a. eureka and legal forms of cooperation

EUREKATHE TOOLBOX

Legal Forms of Collaboration

TABLE OF CONTENTSFOREWORD.....................................................................................................................................................................................4

INTRODUCTION................................................................................................................................................................................5

Legal Forms of Collaboration.......................................................................................................................................................5

A word of warning......................................................................................................................................................................6

LIST OF GENERAL DEFINITIONS.........................................................................................................................................................7

Cooperation agreement...............................................................................................................................................................7

Legal forms of collaboration........................................................................................................................................................7

R&D agreement..........................................................................................................................................................................7

Consortium agreement................................................................................................................................................................7

Joint venture agreement..............................................................................................................................................................7

Results ('foreground information').................................................................................................................................................7

Background information..............................................................................................................................................................7

Intellectual property rights (IPRs)..................................................................................................................................................7

Know-how.................................................................................................................................................................................7

TYPOLOGY OF EUREKA PROJECTS AND LEGAL FORMS.......................................................................................................................8

FIRST STEP:.................................................................................................................................................................................8

Situate your project within the proposed typology of projects...............................................................................................................8

Joint research and development...................................................................................................................................................8

Concerted research and development...........................................................................................................................................8

Joint exploitation of results..........................................................................................................................................................8

Combined exploitation................................................................................................................................................................8

Contract research.......................................................................................................................................................................8

SECOND STEP:.............................................................................................................................................................................9

Verify whether your proposed project falls within the EUREKA context or not and if certain legal forms of cooperation are eligible for public funding........................................................................................................................................................................................9

THIRD STEP:.................................................................................................................................................................................9

Identify the relevant legal aspects for your particular case...................................................................................................................9

FOURTH STEP:..............................................................................................................................................................................9

Go through the following checkpoints to ascertain which main types of legal forms are available in your case............................................9

CASE I:.....................................................................................................................................................................................9

Concerted research and separate exploitation................................................................................................................................9

CASE II:..................................................................................................................................................................................10

Joint research and separate exploitation......................................................................................................................................10

CASE Ill:.................................................................................................................................................................................11

Concerted research and joint exploitation....................................................................................................................................11

CASE IV:.................................................................................................................................................................................12

Joint research and joint exploitation............................................................................................................................................12

CASE V:..................................................................................................................................................................................13

Concerted research and combined exploitation............................................................................................................................13

CASE VI:.................................................................................................................................................................................13

Contract research and separate or combined exploitation..............................................................................................................13

Definitions...............................................................................................................................................................................14

QUESTIONS AND ANSWERS.............................................................................................................................................................15

A. EUREKA and legal forms of cooperation......................................................................................................................................15

B. The choice between a purely contractual form of cooperation, an informal grouping or an institutional solution.....................................17

C. Legal forms of cooperation and IPRs...........................................................................................................................................18

D. Legal forms of cooperation and concerted research: strategic alliance.............................................................................................21

E. Legal forms of cooperation and concerted research: the case for a consortium.................................................................................21

F. Legal forms of cooperation: the case for the EEIG.........................................................................................................................22

G. Legal forms of cooperation and combined exploitation..................................................................................................................22

H. Legal forms of cooperation and joint exploitation..........................................................................................................................23

I. Visibility of all partners...............................................................................................................................................................25

J. Financial squeeze.....................................................................................................................................................................26

COMPARATIVE TABLE OF LEGAL FOMS OF COOPERATION.................................................................................................................27

A- Purely contractual....................................................................................................................................................................27

B. Grouping or consortium............................................................................................................................................................27

C. Institutional cooperation...........................................................................................................................................................28

FOREWORD This booklet is intended as a guide to a number of

elements concerning the legal aspects of a cooperation in

the framework of a EUREKA project.

Experience has shown that the absence of a legal

guarantee concerning the cooperation is one of the major

causes of project failure. The quality of a project is

inevitably determined by appropriate cooperation

management where due attention has been given to legal

issues.

This booklet does not claim to set out line of conduct in

order to obtain quality projects, but it tries to warn potential

project partners of possible risks of the legal aspect if the

cooperation is not sufficiently taken into consideration, or if

the form of cooperation that has been set up is not the app-

ropriate one in this specific situation.

The booklet for legal forms of collaboration covers the

different legal forms of structured collaboration applied by

most members of EUREKA. It inter alia sets out, for the

potential partners, several possibilities to set up an

appropriate legal structure taking into account the share

each partner will have in the exploitation of the results. A

variety of legal forms of collaboration is presented and

systematically analysed so that project partners can decide

for themselves how to be covered by the most secure and

appropriate contract.

An appropriate legal form is a guarantee for a quality

project. In this view this booklet tries to play a role in the

improvement of project quality.

We hope that the reader will find appropriate information

in this booklet and we wish potential partners great success

in the drawing up of their legal form of collaboration.

Guillaume DEDEURWAERDER

Chairman of the National Project

Coordinators' Group

Belgian EUREKA Office

INTRODUCTION

The objectives of EUREKA are to raise, through

closer cooperation among enterprises and research

institutes in the field of advanced technologies, the

productivity and competitiveness of European enterprises

and national economies on the world market.

In order to achieve this objective, EUREKA has to

encourage and facilitate increased industrial, tech-

nological and scientific cooperation on projects directed

at developing products, processes and services which

are based on advanced technologies and which have

worldwide market potential.

These objectives show that EUREKA has a genuine

economic mission, this being to improve the

competitiveness of European enterprises. EUREKA helps

Europe to play a major role on the global economic

scene.

In order to achieve a proper level of competitiveness,

it is essential to set up projects with a high technological

value that, at the same time, are appropriately covered

from the legal and financial point of view. Without

projects there would be no EUREKA and without high

quality projects EUREKA would not be able to play the

role it was assigned. This is why it is vital to set up high

quality projects, free of technological, legal or financial

risks.

Legal Forms of Collaboration It would be impossible to analyse in a single

document the technological, legal and financial aspects.

This is why the scope of this booklet is limited to only one

of the important and sensitive issues for the successful

implementation of a project.

The object of this booklet is to provide a number of

elements on the legal aspects of a cooperation in the

framework of a EUREKA project. Experience has shown

that the absence of an adequate legal framework for the

cooperation is one of the major causes of project failure.

The quality of a project is inevitably determined by appro-

priate cooperation management where due attention has

been given to legal issues.

This booklet does not claim to set out a line of

conduct in order to obtain quality projects, but it shows

the opportunities for collaboration offered by different

legal forms of collaboration and it tries to warn potential

project partners of possible risks if the legal aspect of the

cooperation is not sufficiently taken into consideration, or

if the form of cooperation that has been set up is not the

most appropriate one in their specific situation.

By definition, a EUREKA project is an R&D project

with a commercial, hence economic objective. As such,

two phases can be distinguished in a EUREKA project:

the research and development phase and the exploitation

phase (commercialisation).

If a EUREKA project has to be looked at from every

angle (preparation, development, implementation), both

phases have to be considered separately, as well as in

parallel.

The legal information concerning the research and

development phase is mostly covered in the booklet

'Checklist for the Preparation and the Execution of a

EUREKA Project'. The Checklist provides information on

the general framework concerning the cooperation

between the partners in a EUREKA project but only

partially covers the appropriate legal structures that have

to be added to the general framework. This booklet on

Legal Forms of Collaboration covers essentially these

legal structures which cover the second phase, the

exploitation phase.

EUREKA projects can only play a role in the

productivity and the competitiveness of enterprises if

these projects extend into the exploitation phase. If the

R&D phase is the way to enter the EUREKA framework,

the exploitation phase justifies cooperation in a EUREKA

project. The exploitation phase can be analysed as the

most important phase in a EUREKA project in the

perspective of the role of EUREKA in the worldwide

market the competitiveness and the productivity of

EUREKA. As stated above, a EUREKA project has a

commercial objective. In order to play its economic role,

EUREKA projects should result in successful exploitation.

In order to plan and manage this phase effectively, it is

obviously necessary to pay due attention to the legal

aspects when setting up the project.

As such, this informative booklet covers the different

legal forms of structured cross-border collaboration. It

inter alia sets out, for the potential partners, several

possibilities to set up an appropriate legal structure as

regards the share each partner will have in the

exploitation of the results.

The methodology used consists in the drawing up of

a typology of EUREKA projects and a certain number of

questions encountered in typical cases. The booklet tries

to answer these questions in a didactic manner, in order

to encourage participants to find and use the most

appropriate legal structure for a given situation.

To allow potential partners to have access to the

most comprehensive information, the booklet describes

the various legal forms of collaboration applied in most

EUREKA member countries.

Enterprises from EUREKA member countries will

therefore find in this booklet the basic information

necessary to determine which legal form of collaboration

is the most suitable in their situation from the perspective

of legal security.

A word of warning This guide tries to conform to the bottom-up principle

enshrined in the Hanover Declaration. The participants in

a EUREKA project will themselves decide wharf form the

collaboration will take, taking into account the

characteristics of the project. It will be up to the partners

to determine ways of managing the project and ensuring

administrative support. The partners have complete

freedom to define, finance and manage their project. The

booklet is written with this perspective in mind. It merely

suggests the partners implement a legal form of

collaboration that matches their situation and offers

guidance to the partners who are free to accept or ignore

it. It can only add to the quality of the decision making

process.

