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IP issues

in FinTech Joint Ventures and Consortia Projects

Introduction

Our research findings explain why the majority of large businesses in the sector are struggling to move quickly enough, and how that can be changed.  Most importantly, our findings tell us how the industry’s leaders are learning to reach hyper-speed.

One of key findings from the research is that industry consortia are vital, but the model needs refining. The industry acknowledges the need for consortia to enable implementation of certain new innovations, such as distributed ledger technology. However, 60% of respondents think some existing consortia are ineffective because they have too many participants, and 68% say they would need a high level of control over the direction of a consortium to participate.

What does that mean for your organisation?

As they look for ways to accelerate their innovation strategies, financial institutions and asset managers are increasingly collaborating with early-stage FinTech businesses and, in some cases, other established institutions to develop new technology solutions.  These collaborations often give rise to complex questions about intellectual property (‘IP’).  This note sets out the key legal and commercial IP issues that should be addressed by all organisations considering entering into joint venture or consortia arrangements in the FinTech sector.

What IP is each party contributing?

The IP contributed by each party to a collaboration (often referred to as ‘Background IP’) frequently underpins collaborative ventures in which IP-rich organisations pool their assets for the purposes of R&D.  In most cases, each party will expect to retain ownership of its Background IP, and will typically grant to the other parties a licence to use its Background IP for the purpose of the collaboration.  You should consider:

  • Do you have sufficient licensed rights to use the Background IP of all the other parties, for the duration of the collaboration and beyond (if necessary)?
  • Does each party own, or have a licence to use, the IP that they are sharing?
  • Is any of your Background IP licensed in from a third party?  If so, are there any conditions or restrictions on your ability to share that IP that need to be adhered to or passed on to the other parties?

Who owns the IP developed through the project, and who can use it?

 It is vital to establish early on (ideally before any IP has been created) the ownership and licensing arrangements of results (often referred to as ‘Foreground IP’) that are created in a collaboration.  You should consider:

  • Who is creating Foreground IP?  The position on ownership of IP developed by employees and contractors differs from country to country.  You should check what steps are required to ensure that IP generated by employees and contractors is owned by the party that needs to own the IP (to the extent possible under relevant laws).
  • Will the Foreground IP be jointly owned by the consortium parties (and if so, in what shares), or through a special purpose vehicle?
  • Does the use of Foreground IP require the prior consent of the other consortium parties?
  • Will each party own improvements to its own Background IP developed in the course of the project?
  • If an academic partner is involved in the project, are any reservation of rights or licensing arrangements required for academic teaching purposes/non-commercial research?

How is the IP protected and who is responsible?

Responsibility (and the cost) of protecting IP should be dealt with up front.  You should consider: 

  • Which entity will be responsible for managing the filing, prosecution, maintenance, defence and enforcement of IP rights?  You should consider whether applications should be filed to protect trade marks or inventions, and whether you need to secure undertakings from the other parties that they will not seek to register IP save as otherwise expressly agreed by the other consortium members.
  • Do you have sufficient confidentiality agreements or provisions in place to protect your confidential information?
  • Which entity will have the right to manage IP claims made by or brought against the parties?
  • Have the parties agreed to cooperate (at their own cost or otherwise) with whoever is responsible for managing the IP?

What happens if it doesn’t work out? 

As a significant proportion of consortium projects break up without a new product or service being launched, it is vital to address up front what rights the parties will have if the project does not proceed or a party leaves the consortium.  You should consider:

Do you have the right to sub-license and/or transfer your (share of the) IP, and your rights/obligations under the joint venture or collaboration agreement, to your affiliates?  What about to third parties?

  • Are there any restrictions on using the confidential information or know-how you generate in the context of the project for other purposes?
  • What happens to your rights and obligations if you withdraw from the collaboration?
  • What IP rights will new members acquire?

The perils (and unexpected benefits) of joint ownership

Traditionally IP lawyers tend to advise against multiple parties owning IP jointly.  This is because shared ownership and control of IP rights can often mean that a joint decision (or consent, at least) is required from all project parties to protect, enforce and commercialise the jointly owned IP.  This can result in practical difficulties, particularly if the parties are in disagreement.  The position on ownership and control of joint IP also varies from country to country.  As a result, it is often advisable for the parties to agree between them which party (or parties) should own which rights and to then put licences in place to allow the other parties to use the IP created in the course of the project as required.  However, in some consortium arrangements there can actually be an advantage to the parties agreeing to hold IP jointly.  Due to the complexity that surrounds the use of jointly held IP in different jurisdictions, agreeing that IP should be held jointly by the consortium members can in some cases make it less likely that a party will walk away from the consortium because of the uncertainty they have over the effect doing so will have on their IP position.

Other issues to consider

As well as the headline IP issues identified above, there are a number of additional considerations that should be taken into account.  These include the following:

  • Has any due diligence been carried out on the technology partners to ensure they do not pose any infringement risk?  Questions to ask include:
    • Have the individuals who developed the IP developed similar IP previously, and if so, when and for whom? (Depending on the answer to this question further due diligence might be necessary to avoid IP infringement claims).
    • Have any of the parties received complaints from third parties regarding their IP (e.g. threatening IP infringement and/or breach of confidence/trade secrets)?  For more detail on the issues that should be considered, please see our note on ‘IP due diligence in early-stage FinTech businesses’.
  • Do you require the right to use the branding (e.g. trade marks and logos) of the other parties and are approvals required to publicise the project?
  • Do any competition law issues arise with the proposed joint venture?

How can we support you?

Our IP team regularly advises on complex joint ventures and consortium projects.

The team has recently advised:

  • an international bank on the establishment of a joint venture with two other financial institutions and three FinTech businesses to develop a new RegTech solution
  • the strategic investment team of an international bank on a minority investment in an early-stage data analytics software developer
  • an early stage FinTech business that spun its IP out of a US investment bank on its proof of concept projects with a number of financial institutions
  • the London Bullion Market Association on the IP licences relating to the new LBMA Gold, Silver and Platinum & Palladium Price benchmarks

We have also advised on several very high profile joint ventures in other sectors such as:

  • advising on the formation of a ten year $1 billion collaborative investment fund, OGCI Climate Investments LLP, designed to tackle climate change on a global scale
  • advising the UK Government on the establishment, governance and IP ownership / cross-licensing framework of the £1 billion Energy Technologies Institute, a private / public limited liability partnership for R&D into low carbon energy technologies
  • advising GlaxoSmithKline on the formation of Apollo Therapeutics LLP, an innovative joint venture designed to change the way industry and academia collaborate in translational medicine to generate novel therapeutics for the benefit of patients facing unmet medical needs
  • advising GlaxoSmithKline on its “open science” collaboration with the Francis Crick Institute to forge new scientific discoveries (this was the Institute’s first pharmaceutical industry collaboration)

 

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