“Complex” and “multifaceted” may be two of the most appropriate adjectives to characterise software partnership contracts. This is due in part to the fact that there are several types of software partnerships, including as
In return for a share of the income, Company A agrees to sell Company B’s software.
Company A incorporates technology from Company B into Company A’s product. In exchange, Company B gets a portion of the income.
Company A permits Company B to sell its product on Company A’s platform in exchange for a part of the revenue.
Each of these instances necessitates a unique contract, which must be further tailored to each party’s aims and aspirations, as well as the specific interpersonal dynamics at work. As a result, negotiating is a crucial, if occasionally irritating and time-consuming, component of the software partnership process.
Fortunately, both sides may take numerous efforts, both before and during the negotiating process, to reduce disappointments and lost time.
Prior to the Negotiation Understand Your Goals
Before you meet with the other party, think about what you want to gain out of the collaboration. Do you, for example, imagine a product cooperation in which the parties use one other’s technologies to develop their own products? Or do you see a licence agreement for one party’s market-ready technology or product? In any case, the basic takeaway is that understanding what you want before you start negotiating is critical to attaining it in the end.
You should also be aware of your deal breakers and convey them to the other party as soon as feasible.
Conduct your research
The ancient saying is true: knowledge is really power. As a result, each party should do due diligence on the other party’s financial condition, technical skill, track record, willingness to contribute to the partnership, and capacity to aid with commercialization (if parties are considering joint commercialization).
You should also outline the intellectual property that each partner will contribute to the collaboration.
Throughout the Negotiation
Concentrate on Key Terms
Although it is vital to invest the time and effort to verify that your software partnership contract has all necessary requirements, you will most likely be unable to nitpick every single phrase. At best, this will irritate the counterparty and delay down the bargaining process. At worst, the counterparty may conclude that working with a tough firm like yours isn’t worth their time and stop the discussions entirely.
As a result, it’s critical to understand which words are worth disputing over and which may be ignored. However, important phrases vary depending on the kind of partnership you want.
Key phrases for collaborative development or strategic collaborations include:
The partnership’s breadth
Personnel contributions and other performance commitments of each side
From each party, general recommendations on how the project will be handled. Which teams will be in charge?
How will expenses be apportioned to each side?
Whether each party will market independently or whether technology will be commercialised jointly.
Which side will be required to get regulatory permissions, and how will they do so? Will there be a specialised regulatory team made up of representatives from both sides?
Ownership of all intellectual property brought to the table by one party and licenced to the other.
Intellectual property developed as a result of the collaboration is owned by the partnership.
Other issues that are specific to the industry
If the contract is a shareholders agreement for a joint venture business, however, there are additional crucial provisions to examine. Consulting an attorney at this time may be incredibly beneficial, as he or she will be able to construct a non-binding terms sheet that enables both parties to discuss and finalise crucial elements, such as:
What kind of organisation will be established, and where will it be located? In international joint ventures, the non-US partner may insist on an offshore jurisdiction like the British Virgin Islands or the Cayman Islands.
Obligations owed to the firm by each party
Is the company’s management a 50/50 joint venture, or is one side the main shareholder?
Clauses of termination
What happens if there is a stalemate?
What intellectual property does each party contribute?
How many personnel does each side contribute?
What regulatory clearances are required for the company’s formation?
What each party will do, and for how long, to avoid competing with the joint venture firm
While all of these phrases are significant, bear in mind that some are not. You may be able to cope with letting the opposing side have its way on these less important clauses. It is critical to be able to distinguish which phrases are absolutely necessary and which are not. The worst thing you can do is start negotiating and immediately lose momentum due to significant disagreements about non-essential criteria that aren’t deal breakers.
Make Use of Your Advantage
In many talks, the sides’ power balance is less than equal. One party may have significantly greater intellectual property than the other, or one side may be substantially bigger and so have more negotiating power than the other.
Nonetheless, there are several sources of leverage that both parties may be able to use. For example, one side’s technology may be so distinct that replicating it would be difficult or impossible for the other side. In this case, the party that owns the technology has a lot of clout since the counterparty obviously need that technology to develop their product.
Alternatively, if one party already has a paying client base or a dominating position in a certain market, it may be a powerful source of leverage.
Another typical source of leverage is the support of rich and influential investors. It goes to reason that the side with the most and best investors would have greater authority and decision-making power throughout the negotiating process.
The Bottom Line
Do your research. Before you begin talks, you should know what you intend to gain from the collaboration, as well as your deal breakers and important facts about the opposing side.
Determine which phrases to concentrate on. Being able to discriminate between concepts worth debating over and those that are ultimately insignificant is critical to a successful negotiation that does not consume months of your time. An attorney may be of considerable assistance at this stage of the process.
Identify potential sources of leverage. Even though the other party has the upper hand, you may have leverage that may be used to level the playing field.