It is not the aim of this booklet to act as a sub-stitute the assistance of a legal advisor to whom EUREKA partners should have resort when nego-tiating a legal form of collaboration. The information

contained in this booklet is necessarily only indicative

and intends to offer a synoptic overview rather than a

detailed analysis of the laws in each EUREKA country.

The booklet has deliberately omitted public funding and tax issues that may be an important factor in choosing a particular form of cooperation.

LIST OF GENERAL DEFINITIONSCooperation agreementis the formal and binding legal document signed by the

participants specifying their respective rights and duties

in the framework of the project. For a detailed checklist of

points to discuss during the negotiation of a cooperation

agreement, reference is made to the booklet 'Checklist

for the Preparation and Execution of a EUREKA Project'.

Legal forms of collaborationare the different types of collaborative structures between

the participants as defined in the cooperation agreement from the legal perspective, being purely contractual,

informal grouping or institutionalised. This booklet also

provides more information on the available legal forms in

different EUREKA countries.

(See also R&D agreement, consortium agreement, joint

venture agreement.)

R&D agreementis the most straightforward specific form of ar-

rangement for carrying out research and development

collaboration. The parties will be associated as

independent contractors under the terms of the contract

and capable of governing both their ongoing relationship

and its contractual termination.

Consortium agreement is the contractual document which governs the

relationship between two or more participants who agree

to work together to achieve specified objectives, where

their cooperation is based on an informal grouping or

undertaking having no separate legal character.

Joint venture agreement is the contractual document establishing the

cooperation agreement where the co-operation is going

to be structured as a joint enterprise with a separate legal

entity during and/or after the EUREKA R&D phase.

Results ('foreground information') means any kind of technological information whether

protected as know-how or subject to intellectual property

rights generated by the participants and sub-contractors

within the framework of the project results sometimes

referred to as foreground as is the case in the EUREKA

booklet 'Guidelines for the Protection of Technological In-

formation' as well as in the model contract used for

projects within the ESPRIT-programme. Foreground is to

be distinguished from background information.

Background information means any kind of information whether protected

as know-how or subject to intellectual property rights

other than foreground and that is owned or controlled by

a participant in the project and is vital for either the R&D

project or the exploitation of the results.

Intellectual property rights (IPRs) also called industrial property rights, are any

exclusive title granted under any applicable legal

provision to the maker, owner or author of an invention,

distinctive sign or creation such as patents, utility models,

trade marks, industrial designs, copyright. See the

EUREKA booklet 'Guidelines for the Protection of

Technological Information' for further information on the

different types of IPRs. For practical reasons the

abbreviation IPR is used throughout this booklet.

Know-howMeans technological information, data, or knowledge

resulting from experience and skills which are applicable

in practice as defined in the EUREKA booklet ‘Guidelines

for the Protection of Technological Information’. Know-

how may be protected under the law as trade secrets or

other forms of confidential information depending on its

nature, the applicable legislation and contractual

arrangements (e.g. secrecy agreements) between

participants or with third parties. In order to be

protectable, know-how must be valuable and not freely

obtainable from other sources in a laxful way.

TYPOLOGY OF EUREKA PROJECTS AND LEGAL FORMSCASE I:Concerted research and separate exploitation

CASE II:Joint research and separate exploitation

CASE III:Concerted research and joint exploitation

CASE IV:Joint research and joint exploitation

CASE V:Concerted research and combined exploitation

CASE VI:Contract research and separate exploitation

FIRST STEP:Situate your project within the proposed typology of projectsBefore reading further about legal forms of cooperation an

assessment should first be made to ascertain into which type of EUREKA project your situation fails.

Joint research and development is defined as work (i) carried out by a joint research

team, (ii) jointly entrusted to a third party or (iii) allocated

between the participants by way of specialisation and

achieved within the framework of a programme defining the

field and objectives of the work.

Joint research is to be distinguished from concerted research.

Concerted research and developmentis defined as the situation where the cooperation

between participants in the R&D project mainly consists of

an exchange of complementary information and results in

order to avoid duplication from parallel/double research

activities while participants have and maintain their

independent R&D capacities.

Concerted research is to be distinguished from joint research and development.

Joint exploitation of results is defined as any kind of further use of the results of an

R&D project (i) through joint licensing to third parties or (ii)

direct commercial exploitation in common by the

participants (iii) with or without joint selling of end-products

in the market. In cases where participants wish to continue

their joint efforts into the exploitation phase in one way or

another i.e. beyond the EUREKA phase, they will probably

have to structure their cooperation agreement as a real joint

venture agreement.

Joint exploitation is to be distinguished from separate or combined exploitation.

Combined exploitation is a situation where the results obtained by a participant

cannot be exploited independently by such a participant or

exploited without integrating products or processes from

one or more other participants. This situation differs from

Joint exploitation as there is generally no need to establish

common structures for the production or commercialisation

of the results. The relationship between the parties can be

based on a particular contractual arrangement based on

sub-contracting or a silent grouping.

Combined exploitation is to be distinguished from joint or separate exploitation.

Contract researchis an unilateral arrangement whereby the (sub-) contractor

performs research work for the account of the principal who

normally becomes the sole owner of the results in

exchange for a financial consideration.

SECOND STEP: Verify whether your proposed project falls within the EUREKA context or not and if certain legal forms of cooperation are eligible for public funding

CASES I to V When an informal or formal grouping is established

between the participants check whether you stilt qualify for

public funding.

CASE VI When the project is limited to a purely subcontracting

arrangement, your project will probably not qualify for

EUREKA status. EUREKA criteria require not only that all

the participants benefit from the project and need to have

sufficient technical financial and managerial resources and

competence to run the project, but that there must also be a

real market potential of the project results for all the

participants to exploit. This is rather exceptional in

acontract research situation where one party subcontracts

the research work to another party not in a position to

independently exploit the results.

However, the sub-contracting of research work within a

real collaborative setting is not excluded as long as the

project is not limited to contract research – check with your

NPC.

THIRD STEP:Identify the relevant legal aspects for your particular case

Type of Research

Form of Cooperation

Ownership of Results

Exploitation

Contract Research

Purely Contractual

Transfer Separate Exploitation

Concerted Research

Informal Grouping

Partition Combined Exploitation

Joint Research

Institutional Common Ownership

Joint Exploitation

You are now in a position to examine what kind of legal form of collaboration is the most suitable for your project. Refer to the case you have identified as being the closest to your situation and go trough the different checkpoints.

Summary:1. Normally EUREKA is about concerted research.

2. If your projects involves contract research or joint

research you should verify in advance if this complies

with national funding requirements.

3. The exploitation of projects results is only indirectly a

matter of EUREKA as one of the EUREKA requirements

is the need of a market potential for the exploitation of

the results by the participants.

FOURTH STEP:Go through the following checkpoints to ascertain which main types of legal forms are available in your case

CASE I:Concerted research and separate exploitationCHECKPOINT I.1: Are or will the participants be fully

capable of exploiting the results in an independent way?

□ yes - see next CHECKPOINT

□ no – CASES III, IV or V

CHECKPOINT I.2: Are the participants willing to join forces

to exploit the results?

□ yes - go to CASES III, IV or V

□ no - go to next CHECKPOINT

CHECKPOINT I.3: Do the participants maintain an

independent research capacity in the field of the project?

□ yes - go to next CHECKPOINT

□ no - go to CASE II or IV

CHECKPOINT I.4: Do the participants entrust the entire

research work to one of them or to a third party (e.g. a

research institution)?

□ to one of the partners - go to CASE VI

□ to a research institution - go to CASE II


CHECKPOINT 1.5: Are the participants executing the

project within the framework of a long term understanding

between them on their technology programmes and

research results in order to bridge an important

technological gap with competitors or market leaders or to

achieve a major technological breakthrough?


□ yes - participants should structure their cooperation as

a strategic alliance - see questions 17 to 20

CHECKPOINT I.6: Do all parties have unrestricted and

equal access to the results of the project whether they are

sole owner, co-owner or non-owner to be able to be in a

position to exploit the results without taking the other

participants into account?


□ no - verify whether any restrictions are necessary and

compatible with competition legislation - see

QUESTIONS 14 and 15.

CHECKPOINT I.7: Do all the participants require access to

the background of another participant to be able to exploit

the results independently?


□ no - separate licensing agreements should be made to

ensure that all parties benefit from the project. In

cases where research institutions are participating by

contributing valuable background, such licensing may

be royalty bearing

CHECKPOINT I.8: Is there a fair balance between the

expected benefits retained from the exploitation of the

results and the contribution made by each participant to the

project?


□ no - ensure that the participant contributing more

background to the project than the others is properly

remunerated through a royalty bearing licence or other

form of compensation in order to restore the balance

CHECKPOINT I.9: Will it be possible for the participants to

clearly allocate the ownership of the results and the IPR

between them so that no part of the results remains

undivided or in co-ownership?


