When a large company and a small company enter a collaborative arrangement

There are many reasons why parties might want a collaboration agreement put in place between them – by formally documenting the commercial project that they are considering collaborating on, it will be clear how the responsibilities and obligations are to be divided, including who owns what and to make sure that all parties know what to do if things go wrong and a party wants to raise a dispute or to stop being part of the venture.  

In this guide we discuss how, with the right collaboration, a company can be helped on its way to achieve its goals and business growth. If you would like help drafting or negotiating a collaboration agreement, our friendly commercial contract solicitors are ready to provide advice tailored to your situation.    

Jump to:

1. What are collaboration agreements?
2. When are collaboration agreements used?
3. Are collaboration agreements legally necessary?
4. What is usually included in a collaboration agreement?
   1. Details of the joint project 
   2. Collaboration period and schedule 
   3. Confidentiality, exclusivity and permitted use 
   4. Reporting and project management 
   5. Payments by each party 
   6. Intellectual property rights 
   7. Data Protection 
   8. Non-solicitation 
   9. Limitation of liability 
   10. Disputes 
   11. Termination arrangements 
5. Tips on negotiating a collaboration agreement

What are collaboration agreements?

A collaboration agreement is a legally binding agreement between different parties that want to co-operate together or work collaboratively on a commercial project. 

In most cases a collaboration agreement will record: 

• What the collaboration is about  
• How the parties will work together 
• How the benefits of the collaboration will be shared 
• Each parties responsibilities and obligations 
• Dispute resolution and termination clauses   

A collaboration agreement can be as simple or as complicated as you want it to be but the important point is that it should be sector specific and focused on your business needs and what you want to get out of the collaboration. 

When are collaboration agreements used?

Collaboration agreements are used in all manner of business enterprises, the common thread in their use is that two or more business parties want to create a contractual joint venture.  

The content of a collaboration agreement will differ depending on the nature of the venture. For example, if the project involves tech, there will be specific provisions to set out who owns and who has responsibility for the intellectual property created by the project, as well as setting out the terms of any licence for use of the intellectual property. 

Are collaboration agreements legally necessary?

Collaboration agreements are not legally necessary but they are recommended. Whilst it may be nice to rely on verbal reassurances it is naïve to do so when your company is investing time and money into a collaborative project and wants to see results rather than end up in a commercial contract dispute. 

Putting a written commercial contract in place is a way to ensure that the risks you take are managed and that you have some recourse if the collaboration does not go to plan. For example, you may be able to bring a claim for damages or specific performance against the other party to the agreement.  

If you don’t have a written collaboration agreement in place, the court could find there is a verbally binding agreement, apply contract law to the agreement and interpret the contents of the contract. Without a written agreement in place, it is harder to prove the intention of the parties at the time the terms were entered into.  

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What is usually included in a collaboration agreement?

Our commercial solicitors have detailed the main terms usually included in a collaboration agreement:

Details of the joint project 

Details of the project will normally be included in the agreement as a specification or schedule annexed to the agreement. The specification will usually state the contribution required by each party at the outset and during the collaboration. Detail ensures the parameters of the project are clear and can minimise the risk of disputes later down the line. As circumstances can change it may be sensible to include a review clause so the specification can be amended as required. 

Collaboration period and schedule 

The term of the collaboration can be set out in the main body of the agreement. The term can be for a fixed period or ongoing until terminated by one party. The accompanying schedule can provide a timeline of key project deliverables. 

Confidentiality, exclusivity and permitted use 

Any collaborator will want to protect confidential or commercially sensitive information provided as part of the collaboration so the agreement should include a non-disclosure agreement and confidentiality provisions. The agreement should be clear on the extent to which the parties can use any confidential information and whether the parties can carry on activities that may compete with the collaboration project.  

Reporting and project management 

The key to any good collaboration is arguably strong communication. Accordingly, the parties to the collaboration may want the agreement to set out formal reporting requirements for each party and, at a high level, meeting schedules. The nature and extent of the reporting requirements will depend on the project specifics. For example, a collaboration to develop new technology may involve more extensive reporting and project management. 

Payments by each party 

Key provisions to include are terms relating to how the project will be funded and the amounts that each party should contribute during the agreement. It is best to drill down and include provisions on: 

• What happens if more money is needed for the project. 
• If one party does not pay their agreed contribution. 
• When each party can expect to get their initial contribution back. 
• Penalties for breach of agreement.  
• Indemnity provisions against loss that one party may suffer in relation to certain aspects of the project. For example, with a manufacturing based project a warranty could be given by one party that the goods supplied by them as part of the collaboration meet the relevant regulatory criteria and provide an indemnity in case they don’t do so. 

Intellectual property rights 

Whether a collaboration agreement needs to include detailed provisions on intellectual property will depend on the nature of the project and on whether intellectual property is intended to be used or created as part of the venture.  

