Collaboration – legal challenges for set-up and delivery

This article is part of a series on the subject of supply chain resilience.

Governance

Successful collaboration depends on people. Technology and contracts can also play important roles in supporting collaboration initiatives. However, critical is the implementation of a suitable working structure, through which personnel of the collaboration partners can suitably:

• perform the collaboration work activities;
• inform and escalate strategic decisions;
• resolve blockers and avoid disputes.

Other people-based factors are also important – like the involvement of personnel who will champion the collaborative aims, internally and with the other collaboration partners. However, without an underlying governance structure enabling teams to navigate the inevitable 'bumps in the road', collaboration projects often fail to progress.

Contracting for success

Collaborations should ideally be underpinned by some form of appropriate legal structure, whether formal joint ventures, partnership agreements, or collaboration contracts, among other options.

These arrangements should facilitate the collaboration, such as by securing protections for confidential information. However, it is notable that this is often the stage at which collaborations struggle – with issues including:

• 'master and servant' supply agreements being proposed as the basis for collaboration;
• a lack of transparency in documenting the parties' anticipated rights of access to and use of outcomes.

We would encourage collaboration partners to:

• use legal documentation aligned with the intended collaboration;
• not shy away from confirming how each party expects to benefit – if the parties' expectations are diverging, it is better to know sooner rather than later.

Valuable IP and the fear of losing it

The creation of valuable IP is often at the heart of why businesses collaborate. Yet, a common fear is that by working with other parties – sharing ideas and expertise – parties risk losing control of their inputs and any important arising developments.

This risk of 'losing-out' is, for many collaboration projects, arguably somewhat overstated. Nevertheless, parties should take a considered approach to agreeing and documenting important understandings regarding IP – such as the allocation of IP rights in outcomes and alignment on an associated registration and protection strategy.

Data treatment

Collaboration partners should think beyond classical forms of IP. Data, in particular, is increasingly of huge value. Regulating rights in data can, however, be an especially tricky subject, not least because legal systems are still struggling with the concept of data as an asset. Nevertheless, parties should ensure they have a documented agreement on how data inputted into or created by their collaborations should be treated.

Competition/antitrust regulation

Competition law has the potential to impact collaborations in a number of ways, including what information may be shared by collaborating parties, for example cost and marketing data, and how markets might otherwise be impacted, such as where there are agreements restricting respective use of collaborative developments.

Regulatory guidance, issued by competition authorities in response to the pandemic, suggests that the benefits to consumers of supply chain resilience may play a more prominent part in future compliance assessments. Yet, even without such an apparent shift, there has always been plenty of scope to structure and operate supply chain collaboration in a compliant manner.

Businesses should address the potential impact of compliance matters early in the planning process. It is invariably more difficult to resolve compliance issues once information exchanges, collaborative work and supply structure changes are well progressed.

Disputes – resolving issues in a collaborative fashion

Not everything in a collaborative arrangement may go smoothly. This is something businesses party to those arrangements need to prepare for. Early escalation and resolution of issues impacting and eroding the collaborative working relationships is vital.

Collaborative initiatives may well not survive significant disputes. It is, however, still worth assessing what manner of formal resolution, whether mediation or expert determination, among other options, might help avoid project abandonment or offer other benefits, such as a confidential resolution to the dispute protecting the commercial value of collaborative work.

Termination of the collaboration

The termination of collaborations or the exit of one or more parties from multi-party arrangements, are scenarios that should be assessed in advance too. One issue to consider is whether each party should be able to independently exploit the collaboration project outputs. It is not in the parties' interests to have uncertainty over their future ability to benefit from invested efforts.

Meeting the challenges

The challenges that may be faced by collaborations are potentially wide-ranging. Other examples include determining how collaborative work is financed, which can often be primarily an internal challenge and not just an issue between the collaborating parties.

Despite these challenges, however, we were already seeing an increased incidence of collaboration prior to the pandemic and there are good reasons to believe it will remain an important strategic focus for businesses – especially as increased collaboration has the potential to improve sustainability and resilience of supply chains. It is, therefore, important for parties to adequately align on strategic objectives, governance and other important matters, including through agreeing a suitable legal basis for their efforts, to give collaboration initiatives the greatest opportunity for success.