□ no - the problem of co-ownership or undivided

ownership of results may cause major problems -

participants should try to divide the IPR between them

on a territorial basis or split up these rights in another

way; reciprocal licences should be granted to allow

exploitation by ail participants - if it is not possible to

divide the IPRs, participants are to verify if they are

allowed to freely use the undivided or co-owned IPRs

for exploitation - if the law does not provide for a clear

or acceptable solution, the participants should make

the necessary arrangements in their cooperation

agreement.

CHECKPOINT I.10: Is the project to be carried out by

several participants (more than two) or is it necessary to be

able to jointly operate with third parties (e.g. banks,

research institution, government)?

□ yes - it is probably advisable to structure your project

as a research consortium - see QUESTIONS 21 to 23

□ no - an R&D agreement between the participants will

be the most suitable legal form - see QUESTIONS 8

CASE II:Joint research and separate exploitation

CHECKPOINT II.1: Are the participants able and willing

to exploit the results independently?


□ no - go to CASES III, IV or V

CHECKPOINT II.2: Do the participants maintain an


□ no - verify whether it is compatible with applicable

competition laws -see QUESTION 15 and go to the

next CHECKPOINT

□ yes - go to CASES I, III, V or VI

CHECKPOINT lI.3: Do all parties have unrestricted and

equal access to the results of the project whether they are

sole owner, co-owner or non-owner so they are in a

position to exploit the results without taking the other

participants into account?



if so, whether they are compatible with applicable

competition legislation - see QUESTIONS 17 and 15

CHECKPOINT II.4: Are the results exploited in the same or

different applications by the participants?

□ the same - the participants will be competitors when

exploiting the results; anticompetitive restrictions at

exploitation level are likely to be contrary to

competition legislation -verify with competition

authorities whether an exemption can be obtained

□ different - go to next CHECKPOINT

CHECKPOINT II.5: Do all the participants require access

to the background of another participant to be able to

exploit the results independently?


□ no - provide for the necessary licensing arrangements

CHECKPOINT II.6: Is there a fair balance between the



project?


□ no - ensure that a fair balance between benefits and

contributions is achieved e.g. through a royalty bearing

licence for background contributed to the project or

other compensations

CHECKPOINT II.7: As it is unlikely for the ownership of the

results to be allocated entirely to the participants, verify

whether it is possible to divide the IPRs between the

participants along a territorial or other division?

□ yes - an R&D agreement may be sufficient to structure

your cooperation; but the setting up of a joint licensing

company may be useful - see QUESTION 10

□ no-go to next CHECKPOINT

CHECKPOINT II.8 : Is the project to be carried out by more

than two participants, to be jointly entrusted to a third party

(research institution) or is it necessary to be able to jointly

operate with third parties (e.g. banks, government)?

□ yes - the setting up of a consortium, research

association is highly advisable - see QUESTIONS 21

to 23 - check with your National Project Coordinator if

this is acceptable for funding requirements

□ no - the setting up of a joint licensing company may be

useful - see QUESTION 10

CASE Ill:Concerted research and joint exploitationCHECKPOINT III.1: Are the participants in a position to

independently exploit the results?

□ yes - verify whether Joint exploitation is compatible

with applicable competition legislation - see

QUESTION 27 - if the answer is yes, go to the next

CHECKPOINT; if the answer is no, change to CASE I

or V


CHECKPOINT III.2: Do the parties maintain an inde-

pendent research capacity in the project field?


□ no - change to CASE IV

CHECKPOINT III.3: Are the participants executing the






□ yes - participants should structure their cooperation as

a strategic alliance - see QUESTIONS 17 to 20


CHECKPOINT III.4: Are the participants free to use the

results for applications outside the scope of joint

exploitation?

□ no - verify whether this is compatible with applicable

competition legislation - questions 14 and 15


CHECKPOINT III.5: Can the ownership of the results and

the IPRs emanating from the concerted research clearly be

allocated between the participants and made available for

joint exploitation?


□ no - the problem of undivided co-ownership appears

as CASE I in CHECKPOINT I.9 - if IPRs cannot be

divided between the participants on a territorial or

other basis, it is advisable for the participants to verify

whether the applicable law provides for a clear and

acceptable solution; if not, the necessary

arrangements should be made in the cooperation

agreement so that joint exploitation is possible i.e.

through transferor licensing of the results to the

exploitation joint venture or joint venture company -

see QUESTION 11

CHECKPOINT III.6: Is it possible to make a fair valuation of

the foreground and background information owned and

controlled by the participants?

□ yes - the ownership or right to use foreground and/or

the background information can be contributed to a

joint venture company - see QUESTION 11 in

exchange for a share in the capital and/or the profits or

sold to the Joint venture company

□ no - it is advisable to retain ownership of the results

and licence the required IPRs to the joint venture

company until the full economic potential of the results

can be assessed

CHECKPOINT III.7: Is there a fair balance between the



project?


□ no - consider balancing contributions and benefits of

the participants in the joint venture company by

additional royalty bearing licences on background or

other forms of compensation

CASE IV:Joint research and joint exploitationCHECKPOINT IV.1: Are the participants in a position to

independently exploit the results-in competition with each

other?

□ yes - verify whether and to what extent it is possible to

have the results jointly exploited without infringing

applicable competition legislation - see QUESTION 27

if the answer is no, consider changing to CASE II


CHECKPOINT IV.2: Do the participants maintain an


□ yes - change to CASE III


competition legislation and go to next CHECKPOINT

CHECKPOINT IV.3: Do the participants want to continue to

exist as separate legal entities?

□ no - a merger between the participants or their

affiliates is a possibility such as the acquisition by one

participant of the other


CHECKPOINT IV.4: Are the participants free to use the

results for applications outside the scope of joint

exploitation?


competition legislation - see questions 14 and 15


CHECKPOINT IV.5: Is it possible to make a fair valuation of

the background information to be contributed by each

participant?

□ no - the participant contributing important background

information should retain the ownership of this

background information until its full economic potential

can be assessed - go to next CHECKPOINT

□ yes - it is advisable to set up a joint venture company

at the outset of the project and contribute the

background information to the joint venture company

at its full value

CHECKPOINT IV.6: Can the ownership of the results and

the IPRs emanating from the joint research be clearly

allocated between the participants before making them

available for joint exploitation?


□ no - if it is not possible to set up the joint venture

company at the outset of the project, it is advisable to

pool resources within a consortium or other informal

grouping and have the results and resulting IPRs

owned in common through this entity; the consortium

will afterwards transfer its assets to the newly created

joint venture company - see QUESTION 11

CHECKPOINT IV.7: Is there a fair balance between the

expected future benefits retained by the participants

through joint exploitation and their respective contributions

to the project?

□ yes - a joint venture company should be set up before

starting to exploit the results - see QUESTION 27

□ no - before setting up the joint venture company the

balance between the participants should be restored

through separate royalty bearing licences of

background or other forms of compensation - see

QUESTION 11

CASE V:Concerted research and combined exploitationCHECKPOINT V.1: Is there at least one participant who is

unable to fully exploit the results without the cooperation of

other participants?

□ yes-go to next CHECKPOINT

□ no - change to CASE

CHECKPOINT V.2: Do the participants maintain an

independent research capacity in the project field?


□ no - change to CASE IV

CHECKPOINT V.3: Are the participants executing the







□ yes - participants should set up their concerted

research project within the framework of a strategic

alliance-see QUESTIONS 17 to 19

CHECKPOINT V.4: Will all participants have unrestricted

and equal access to the results of the project whether they

are a sole owner, co-owner or non-owner to be able to

exploit the RESULTS without taking the other participants

into account?



compatible with competition legislation - see

QUESTIONS 14 and 15

CHECKPOINT V.5: Will the participants be able to clearly

allocate the ownership of results and the IPRs between

them so that no part of the results remains undivided or co-

owned?


□ no - if it is not possible to divide the IPRs between the

participants by field of use or otherwise the

participants should verify whether the law allows free

use of undivided or co-owned IPRs for the exploitation

- if the law is unclear or unsatisfactory on this point,

the participants should make the necessary arrange-

ments in their cooperation agreement

CHECKPOINT V.6: Is this project to be carried out by

several participants, over a longer period of time for

successive projects or is it necessary to be able to jointly

operate with third parties (e.g. banks, research institution,

governments)?

□ no - an R&D agreement between the participants will

be the most suitable form for the research phase;

another commercial arrangement will be required for

the combined exploitation phase - see QUESTION 25

□ yes - it is advisable to structure the research project

within a research consortium - see QUESTIONS 21 to

23

CASE VI:Contract research and separate or combined exploitationCHECKPOINT VI.1: Is only one party executing the

research project on behalf of another party that is going to

exploit the results independently?

□ yes - you are probably no longer within the scope of

EUREKA - Check with your NPC (National Project

Coordinator)

□ no - go to next

CHECKPOINTCHECKPOINT VI.2: Will all parties have a

share in the exploitation of the results?

□ yes - change to CASE I or V

□ no - you are probably no longer qualified to receive

funding within the EUREKA context - Check with your

NPC

DefinitionsConsortium In business circles the word consortium is used for

different forms of cooperation between undertakings. For

the purpose of this brochure a consortium is an informal

grouping of undertakings regulated by the law but not

considered as a legal entity separate from its members.

