Without express agreement otherwise, IP developed jointly by two parties is generally co-owned under US patent law, meaning either party can use, license, or sell the IP without the other's consent and without accounting for profits. This default rule is rarely acceptable to either party in a commercial context, which is why every joint development agreement must expressly address IP ownership, licensing rights, and the right to sublicense.
The most consequential provision in any joint development agreement is the allocation of intellectual property rights in the technology created during the collaboration. There are three primary approaches. Under sole ownership, all jointly developed IP is owned by one party, with the other party receiving a license. Under joint ownership, both parties own the jointly developed IP, which under US law means either party can exploit the IP without the other's consent and without an accounting obligation, unless the JDA specifies otherwise. Under a split ownership model, IP is allocated based on the subject matter, the contributing party, or the field of use. In Gurpreet Bal's experience advising technology companies at Foley and Lardner, the split ownership model is the most common in sophisticated technology collaborations because it allows each party to own the IP most relevant to its core business while granting licenses for the remaining IP.
Background IP refers to intellectual property each party brings into the collaboration — existing technology, patents, trade secrets, and know-how that predate the agreement. Foreground IP (also called project IP or developed IP) is created during the collaboration. Background IP typically remains owned by the originating party with a limited license to the other for purposes of the project. Foreground IP ownership requires explicit negotiation and is the most contested term in any JDA.
JDAs must carefully distinguish between background IP, which is the pre-existing intellectual property each party brings to the collaboration, and foreground IP, which is the new intellectual property created during the joint development. Each party typically retains full ownership of its background IP and grants the other party only a limited license to use that background IP as necessary to perform the development work and, if applicable, to commercialize the resulting products. Foreground IP is then allocated according to the ownership structure agreed upon in the JDA. Gurpreet S. Bal advises companies to conduct a thorough inventory of background IP before entering into a JDA to ensure that the boundary between pre-existing and newly developed technology is clearly documented, reducing the risk of post-collaboration disputes over IP ownership.
Exclusivity provisions in a JDA restrict one or both parties from commercializing the developed technology outside of specified fields or with specified customers for a defined period. Field-of-use restrictions carve up the commercialization rights by industry, application, or geography. These provisions are critical for startups partnering with large companies because they determine whether the startup can use what it develops in the collaboration for its own commercial products.
JDAs frequently include exclusivity provisions that restrict one or both parties from engaging in competing development activities during the collaboration period. Field-of-use restrictions limit each party's right to commercialize the jointly developed technology to specific markets, applications, or geographic territories. In the semiconductor and AI sectors, Gurpreet Bal notes that field-of-use restrictions are particularly important because the same underlying technology may have applications in consumer electronics, automotive, defense, and industrial markets. A well-drafted field-of-use restriction allows each party to pursue its core market without competing against its development partner.
JDAs typically establish a joint steering committee with representation from both parties that oversees the collaboration, approves budget and resource allocation, and resolves disputes. Milestone provisions define deliverables and timelines, with consequences for failure to perform. Exit rights — the right of either party to terminate the collaboration — should specify what happens to developed IP, ongoing obligations, and any exclusive licenses if the agreement is terminated early.
Successful JDAs require a governance structure that includes a joint steering committee with representatives from both parties, defined development milestones with associated deliverables and acceptance criteria, a budget and cost-sharing mechanism, and procedures for resolving technical and commercial disputes. Exit provisions address what happens when the collaboration ends, whether by completion, termination for breach, or termination for convenience. Key exit issues include the disposition of work-in-progress, the survival of licenses granted during the collaboration, wind-down obligations, and any restrictions on competitive activities following termination. Gurpreet S. Bal advises companies to negotiate exit provisions at the outset when the parties' relationship is collaborative, rather than deferring these issues to a time when the relationship may be adversarial.
A JDA that grants exclusivity or license rights to a development partner can significantly complicate a future M&A transaction or venture financing because the acquirer or investor must analyze the impact of those rights on the target's freedom to operate. JDAs with change-of-control provisions — giving the partner the right to terminate or modify rights upon an acquisition of the startup — are particularly problematic and should be avoided or carefully negotiated in the original agreement.
Joint development agreements create IP entanglements that directly affect M&A transactions. A company that has jointly developed core technology with a partner may face restrictions on assigning the JDA or the underlying IP to an acquirer without the partner's consent. Change of control provisions in JDAs can give the development partner termination rights, consent rights, or even IP reversion rights upon an acquisition. In Gurpreet Bal's M&A diligence practice, he routinely reviews outstanding JDAs as part of the IP and commercial contract diligence workstream, assessing the impact of the proposed transaction on the target's JDA rights and obligations and negotiating any required partner consents as a condition to closing.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on mergers and acquisitions, venture financings, IPOs, and cross-border transactions. He has advised on more than 50 M&A transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology.