resulting units, but it can also be divided based on cash consideration. In the latter case, the agreement usually sets a time frame in which the developer must sell the units and give the agreed upon payment to the owner.
- Permits from government entities: There are many legal hoops for the developer and landowner to jump through in order to pursue and sell the development. Getting proper permission and permitting is a legal obligation which usually falls to the developer. Responsibilities are described in detail in the JDA.
- Profit sharing ratio: The distribution of sales proceeds between the parties is termed profit sharing. Whether the consideration given to the landowner is in kind or in cash, the formula for determining the profit and the ratio must be spelled out in the agreement. Sometimes the developer is required to put down a security deposit to make certain the construction costs can be covered.
- Supplementary agreements: Any additional agreement signed between the developer and the landowner after the JDA is termed a supplementary agreement. Any changes in the original JDA can be made in this manner, and the supplementary agreement can also address matters not considered in the original agreement.
Joint Venture for Intellectual Property
Another common use for a joint development agreement is to set out intellectual property rights in a joint venture to develop new intellectual property. As technology becomes increasingly complex, companies generally join together to create new intellectual property. More often than not, intellectual property is developed by more than one person or company, using the talents and skills of a variety of experts as well as the "background IP" of several IP companies.
What is background IP? This means proprietary know-how and intellectual property already owned or possessed by each party entering into the agreement. New intellectual property is not often developed by complete strangers to the field. Background IP includes preexisting intellectual property owned by one of the parties; property that will be used in the development of new IP.
Generally, JDAs for intellectual property development provide that ownership of background IPs used during the project remains entirely vested with its original owner. While the other party to the JDA is permitted to use the background IP of the other, it can only be used for activities necessary to carry out the joint development work.
Setting Out Ownership Interests
If the background IP is to be fully incorporated into new IP that is developed during the term of the JDA, the agreement should spell out how the parties' ownership interests will be defined. For example, the JDA may state that any jointly created IP resulting from the joint development activities will be owned jointly and equally by the parties. It may also define the field or area of use (in technological, geographic or other terms) in which a party to the JDA has the right to exploit the jointly created IP. Sometimes the JDA mandates written consent from other parties to exploit jointly developed IP.
Protection of Confidential Information
When parties have a JDA prepared for intellectual property development, all of the usual elements described above in terms of land development apply. That is, the JDA must set out the ground rules, the rights and responsibilities of each party, the milestones and time frame for progress. Finances and how expenses are to be paid must be indicated in the agreement.
One element of particular importance in a JDA for intellectual property is protection of confidential information and trade secrets. The JDA must put measures in place to protect all confidential information of the parties, including the background IP of each party. Likewise, if the new technology is to be incorporated into the technical platforms of one or more of the parties, the question of how to protect and treat the previously existing IP portfolio must be included.
Many JDAs include elements and warranties found in a non-disclosure statement (NDA), such as a receiving party must keep confidential information provided by the disclosing party for a certain period of time after the development program is complete.
Division of Ownership and Patent Rights
Like with the JDA for land development, parties to a JDA for IP must set out the agreed-upon way to divide ownership of, or profits from, any inventions. What are the rules to determine who owns the newly developed IP? In the law, the default position is that new IP created by both parties is owned jointly, with each holding a 50 percent interest.
There is a question of whether a joint owner of newly developed IP must account to other owners for using the invention. The laws on this matter vary from country to country. In the United States, the law does not require that one joint owner account to the others when they use the invention.
Another important matter to be described in the JDA is which party is responsible for patenting the new IP and how costs for filing these patent applications are to be divided. This is central, since the first product of JDAs for intellectual property projects are often patent applications. Questions like whether each party will prepare and file their own applications or whether any applications will be joint should be addressed in the JDA.
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.