Normally a consortium will be formed for one or more

projects or for a limited period of time - see QUESTIONS

21 to 23.

Strategic alliance Normally a strategic alliance is formed between two or

more undertakings who want to carry out a large or long

term concerted research programme but without giving up

their independence in respect of their R&D capacity. It can

take different legal forms, from an informal grouping to a

Joint stock corporation - see QUESTIONS 17 to 20.

Research association This form of cooperation involves a large number of

undertakings or even an entire industry with a view to

creating a centralised research institute to which the

members jointly entrust their common research projects.

Generally speaking this takes the form of a non-profit

making association or a foundation. It has a long term

perspective but cannot be used for exploitation purposes as

it cannot distribute its pro-fits to its members - see

QUESTION 23.

The research association can, however, manage the

IPRs emanating from the projects on behalf of its members

and grant licences to third parties. All members will have

access to the background and foreground information

developed by the research association.

Joint licensing company A joint licensing company is a special purpose vehicle

or legal entity created specifically for the management and

indirect exploitation of results i.e. through exclusive or non-

exclusive licensing of foreground information which is co-

owned by two or more undertakings. It is sometimes

recommended to set up a joint licensing company in a

specific country because of a tax-friendly treatment of

royalties -see QUESTION 10.

Joint venture company A joint venture company is the most intensive form of

collaboration from a legal point of view as it involves the

setting up of a joint subsidiary company by two or more

undertakings for the purpose of carrying out joint research

and/or joint exploitation of the foreground information - see

QUESTIONS 26 and 27.

Merger or acquisition This form of collaboration leads to the disappearance of

one or more legal entities through the creation of a new or

the absorption of one entity by another. The research entity

and/or exploitation capacities of two or more undertakings

are physically or operationally integrated.

European Economic Interest Group (EEIG) The EEIG is a European form of business organisation

which is available in all countries of the European Union

and the European Economic Area and is aimed at

facilitating cooperation between undertakings established in

different EU or EEA countries. It has full legal capacity and

is formed by contract between its members and registered

officially-see QUESTION 24.

Summary

Contract Research Concerted Research Joint Research

Case IVProbably not within the scope of EUREKA

Case I1. R&D Agreement 2. Grouping/Consortium 3. Joint Licensing Cy

Case II 1. Research Association2. Grouping/Consortium 3. R&D Agreement 4. Joint Licensing Cy 5. EEIG

Separate Exploitation

Idem Case IV Case V 1. R&D Agreement2. Strategic Alliance 3. Grouping/Consortium + Supply Agreement 4. Joint Licensing

idem Case II

+ Supply Agreement

Combined Exploitation

Case III 1. Strategic Alliance 2. R&D Agreement or Grouping/Consortium

Joint Venture Cy 3. Joint Venture Cy

Case IV 1. Joint Venture Cy 2. Grouping/Consortium

Joint Venture Cy 3. Merger or Acquisition

Joint Exploitation

(For more details on these different legal forms of collaboration, see QUESTIONS AND ANSWERS.)

QUESTIONS AND ANSWERSA. EUREKA and legal forms of

cooperation

1. Does EUREKA require the partners to enter into any specific form of cooperation agreement between them before obtaining EUREKA status?

Apart from the co-signature1 or Letter of Intent

attached to the 18 point format2 application form, no

specific documentation or standard form, is required or

imposed as proof of the final cooperation agreement

between the partners making the application. According

to the 'bottom-up approach' of EUREKA, the partners are

responsible for making the necessary legal arrangements

between themselves. As situations vary considerably

between projects, it is virtually impossible to propose a

standard form cooperation agreement.

The co-signature is the joint declaration of intention (the so-called Letter of Intent because of its non-binding character) attached to the 18 point format by which the participants commit themselves to cooperate in the execution of the project as described in the 18 point format.The 18 point format is the EUREKA application form through which general information on the project and the partners will be entered in the EUREKA database and disseminated to the public, without disclosure of confidentialities2. What kind of assistance is available to help project partners draft an appropriate final cooperation agreement and why is this so important? It is entirely in the interest and for the benefit of the

partners to have a detailed and legally binding

arrangement made between them providing the

necessary safeguards against undesired imbalances

between the respective contributions and benefits of the

partners or imbalances in decision making, visibility, etc.

In the absence of an appropriate and professionally

negotiated and drafted cooperation agreement, your

project may be in danger as together with the lack of

adequate funding this is generally one of the major

causes of failure. Therefore if you want your project to be

sound you should ensure that you have the best possible

cooperation agreement before starting to work together.

Practical experience has proved that without

professional assistance by qualified legal experts a

EUREKA cooperation agreement cannot be drafted

properly i.e. because transnational cooperation will touch

upon different legal systems.

Apart from your own legal experts, your NPC can

provide you with useful information or refer you to an

expert if you do not already have one.

In addition, EUREKA has therefore published several

booklets providing information on the basic issues to be

resolved in a cooperation agreement, such as the

'Checklist for the Preparation and the Execution of a

EUREKA Project' and 'Guidelines for the Protection of

Technological Information'.

3. Does EUREKA recognise liberty of the partners in a project to structure their cooperation according to the form they deem the most appropriate?

As has been said before, the pragmatic or 'bottom-up

approach' allows the partners to structure their

cooperation according to whatever legal arrangements

they deem appropriate.

4. What considerations would prevent EUREKA partners from choosing the most appropriate legal

1 The co-signature is the joint declaration of intention (the so called Letter of Intent because of its non-binding character) attached to the 18 point format by which the participants commit themselves to cooperate in the execution of the project.

2 Is the EUREKA application form through which general information on the project and the partners will beentered in EUREKA database and disseminated to the public, without disclosure of confidentialities.

form of cooperation? National funding requirements may limit the choice of

a legal form of cooperation during the EUREKA phase

for reasons of protecting and promoting the national

economy. Funding applications are to be made at a

national level so that national authorities competent to

decide on the public funding of a EUREKA project are in

a position to .require that this funding be used by and for

the benefit of their national enterprises. They will be

reluctant to fund a project carried out by a joint legal

entity not established in their territory.

In other words the legal form of cooperation chosen

by the partners should not exclude a partner applying for

public funding in his own country, to have an identifiable

share in the research work and the exploitation of the

results.

In general purely contractual forms of cooperation, an

informal grouping between the partners will not preclude

public funding.

The use of a separate legal entity such as a joint

licensing company or a joint venture company during the

EUREKA phase can cause problems. In cases where a

separate legal entity is used to carry out the research

project, you should first check with your NPC if and how

your arrangement can be tailored in such a way that

national funding requirements be met.

5. Is EUREKA concerned with the choice of a legal form for cooperation between the partners in the post EUREKA phase? Partners are entirely free to provide for the most

appropriate legal form of cooperation after the EUREKA

phase. For this reason it is recommended in cases where

partners will have to work together for the exploitation of

the results to provide in advance for the setting up of a

Joint venture company or other legal entity in the original

cooperation or consortium agreement, even if this legal

entity only comes into existence at the end of the project.

The joint venture company will either be set up at the end

of the EUREKA phase or an existing informal grouping,

such as a consortium used during the EUREKA phase,

may be transformed into another legal entity at the end of

the EUREKA phase. (See COMPARATIVE TABLE OF

LEGAL FORMS OF COOPERATION, part B.)

It is essential to have addressed in the original

cooperation agreement the question of the legal form to

be used in case a joint or combined exploitation takes

place. company or partnership to structure their

cooperation during the research phase.

They do, however, make use of an institutionalized form

6. Do most enterprises cooperate as a legal entity in the EUREKA phase? Most partners do not set up a separate legal entity

such as a company or partnership to structure their

cooperation during the research phase.

They do, however, make use of an institutionalized

form of cooperation such as an economic interest group

of coordinate their work within a concerted or joint

research project.

This shows that a purely contractual approach such

as an R&D agreement will not always be the appropriate

collaborative structure for the project to be successful

and for the partners to enjoy the necessary legal

protection against imbalances between them, especially

in the industrialization phase.

B. The choice between a purely

contractual form of cooperation, an

informal grouping or an institutional

solution.

7. What other considerations are likely to influence the choice of a particular form of cooperation?- Tax considerations: there may be a need to set up a

legal entity to enjoy tax-friendly measures stimulating

innovation; certain legal entities are tax transparent and

others are not.

- Legal liability: certain legal forms will enable partners

to benefit from limited liability while other forms imply joint

and varying degrees of liability between the partners.

- Number of partners: where more than two partners are

involved, a purely contractual solution will be difficult to

work out and its negotiation will be time consuming while

at the same time different legal forms provide clearly

worked out solutions which can be adopted by the parties

after making slight alterations.

- Conflict resolution: in some legal systems, the choice

of an institutional form of cooperation has an advantage

since particular procedures to solve shareholder disputes

are organised by law.

- Protection against free riders: in general the more

institutional forms of cooperation provide more legal

security against free riding by one of the partners: in a

purely contractual solution, partners should ensure they

make suitable arrangements in this respect which will not

always be easy, particularly if more than two partners are

involved.

