Negotiating Strategic Partnerships

Joseph W. Bartlett, Special Counsel, McCarter & English, LLP

A hot topic in corporate finance is joint ventures. However, there is some question whether there exists any profound and distinct body of learning, at least in the legal sense, that fits under the heading of joint ventures, or its euphemistic variations, "corporate partnering" or "strategic alliances." Thus, when and if Company A enters into research, production, and marketing arrangements with a partner, the question remains: "What, if anything, distinguishes a strategic partnership from an everyday distribution or joint marketing arrangement between participants at different levels in a product distribution chain?"

The seminars and source materials do not readily provide a response to the question. The discussions generally have to do with issues involving investment relationships and licensing agreements. Perhaps the best way to reflect on the nature of the beast is to note that the law tends to attach consequences to the status of parties. If X is a citizen of the United States versus, say, a resident, various results flow from that categorization. Similarly, if Y is a corporation, the law tells us what rights, powers, privileges, and immunities emanate from that fact. Curiously, however, our legal rule makers have not focused much attention on the formal elements of a "joint venture," or, more properly, that bundle of often dissimilar legal relationships which are colloquially grouped under the heading "joint venture." Thus, the form "joint venture" can describe almost any consensual commercial relationship between two parties, focused on a specific business purpose.

With that caveat, a few preliminary general observations are in order. Thus, again generally, joint ventures are entered into for profit, although one or more of the players may be not-for-profit entities. Again generally, a joint venture addresses a specific project - to promote a particular product, to commercialize a given area of research, to join hands across an international border - and that description implies limitations in scope and time. But some joint ventures are designed to be perpetual. English law treats joint ventures as special partnerships and that may be as good a definition as any.

If the venture is incorporated, a so-called corporate joint venture in which Venturers A and B are the shareholders, or is a limited liability company, then the legal status of the venture is governed by the general corporation or limited liability law of the state of incorporation or formation. If the vehicle is not incorporated or an L.L.C., it is likely the venture will be treated as a partnership, governed by the rules set out in the applicable state version of the Uniform Partnership Act. Note that a corporation or L.L.C does not exist unless it has been intentionally (and formally) organized as such. On the other hand, a partnership will come into being if the parties behave like partners, whether or not they consciously will themselves to enter into a partnership relationship - indeed, even if they expressly deny they are partners.

Joseph W. Bartlett, Special Counsel,

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