There are many types of intellectual property, including copyrights, trademarks, design rights and patents and the agreement should protect any intellectual property rights owned by the parties before they entered into the collaboration. Agreements often state ownership of  ‘background’ intellectual property remains the property of the party that created it and introduced it into the collaboration. An IP licence may also need to be granted to the parties’ contractors, advisers or consultants  

The parties will need to include how any intellectual property created during the course of the project will be treated. For example, the IP could be jointly owned or the lead party could own the intellectual property but agree to grant the other party or parties to the collaboration a licence to use the IP after the end of the collaboration. Provision should also be made to cover the scenario of infringement of IP rights.  

Data Protection 

The Data Protection Act 2018 imposes obligations on businesses to adequately protect any information that it has collected, uses, stores or processes that might allow an individual to be identified. The collaboration agreement needs to cover data protection systems and processes if personal data may be shared, used, stored or transferred as part of the collaboration. 

Non-solicitation 

A non-solicitation provision may be required if a party to the collaboration is concerned another party may try to ‘poach’ their employees, sub-contractors or consultants. A non-solicitation clause will usually specify a period of time in which the parties cannot approach or solicit the employees, consultants or subcontractors of the other parties to the agreement. The period of restriction needs to be a reasonable length rather than indefinite and should be framed to protect a legitimate interest of the party seeking to enforce it. A non-solicitation provision may also include compensation payments payable by the party in breach. 

Limitation of liability 

Depending on the exposure of the parties in connection with the project and the resources of each party, it may be appropriate to include provisions limiting liability as a result of the performance or non-performance of obligations under the collaboration agreement. There are some liabilities, such as death or personal injury caused by negligence, where liability cannot be excluded by law but in some scenarios an agreement could: 

• Place a cap on the total liability each party will have (usually defined as a monetary sum) in connection with the collaboration agreement. 
• Exclude liability for losses that did not occur as a direct result of the event or claim. 
• Exclude any liability that a party can exclude to the extent allowed by law.  

Disputes 

The collaboration agreement should specify the agreed dispute resolution process if a dispute arises between the project team. For example: 

• If all parties have an equal say into project decisions, the parties might want to cover what happens if there is a deadlock in decision making. 
• With a cross border collaboration, the agreement should state which jurisdiction will determine a dispute. The agreement should also state the preferred means of alternative dispute resolution (ADR), such as commercial mediation or international arbitration.  

Termination arrangements 

The termination provisions in a collaboration agreement are arguably some of the most important terms of the contract. Each party should think carefully about what happens if the project fails, stalls or goes wrong and what that means for them and their investment.  

Parties may want to be able to terminate the agreement early before the project is complete or tie themselves into a ‘lock-in’ period where they commit to the project for a specified period before they can opt to terminate. An agreement can include provisions for termination if: 

• A project milestone is not reached 
• If the other party breaches a major obligation under the agreement 
• Notice of termination is given 

The termination triggers will vary depending on the project. The collaboration agreement should set out what happens if one party exits the agreement. For example, what happens to shared resources, existing supplier or customer agreements or shared confidential information. The parties also need to consider if any continuing collaboration will be necessary after termination of the agreement and for how long. For additional reading we have a separate guide covering contract termination.  

Tips on negotiating a collaboration agreement

A collaboration agreement is a commercial contract and the parties can negotiate the terms they want to include in it. Your ability to negotiate terms will very much depend on your bargaining power but start-ups should not assume they can't negotiate with a well-established brand as they may have the skills that are needed to get the collaboration off the ground so they need to understand the value of what they are bringing to the collaboration project. 

Commercial contract solicitors say that other collaborative agreement negotiation tips include: 

• Work out what you want to achieve by the collaboration and your key objectives. 
• Ensure your agreement is bespoke to your business needs and tailored to your industry or sector and takes into account any industry regulations. 
• Spend time negotiating the detail as front loading the legal work in drawing up a detailed collaborative agreement reduces the risk of a dispute over the terms of the agreement. It is cheaper to spend money on getting the collaborative agreement right than ending up in commercial litigation because the agreement was not as comprehensive as it should have been.
• Be realistic in negotiations and understand the incentives required to make the collaboration a success.    
• Make sure the collaboration agreement specifies who owns what after the end of the project as you don’t want to have collaborated only to find that you don’t own the IP created or you only get a limited licence to use the IP.   

About our expert

Stephen Pearne

Commercial Partner

Having qualified as a solicitor in 1998, Stephen advises on a wide range of commercial matters and has focussed on commercial technology for over 15 years.

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Areas of Expertise

Agency Agreements Cloud Service Agreements Commercial Contracts Commercial Law Solicitors Confidentiality & Non-Disclosure Agreements Drafting Subcontractor Agreements IT & Commercial Technology Law and 8 more...

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