- Extent and duration of the project: in general the

longer the duration of the project, the greater the need for

an institutionalised setting; the same applies if the

cooperation is for successive projects, very important

programmes and where cooperation is to extend beyond

the research phase into the exploitation of the results,

- Intensity of cooperation: the more intensely partners

cooperate in the research phase, the more problematic it

will be to allocate ownership of results and IPRs between

them, and the more advisable it will therefore be to have

an informal grouping or separate legal entity to

coordinate their efforts, own the results and manage the

IPRs on behalf of the partners, instead of arranging

everything between themselves in advance in the R&D

agreement.

- Intellectual property protection: there may also be a

reason to have a joint legal entity for those partners who

do not have the means or experience to handle an IPR

portfolio for themselves; the need to continue to share

the costs for protection, the administrative burden and

decision making, legal procedures in an international

setting is certainly an incentive for SMEs to continue

cooperation beyond the research phase.

- Management structure: finally a profit-centre approach

as for other joint venture situations requiring sufficient

management independence and motivation is frequently

a good reason to prefer an institutional form of

cooperation.

8. When is a purely contractual arrangement the best solution to start your project with? If the project appears to be very complex or the

partners are not yet sufficiently acquainted with each

other, a step-up approach will allow the partners to

explore the project and get to know each other before

embarking on a more demanding structure. For this low

commitment approach an R&D agreement is the best

step-in form of cooperation. At a later stage it can be

transformed into another legal form such as a consortium

where partners climb the 'commitment ladder' - see the

EUREKA booklet 'Cross-Border Innovation:

Managing Cooperative Ventures in Industrial R&D'

(pages 15-17).

C. Legal forms of cooperation and

IPRs

9. What are the risks involved in adopting a purely contractual solution for (PR ownership and protection? In a purely contractual solution the ownership and

protection of your iPRs may be at risk if you are unable to

effectively prevent background information from leaking

into foreground information, to allocate exactly and

completely the ownership of the results to the partners

generating them and to divide the IPRs between the

partners along lines which are compatible with

competition rules.

The joint ownership of a patent or undivided

ownership of know-how is a major risk to be avoided if

the taw does not provide a clear and acceptable solution.

Conflict of laws may complicate the issue even further if

IPRs are subject to different legal regimes.

In this brochure it is not our task to address all the

problems related to co-ownership or undivided ownership

in an R&D agreement.

These problems may be avoided if the results are

owned and protected through a consortium or a common

legal entity set up by the partners such as a Joint

licensing company.

10. What are the advantages of setting-up a joint licensing company?

- Possible favourable tax treatment of royalties

depending on the place of registration.

- Continued sharing of costs, administrative burden,

etc. related to IPR protection.

- Legal security against free-riding as both partners

depend on licences granted by their commonly

controlled entity; transfer of technology for subsequent

developments or applications may be easier to

organise as there is an ongoing spirit of cooperation

required from the shareholders.

11. How to restore the balance between contributions and benefits for a disadvantaged partner? Normally a partner will have a share in the benefits of

the exploitation of the results in proportion with its

contribution in money, technology, labour, etc.

Initially, it may be difficult to evaluate the background

information at a fair value to determine the share in the

benefits of a partner contributing important background

information to the project. Such a partner may there-fore

at a later stage be disadvantaged.

If a purely contractual solution is adopted, partners

will have to restore the balances at a later stage through

an additional royalty bearing licence on background

information or another form of compensation in favour of

the disadvantaged partner. The other partner, however,

may be reluctant to reconsider the arrangements made in

the original R&D agreement.

Where a grouping or an institutional form of

cooperation is adopted, the partner contributing

background information to a joint venture company

should be careful not to give away its background

information before its full economic potential becomes

clear.

Where a consortium is set up during the research

phase a partner should contribute the use rather than the

ownership of his background information. In such a case

the consortium should be transformed into another legal

entity to be used for joint exploitation or joint licensing as

it is better to contribute the background information

directly to the legal entity than to have the consortium

transfer it to the new legal entity. If the consortium

transfers the background information it obtained from the

disadvantaged partner to the new legal entity at its full

value, such a partner will be even more disadvantaged

by this transfer as the other partner will have a more than

equitable share in the added value.

12. Is a partner who is a joint owner of foreground information allowed to disclose or licence out such foreground information without the approval of the other partners? The answer to this question depends on the con-

tractual arrangements made between the partners. If no

contractual solution is provided for, different solutions are

applicable depending on the legal systems to which this

matter is subject. This may lead to complex issues

involving legal conflict in a transnational cooperation

where several legal systems are involved.

However, the laws governing the co-ownership of

patents or undivided ownership of know-how are not

mandatory and thus subject to negotiation between the

partners.

First of all, partners will have to decide whether to

adopt a liberal regime without controls on the

independent exploitation by each party or whether a

consensual regime is preferred.

In cases where the liberal regime is chosen, there is

no consent, no accounting and no sharing of revenues

required when disclosing or licensinq jointly owned

foreground information. Normally granting exclusive

licenses will be submitted to the co-owners for their

consent.

If a consensual regime is preferred, the partners will

have to determine which elements are subject to

consent; granting a licence to a third party/the identity of

the licensee, the extent of the licensee's rights and

privileges, the sharing of royalties, etc.

When a consensual regime is adopted, partners

should set out their arrangement in a detailed co-

ownership convention that is to go beyond the duration of

the cooperation agreement, as normally the validity

period of a joint patent will exceed the duration of the

cooperation agreement.

13. Is a partner who is the sole owner of foreground information entitled to disclose or license out such foreground information to third parties without the approval of the other partners? Normally the cooperation agreement will prevent the

sole owner from doing so during the project phase as it is

the aim of a cooperation to give the partners privileged

access to the foreground information. When the project is

finished, solely owned foreground information can be

disclosed and non-exclusively licensed under appropriate

confidentiality undertakings unless partners are to work

exclusively together for joint exploitation purposes. As

previously stated, such restrictions must not be in conflict

with the applicable competition rules.

14. Which restrictions on the use of background or foreground information during the research phase are compatible with European competition law? The competition authorities of the European

Commission have always taken a mild attitude towards

agreements relating to the joint execution of research

work or to the joint development of the results of

research.

In line with this position the Commission has issued

two 'block exemptions' laying down that certain

categories of R&D Agreements do not restrict European

competition and are therefore allowed.

These categories are:

- joint research and development agreements including

the joint exploitation of results, and including research

and development joint ventures extending to joint

distribution or selling (the R&D Block Exemption);

- certain categories of technology transfer agreements

(more especially licensing agreements) (the

Technology Transfer Block Exemption).

Agreements falling under the scope of these block

exemptions will be considered non-restrictive of

competition if they do not contain certain provisions that

are explicitly forbidden. The Commission has also

included in these block exemptions restrictive contract

provisions that are expressly allowed.

All research and development agreements and li-

censing agreements not falling within the scope of one of

the mentioned block exemptions remain subject to

general European law prohibiting any lawfulness of his

agreement, an individual exemption should be required

from the European Commission, which could be a

longlasting, heavy and expensive procedure. For more

details, consult your legal advisor.

In addition, it should be mentioned that there are

some market share conditions (ceilings not to be

exceeded) for the R&D block exemption to apply, R&D

agreements between partners which do not fulfil such

market share conditions however may be granted an

individual exemption by the Commission.

On the question of whether these block exemptions

will apply to your agreement, please check with your

legal advisor.

The following restrictions, imposed during the

research phase on one or more of the parties involved,

are covered by the R&D block exemption and/or the

transfer technology exemption and therefore deemed to

be compatible with European competition legislation:

- bans on performing, independently or with third

parties, R&D (and in fields related or connected to

the research work under the EUREKA project);

- bans on using know-how from other parties for

purposes other than the research work under the

EUREKA project;

- obligations to communicate what is necessary for

the research.

15. Which restrictions on the use of background or foreground information during the research phase are incompatible with European competition law?Please read the introductory comments under QUESTION 14 first. It has long been the opinion of the European

Commission that R&D agreements which restrict the

R&D activity of the partners themselves or the utilisation

of the results of the joint work, or which exclude the

granting of licences to third parties may be considered as

agreements restrictive of competition.

The Commission required in its R&D block exemption

regulation that .as conditions for the R&D block

exemption -to apply to the joint R&D agreements, all

R&D partners must have access to the results of the

work (the foreground), and, in cases where the

agreement is limited to joint R&D not extending to joint

exploitation, each party must remain free to

independently exploit the results of knowledge (the

background) necessary for such exploitation. Clauses

limiting these rights are incompatible with competition

legislation.

On the question of whether these block exemptions

will apply to your agreement, please check with your

legal advisor.

More specifically, the R&D block exemption and/or

the technology transfer block exemption will not apply to

the following restrictive contractual clauses relating to the

research phase, which will therefore be deemed to be

incompatible with European competition law:

- bans on performing, independently or with third

parties, research work (and therefore on using

background for such a purpose) in fields which are not

connected to the research work under the EUREKA

project;

- bans on competing with the partner or with third

parties in respect of R&D, production and distribution

of competing products.

