Establishing Strategic Alliances and Joint Ventures

• Publication year: 2002
• Pages: 65
• Citation: Vol. 31 No. 5 Pg. 65

31 Colo.Law. 65 Colorado Lawyer 2002.

2002, May, Pg. 65. Establishing Strategic Alliances And Joint Ventures

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65

Vol. 31, No. 5, Pg. 65

The Colorado Lawyer
May 2002
Vol. 31, No. 5 [Page 65]

Specialty Law Columns
Business Law Newsletter
Establishing Strategic Alliances And Joint Ventures
by Robert M. Fogler, E. Lee Reichert

This newsletter is sponsored by the CBA Business Law Section to apprise members of current information concerning substantive law. Subject to author submissions, the newsletter is published eleven times per year, focusing on business law topics for the Colorado practitioner, including but not limited to, issues surrounding anti-trust bankruptcy, business entities, commercial law, corporate counsel, financial institutions, franchising, nonprofit entities, securities law, and small business entities

Column Editors:

David P. Steigerwald of Sparks
Willson Borges Brandt & Johnson, P.C., Colorado Springs - (719) 475-0097; Column Ed. for Bankruptcy Law: Curt Todd, of Lottner, Rubin, Fishman, Brown & Saul, P.C.,
Denver - (303) 292-1200

About The Authors:

This month's article was written by Robert M. Fogler and E. Lee Reichert, both of whom are partners in the corporate department of the Denver law firm Kamlet Shepherd Reichert & Maes, LLP, (303) 825 - 4200.

Strategic alliances and joint ventures can take a variety of forms. This article addresses some of the issues lawyers should consider when negotiating and drafting their
governing documents.

Strategic alliances and joint ventures are becoming increasingly common as businesses attempt to achieve corporate objectives through new and different types of legal arrangements.1 The tightening of the equity markets, along with a simultaneous slowdown in merger and acquisition activity, has undoubtedly fueled this recent interest. While the terms "strategic alliance" and "joint venture" have many different meanings, the most common definition of either relationship is a business venture that involves two or more entities working together to achieve mutually agreed on business objectives.2 To the extent companies desire to structure their relationship as a separate legal entity, that entity typically is referred to as a "joint venture."3 In contrast, a more classic strategic alliance exists as a contractual arrangement or series of interrelated agreements without a separate stand-alone entity.4

Companies that desire to enter into strategic alliances or joint ventures typically are in similar or complementary industries and often use strategic alliances and joint ventures to achieve strategic synergies with other companies. While businesses in virtually every industry employ these devices, emerging growth and high technology companies routinely enter into such agreements, particularly telecommunications, Internet, and software businesses. This article provides an overview of the legal issues associated with entering into and negotiating strategic alliance and joint venture agreements.

Initial Steps in Evaluating A Possible Strategic
Alliance or Joint Venture

Prior to discussing the definitive documents that will embody a strategic alliance or joint venture, there are some issues that attorneys must consider in providing advice to their clients. These include the use of confidentiality and nondisclosure agreements, the choice of the legal structure, and the development of term sheets and letters of intent.

Confidentiality and
Nondisclosure Agreements

Before entering into external discussions that may culminate in a strategic alliance or joint venture, companies should make sure that they enter into a legally sufficient confidentiality and nondisclosure agreement. Key issues to consider in negotiating confidentiality and nondisclosure agreements include the following:5

whether the restrictions should be mutual

the term of the confidentiality and/ or nondisclosure restrictions

the definition of "confidential information"

the treatment of information disclosed orally6

exclusions from the definition of confidential information

permitted use of any confidential information

the degree of care to be used with regard to such confidential information7

parties to whom disclosure is permitted (for example, only employees on a need-to-know basis, consultants, and affiliates)

the return of confidential information

disclaimers of accuracy

nonsolicitation provisions

publicity restrictions

forum/venue provisions

provisions regarding the binding effect on non-signatories (such as affiliates, employees, and consultants)

indemnification obligations

equitable remedies

Often, the respective parties provide an imbalanced amount of information, and therefore their interests may differ when negotiating a confidentiality agreement.8 The party who will be disclosing more information will want to (1) broaden the definition of confidential information, (2) lengthen the term during which the confidential information must be kept secret, (3) limit the people within each party's organization given access to the confidential information, and (4) limit the ways in which the confidential information may be used. Conversely, the party receiving most of the information will want to do the opposite.

Choice of Legal Structure

Because there are many ways to structure a strategic alliance or joint venture, parties should choose the legal structure carefully to match the business objectives of the relationship. One of the major advantages, and disadvantages, of entering into a strategic alliance or joint venture is the variety of ways in which it may be legally structured. Especially where the parties are competitors or potential competitors, attorneys and their clients should consider closely whether the proposed strategic alliance or joint venture will raise antitrust concerns.9 Some of the possible ways to structure strategic alliances and joint ventures are as follows.

Network of Contracts: Parties structure many strategic alliances simply as one or more contractual agreements to provide certain services, products, or resources to each other. These arrangements work well either (1) when each party's contribution is easy to define and is unlikely to change as the relationship evolves, or (2) when the parties want to be able to "divorce" without much...