It should be noted that the two mentioned block

exemptions contain many provisions relating to the use of

background and foreground information during the

exploitation phase which, when included in joint R&D

agreements, will be deemed incompatible with and

therefore forbidden by European competition law. For

details, you should consult your legal advisor.

16. Is the sole owner or co-owner of background or foreground information allowed to assign his rights to a third party without the consent of the other partners?

With respect to sole ownership, the assignment

should at least be subject to a right of first refusal by the

other partners at the conditions offered by a third party or

even at better conditions where the foreground

information is acquired through the contribution of the

other partners.

In cases of co-ownership, the same applies as with

respect of disclosure and licensing (see QUESTION 12).

If a liberal regime is adopted, partners will normally

require the assignee to be subject to their approval and

will agree to become a party to the joint ownership

convention or accept any restriction imposed on the

original co-owner.

D. Legal forms of cooperation and

concerted research: strategic

alliance

17. When is it important to set up strategic alliances in a concerted research approach?

Strategic alliances become more and more important

in industries with increasing costs of product

development and the concentration of distribution

channels and technology leadership in the hands of a few

major players. They involve a greater commitment from

the partners than in an R&D agreement with respect to

development, marketing and distribution.

18. What is the difference between a strategic alliance and a joint venture situation? Normally strategic alliances will not involve the setting

up of a new legal entity. At most, one partner may be

invited to make an equity investment into the other

partner's capital but the partners will maintain a large

degree of independence. A strategic alliance will normally

involve a series of interrelated contracts including R&D

agreements, Original Equipment Manufacturing (OEM),

cross-licensing, supply, distribution or franchising

agreement, etc.

19. What are the conditions for success when adopting a strategic alliance approach? The partners must be ready to engage in a high

commitment situation: the losses due to an early

withdrawal by one partner must be prohibitive. The

agreement should be negotiated or approved by top

management.

There must be ample time to set up the cooperation

and negotiate all relevant agreements: there must be no

absolute time constraints and the time horizon of the

project must be longer term.

There is an absolute need to have a compatible, if not

the same, corporate culture.

Finally, the partners to a strategic alliance must make

complementary contributions to avoid the risk of free

riding where they are actual or potential competitors.

20. What are the drawbacks of a strategic alliance?- Transaction costs in the negotiation of a number of

complex arrangements are high.

- There is a risk for the weaker party to lose its

economic independence.

- Failure of a project or a partner will lead to important

losses as the assets invested will be high.

In other words, before forming a strategic alliance the

stake must be sufficiently high to make the risk

worthwhile.

E. Legal forms of cooperation and

concerted research: the case for a

consortium

21. What is the difference between an R&D agree-ment and a consortium? A consortium is an association or grouping of

enterprises that is normally set up when partners are

willing to share the costs and profits resulting from the

project.

In general, an R&D agreement implies no sharing of

losses or profits as each party will only bear its own costs

and keep the benefits of its own efforts while allowing

limited access by the other partner to the results of its

efforts.

In an R&D agreement joint risk taking is avoided

while in a consortium the parties aim to achieve a profit to

be shared in accordance with their respective

contributions.

In other words, if partners want to share costs, pool

assets, spread costs of a research project in order to

share the results and the benefits thereof, the use of a

consortium should be considered.

In general, in most legal systems the liability of the

partners in a consortium towards third parties is joint and

several. Third parties may precisely for this reason

require the setting up of a consortium between the

partners before granting a contract, a subsidy or funding

(contractor, bank, government institution).

Setting up a consortium therefore adds credit-

worthiness to the project and the partners as compared

with a purely contractual situation.

Where more than two partners are involved drafting a

simple contract may be difficult due to the need to plan

for a withdrawal of a party. In a consortium it is easier to

continue the project without having to make a new

contract between the remaining partners as solutions are

generally provided by the applicable legislation.

22. What is the difference between a consortium and a research association? A research association is generally used where joint

research and separate exploitation cover more than one

project and for a large number of companies or even a

whole industry. Normally the research association will be

set up as a separate legal entity and be of a permanent

nature. The Belgian international scientific association

can be used for this purpose or another form of nonprofit

making association or foundation.

F. Legal forms of cooperation: the

case for the EEIG

23. Is the European economic interest group (EEIG) a form of cooperation that can be used for EUREKA projects? The EEIG has already been used to structure

cooperation between partners in a EUREKA project. The

applicable legislation normally excludes real joint

exploitation through an EEIG. The activities of an EEIG

must be strictly ancillary to the activities of the partners.

The difference with a consortium is that an EEIG is a

legal entity separate from that of the partners. However it

is not a taxable entity. It is therefore less interesting as a

joint licensing vehicle.

As is generally the case in a consortium, the

members are jointly and severally liable for the

obligations of the EEIG.

The goal of an EEIG is not to share profits in the

financial sense but to develop and facilitate profit making

activities by the partners, coordinate their work and

undertake some auxiliary activities.

An EEIG is an appropriate legal form of cooperation

in the absence of joint exploitation, when limited liability is

not mandatory and there is a likelihood that partners may

change overtime by withdrawals or new entries, in other

words, when flexible membership is necessary and a

non-profit making association is not compatible with the

commercial character of the cooperation.

G. Legal forms of cooperation and

combined exploitation

24. Is it necessary to set up a separate legal entity where combined exploitation takes place?

Integrating the products or processes developed by

one partner into the products or processes of another

partner will in general not require the setting up of a

separate legal entity.

However it is essential that the partners define the

terms and conditions of their combined exploitation at the

outset of the project as completely as possible in the form

of a commercial contract being a supply agreement, a

through-put agreement, a transfer of technology or

assistance contract, a stand-by manufacturing licence,

specialisation undertaking, etc.

The determination of the price during the

development phase will be the most difficult issue.

Probably partners will only succeed in determining the

relevant parameters.

If in addition to combined exploitation the cooperation

extends to the distribution of the end-products, the

situation is likely to be considered as a strategic alliance

(see QUESTIONS 16 to 19).

H. Legal forms of cooperation and

joint exploitation

25. What are the main issues involved in setting up a joint venture company or partnership for joint exploitation?

- The first issue will be the initial capitalisation of the

new entity and the need for future funding. The

contributions of the partners must be clearly defined

and their valuation must be determined if it is a

contribution not in cash (e.g. background or foreground

information). The shares of the partners in the new

entity depend on this valuation which may be a difficult

issue. It can prevent the parties from setting up the

entity before the project is completed.

- Anti-dilution protection is important when the value of

the company is unclear and future financing rounds

could devaluate original shareholding when future

shares are sold/issued at a lower price. Such

protection may either by conferred by law or by

contract depending on the corporate form and

applicable company laws.

- Another important issue is the governing and

management structures ruling the joint venture

company. Partners should determine which kind of

majority is required for policy issues and whether all

partners will equally participate in the decision making

process or not. At the daily management level the

independence of management should be determined

as well as the question as to who will appoint the

management.

One should remember that equal solutions or

unanimity always bear the risk of deadlocks. An uneven

solution with guarantees for the financially weaker party

is possible. The weaker party should know whether it can

be forced to participate in future funding rounds or not

and if it is in a position to be squeezed out from the entity

if it is unable to fulfil its financial obligations or follow the

other partners when more money is needed (see

QUESTION 31 and 32).

It is good practice that partners work out in advance a

solution whereby an unexpected unbalance of

contributions is restored through a shift in the benefits of

the partners.

Logically a partner unable to provide additional

funding will either see its share in the benefits reduced or

bought out by its partners.

Another issue to be determined is the nature of the

shares held by the partners: common stock, preferred

stock, options or warrants, capital shares or profit shares,

voting shares or non-voting shares, should be considered

as workable alternatives.

- Deadlocks are the next main issue. Legal practice

has developed a whole set of techniques to solve

anticipated deadlock situations such as the 'swing

man', 'buy-out options', 'cooling-off periods', 'bidding

process', etc. They are useful but not always simple to

apply in practice in a situation where parties no longer

want to continue cooperation. - Finally the possibility or not for a partner to assign its

interest in the new entity is a difficult issue that should

be addressed. A premature withdrawal could cause

the failure of the whole project. Therefore a restriction

on such transfer of interest by a partner during an

initial period is general practice: either the approval of

the other partner is required or such a partner has a

preemption right to buy the shares at a low price.

26. Which restrictions are compatible with European competition legislation in cases of joint exploitation?Please read the introductory comments under QUESTIONS 14 and 15 first.

The following restrictions where there is a joint

exploitation imposed on one or more of the parties

involved, are covered by the R&D block exemption

and/or the technology transfer block exemption and

therefore deemed to be compatible with European

competition legislation:

- obligation to communicate background information

necessary for exploitation;

- ban on using know-how from another party for

purposes other than exploitation;

-territorial restrictions (exclusivity) regarding

manufacture, distribution, active sales and passive

sales (with in some cases limited permitted terms of

exclusivity);

- royalty share obligation to compensate for an un-

equal contribution to the research or an unequal

exploitation of its results;

- obligation to purchase the products resulting from the

research exclusively from the partners and/or to supply

other partners with minimum quantities of such

products;

- obligations to obtain and maintain in force IPRs for

the results, to preserve the confidentiality of any know-

how from a partner or jointly developed and/or to assist

in the protection of IPRs;

- restrictions as to the manufacture of products re-

sulting from the research to one or more technical

fields of use;

- obligation on licensee to use the licensor's

trademark;

- ban for the licensee on sublicensing or assignment

of his licence (for exploitation of results owned by a

partner);

- obligation to grant non-exclusive licences for the

exploitation of the improvements of or new applications

to the licensed results;

- minimum quality obligations regarding production and

manufacturing;

- obligation to pay royalties until the licence expires or

until the regular expiry of the patents (if results are

patented);

- rights for the licensor to terminate exclusivity and to

stop licensing improvements when .the licensee starts,

within the European Union, research and

development, production of distribution of competing

products;

- right for the licensor to terminate the licensing

agreement if the licensee contests the secret nature of

the licensed know-how or challenges the validity of

licensed patents. Please check with your legal advisor whether these

exemptions will apply to the provisions and clauses of

your agreement.

27. How to choose between different available forms of cooperation where joint exploitation takes place?

Some relevant considerations are:

- the question of limited, unlimited or mixed liability of

the partners;

- whether the new entity is tax transparent or not;

- the level of transaction costs such as capital re-

quirements, tax and accounting obligations, legal fees,

etc.;

- the degree of flexibility in balancing the respective

rights and duties of the partners and their respective

contributions and sharing in the benefits;

- the existence of efficient conflict resolution

procedures;

- the possibility to use a particular form for exploitation

purposes;

- the level of legal security and the available statutory

defence against free riding by a partner;

- the visibility of the partners;

- the possibility for all partners to have an equal or

equitable share in decision making.

In the next chapter (COMPARATIVE TABLE OF

LEGAL FORMS OF COOPERATION) you will find in-

formation to assist you in choosing the most appropriate

vehicle for your joint venture company. As this

information is presented in a fashion that allows

comparison between a number of EUREKA countries,

some 'legal shopping' together with your partners

becomes possible. However you should be aware of the

risk that the choice of some form or another in one

particular country might prevent the partners in another

country from obtaining public funds for the project.

I. Visibility of all partners

28. Is it possible to have the name of all partners identified in the common business name?

With respect to a purely contractual solution there

is no common business name as in general the partners

will not operate together with third parties. If they feel the

need to operate together with third parties they will adopt

another legal form such as a consortium or an

institutional form of cooperation. Apart from identifying

the legal form, partners will generally have to choose a

common business name for their consortium or joint

venture company in which the names of the partners can

or should be identified. In some company forms such as

the general partnership the name of at least one partner

should be referred to. On the other hand, the name of the

silent partner in a silent partnership (or a limited partner-

ship) should not be used in the name of the partnership.

Normally the choice of a business name is free to the

extent it can be distinguished sufficiently from already

existing business names to avoid confusion. The same

applies with regard to family names and trademarks.

Before adopting a particular business name it is

advisable to have a name search done by your legal

advisor, in some countries there is a registration

requirement for business names and the search is

undertaken by an official body (e.g. in Denmark) where

the decision is made to establish a limited liability

company.

Sometimes there is a requirement for the activity of

the company to be referred to in the name.

(For more information on the above-mentioned corporate forms see next chapter - COMPARATIVE TABLE OF LEGAL FORMS OF COOPERATION.)29. Is it possible for all the partners to have an equal share in the governance/management structures i.e. Do all partners participate equally in the decision making?

In a purely contractual solution this is entirely a

matter for contractual agreement depending on the

negotiating power of the parties. Normally the strongest

partner will want to be the lead or coordinating partner.

In a consortium or partnership form of cooperation

ordinarily all partners will participate equally in the

decision making but it is possible for the stronger party to

require a deviation from this rule through contractual

arrangement e.g. by introducing weighted voting.

In a limited or silent partnership, the limited or silent

partner generally takes no part in decision making

because to do so would in most countries result in loss

of the privilege of limited liability.

In limited liability company forms, the rule is to

allocate decision making power in proportion with each

partners' contribution in the capital of the company. In

other words majority rule will grant full power to the

strongest partner unless this is mitigated by the law or by

minority protection rules in the articles of association or

shareholders agreement.

In an EEIG, decisions are made by unanimity of all

the partners unless contractual provisions provide for a

majority rule or weighted voting which will frequently be

the case if a large number of partners is involved.

(For more information on the above-mentioned corporate forms see next chapter - COMPARATIVE TABLE OF LEGAL FORMS OF COOPERATION.)

30. Who will represent the partners with third parties?

In an R&D agreement or other type of purely

contractual arrangement the parties will only represent

themselves and are generally not empowered to act on

behalf of another party unless a power of attorney is

granted by such a party. The party acting on behalf of

another party must refer explicitly to this power and to

the party on whose behalf it is acting, to be able to

legally represent such a party.

In a general partnership or consortium all partners

are in principle entitled to act on behalf of the other

partners unless one or more managing partners are

appointed. In a limited partnership and silent partnership

the silent partner is not allowed to act with third parties,

only the managing partner can act on behalf of the

partnership.

In the limited liability company forms the parties

cannot act directly but only through their representatives

in the legal bodies (e.g. board of directors, general

meeting, management committee).

In the EEIG or a foundation only the manager can

represent the members.


J. Financial squeeze

31. What are the sanctions against a party failing to fund its ordinary contribution in an R&D project?

Where there is a contractual form of cooperation

the sanctions are those normally applied for breach of

contract such as termination and dissolution of the

contract with a claim for damages to the non-defaulting

party. It is highly advisable either to provide for specific

sanctions in the contract or exclude the use of certain

sanctions deemed undesirable.

If parties have decided to form a consortium or a

form of partnership between them, non-payment by a

party of its initial contribution is considered as a breach

of contract. The defaulting partner may be forced to pay

its outstanding contribution or may be excluded from the

consortium or partnership which can continue with other

partners depending on the provisions made in the

agreement.

With respect to limited liability company forms the

mandatory or statutory fixed initial contribution is to be

subscribed as a precondition for the establishment of the

company itself. If a partner is unwilling to fund its original

contribution to the capital of the company, the funding

may be claimed and collected as a due debt, this will be

considered as a material breach of contract and the

other parties will be entitled to receive compensatory

damages.

As long as the mandatory funding requirements

under the applicable company law are fulfilled, another

solution which can be agreed on between the partners is

that where one party is by force majeure unable to pay

its initial contribution in full, the cooperation is

nevertheless continued but the defaulting party's benefits

are reduced proportionally to the value of its contribution

with an option to restore the original balance if the

defaulting party makes an additional contribution at a

later stage.

Should a member fail to make his normal con-

tribution in an EEIG, he may be excluded subject to a

claim by the other members for the unpaid contribution,

unless the alternative solution, as stated above, is

adopted.


32. Can a party be forced out of the project if it cannot provide for additional funding required to achieve the project? If the party has not committed itself to such additional

funding in one way or another, it cannot be forced out of

the project if the contract does not contain a provision to

this effect. The other parties will, however, have the

possibility to terminate the project if they are not willing

to shoulder the financial burden and it turns out that it is

financially impossible to attain the planned objectives.

The possibility to have an unwilling party forced out

must thus be provided for in the contract or the articles of

association. Such an important step should be made

subject to a special majority decision where more than

two parties are involved.

Where the unwilling party has committed itself to a

next-round funding a forced sale of its part or shares is

regularly used but this is not always the best solution.

Partners can provide for an alternative solution such

as damages to be paid or a proportional dilution or

reduction of the rights and benefits of the defaulting party

in order to restore the balance between contribution and

benefits. In addition some legal systems will provide for

court intervention to prevent abuse of a majority position.

In an EEIG the defaulting party can be expelled but

will remain liable to pay its share in the losses of the

grouping if expenses exceed the available financial

means.

In limited liability company forms the party not

participating in a capital increase funded by the other

parties will in any case see its rights with respect to

voting and benefits diluted.


COMPARATIVE TABLE OF LEGAL FOMS OF COOPERATIONA- Purely contractual1 & 2. R&D agreement and other contractsDefinition: is a contract for the development or subsequent

utilisation of new techniques, whether of manufacture,

production or utilisation.

Comparison: - Belgium, Denmark, Finland, Germany, Greece,

Hungary, Ireland, Italy, Luxembourg, Netherlands,

Portugal, Russia, Spain, United Kingdom.

Strong points:flexible, cheap and generally applicable.

Weak points: limited protection and difficult to use for exploitation

phase.

Cases: the purely contractual solution may not be suitable in

cases of joint research or joint exploitation. Therefore a

purely contractual arrangement is recommended where

there is no common objective that justifies the setting up

of an informal grouping or a joint venture company not in

the research and not in the exploitation phase (CASE I).

The purely contractual solution may moreover be

adopted as a first step during the research phase only

and transformed into an institutional form of cooperation

for the exploitation phase (CASE Ill).

B. Grouping or consortium3 & 4. Informal grouping and temporary

groupingDefinition: is a grouping of undertakings without legal personality

and partners may be Jointly and severally liable; a

temporary grouping is used to achieve a particular

objective or a number of well defined transactions,

Comparison: - Belgium and Luxembourg: maatschap/association de

fait; tijdelijke, vereniging/association temporaire;

- Denmark : joint venture / konsortium

- Germany : Gesellschaft bürgerlichen Rechts;

- Ireland: partnership, there is a maximum of 20

members, if the number of members exceeds 20,

incorporation becomes mandatory

- Italy ; associazione temporanea di imprese;

- The Netherlands: general partnership;

- Portugal: external consortium agreement: there are two

forms of consortia, the internal and the external

consortium. The internal consortium may resemble the

silent grouping (only in cases in which one member acts

with third parties);

- Russia: associations and unions

- Spain: contrato de colaboración or union temporal de

empresas;

- United Kingdom: general partnership or limited

partnership.

Strong points:The transaction costs are low and flexibility is generally

high.

Weak points: the limited security against free riders, the joint and

several liability of the members, the absence of easy

conflict settlement and the lack of continuity from R&D to

exploitation.

Cases: the informal or temporary grouping can be used during

the research phase (CASE I, II, III and V). Where Joint

Exploitation is the objective of the partners, they will

have to incorporate an institutional form of cooperation

(see below under C). The informal or temporary

grouping will then be transformed into a joint venture

company at the end of the project (CASE III).

5. Silent groupingDefinition: is an association having a general and a silent partner.

The general partner acts on his own behalf and the joint

interest of the partners is in principle not revealed to the

outside world. This association has no legal personality

and, in principle, only the general partner is liable for the

obligations of the association.

Comparison: - Belgium and Luxembourg: association en partici-

pation/ vereniging in deelneming;

- Germany: stiile Geselischaft;

- Greece: afanis etairia;

- Denmark: stiile selskab

- France: société en participation

- Italy: associazione in partecipazione

- Netherlands: limited partnership

- Portugal: associação em participacao

- Spain: cuenta en participacion.

Strong points and weak points:see under point 4.

Cases: during the research phase the silent grouping can be

used where the contribution of one party is to be

integrated physically into the project and the facilities of

the lead partner (joint research : CASE II and IV). During

the exploitation phase the silent grouping can be used if

one contributing partner is not in a position to exploit the

results, In return for his contribution in the project the

'silent' partner will participate in the profits emanating

from the exploitation (CASE V: combined exploitation).

C. Institutional cooperation6. Public Limited Liability CompanyDefinition: company limited by shares is a so-called capital company

used as a vehicle for large capital intensive forms of

collaboration. The company has legal personality and the

liability of shareholders is limited to their contribution in

cash or in kind (such as background information or

existing patents). Shares can be freely transferable or

restricted to a certain extent.

Comparison: - Belgium and Luxembourg: société

anonyrrie/naamloze vennootschap

- Denmark: aktieselskab

- Germany: Aktiengesellschaft

- Greece: anonymos etairia

- Finland: osakeyhtiö

- France: société anonyme

- Hungary: company limited by shares

- Ireland: public limited company

- Italy: società per azioni

- The Netherlands: naamloze vennootschap

- Portugal: sociedade anonima

- Russia: open joint stock company

- Spain: sociedad anonima.

Strong points:this type of company is the most suited for the R&D

cooperation where the partners want continuity from R&D

to exploitation; there may be legal security against a free

rider, continuity from R&D to exploitation is possible, and

the settlement of conflicts is relatively easy.

Weak points:the transaction costs are high and the flexibility is rather

limited (some exceptions).

Cases:suitable to set up a joint licensing company (CASE lI) or a

joint venture company (CASE Ill and IV).

7. Private Limited Liability CompanyDefinition: is a personal or closed company limited by shares with a

separate legal personality and limited liability for the

shareholders. The transfer of shares is limited.

Comparison: - Belgium: société de personnes a responsabilité

limitée/besloten vennootschap met beperkte

aansprakelijkheid

- Denmark: anpartsselskab

- France: société à responsabilité limitée;

- Germany: Gesellschaft mit beschränkter Haftung

- Greece: etairia periorismenis efthinis

- Hungary: limited liability company- Ireland: private

limited company. The private limited company is a form in

between the corporation and the private company: the

private limited company has no restriction on transfer of

shares, but cannot go on the stock market

- Italy: societa a responsabilità limitata

- Luxembourg: société àresponsabilité limitée

- The Netherlands: besloten vennootschap

- Portugal: sociedade por quotas

- Russia: closed joint stock company

- Spain: sociedad limitada

- United Kingdom: private limited company.

Strong/weak points: same characteristics as the corporation but the costs for

incorporation are lower. The shares are not always freely

transferable and the other associates often have a right

of preemption.

Cases: suitable for joint licensing (CASE II) and joint venture

company (CASE III and IV).

8. Cooperative Company Definition: is a company limited by shares with a variable capital. It

is a mixed type of company with elements of both the

personal company and the capita! company. It has a

separate legal personality and can have limited liability

Comparison:- Belgium and Luxembourg: société coopérative/

cooperatieve vennootschap

- Finland: osuuskunta

- France: société coopérative

- Germany: Eingetragene Genossenschaft

- Hungary: co-operative

- Italy: societa cooperativa

- The Netherlands: cooperatie

- Portugal: cooperatives

- Russia: production cooperative

- Spain: sociedad cooperativa.

Strong points:lower costs of incorporation, high legal protection except

in the Hungarian cooperative where responsibility is

unlimited, joint and several.

Weak points: less suited for exploitation due to a possibly weaker

capital structure.

Cases: more suitable for Joint licensing company (CASE II).

Sometimes interesting for joint venture company (CASE

III and IV).

9. General PartnershipDefinition: is the basic legal form for two or more partners

conducting business under a common name where

parties have not provided for a specific vehicle. The

partners are jointly and severally liable for the liabilities of

the partnership that enjoys a separate legal personality.

Comparison: - Belgium and Luxembourg: vennootschap onder

firma/société en nom collectif

- Denmark: Interessentskab,

- Finland: avoin yhtiö

- France: société en nonn collectif

- Germany: offene Handelsgesellschaft

- Greece: omorrythmos etairia

- Ireland: unlimited company

- Italy: societa in nome collettivo

- Portugal: sociedade em nome cotectivo

- Russia: full comradeship

- Spain: sociedad colectiva

- United Kingdom: unlimited company.

Strong points:lower incorporation costs, no capita! requirements.

Weak points:

legal protection against free riders is limited: as in most

cases there is unlimited, joint and several liability of the

partners, it is less suited for exploitation.

Cases: is generally not suitable for a joint exploitation but may be

recommended as a joint licensing vehicle (CASE II).

10. Limited PartnershipDefinition: is a personal undertaking having legal personality

whereby one or more unlimited or general partners

cooperative with one or more partners having limited their

liability to their contribution to the partnership.

Comparison: - Belgium and Luxembourg: commanditaire

vennootschap / société en commandite

- Denmark: kommanditselskab

- Finland: kommandiittiyhtiö

- France: société en commandité

- Germany: Kommandit-gesellschaft

- Greece: eterorrythmos etairia

- Hungary: deposit partnership

- Italy: societa in comanditalla semplice and societa in

accomandlta per azioni (shares and a minimum capital

exist in the latter company) the silent partners are entitled

to participate in the activity

- The Netherlands: limited partnership

- Portugal: sociedade em comandita

- Russia: limited liability company

- Spain; sociedad comanditaria simple / sociedad

comanditaria por acciones.

Strong points:low costs of incorporation and high flexibility.

Weak Points:Less legal protection since the working partner generally

has unlimited liability and the settlement of disputes is

difficult.

Cases:May not be suitable for joint exploitation except under

special circumstances. Can be used for joint licesing

(CASE II).

11. EEIG

Definition: is a form of enterprise that can be used to facilitate and

develop cross-frontier R&D cooperation in the EU

between companies, institutions and/or individuals. An

EEIG is a so-called legal entity with full legal capacity.

Comparison: Belgium and Luxembourg; Denmark, France, Germany,

Greece, Ireland, Italy, The Netherlands, Portugal, Spain,

United Kingdom.

Strong points: the costs of incorporation are generally low and the

management structure is flexible.

Weak points: the partners are jointly liable and the exploitation is

difficult.

Cases:can be used for joint or concerted research to form a

research association (CASE II) or a strategic alliance

(CASE 111 and V).

12. Association or foundationDefinition: is a legal entity with a non profit making finality on

research and development to which a founder destines a

capital and which is governed by a Board of Directors.

Comparison: - Belgium: association international sans but

lucratif/intemationale vereniging zonder winstoogmerk

- Finland: säätiö

- Germany: Stiftung

- Luxemburg: association sans but lucratif or fondation

- Portugal: fundação

- Russia: foundation

- Spain: fundación.

Strong points:can be flexible.

Weak points: necessity for registration and approval, need for contracts

which covers all aspects of liability, legal protection, non

profit purpose.

Cases: can be used to set up a research association (CASE II).

a. eureka and legal forms of cooperation

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