Over recent years, strategic alliances in the renewable energy sector have proven to be the secret to success. When two or more partners join forces the limits of what they can achieve grow dramatically. Joint ventures undoubtedly offer greater returns over a shorter time frame and as a by-product, reduce competition in the market.
Few organisations are capable of undertaking every aspect of invention, research, development, evaluation and exploitation on its own and joint ventures (“JVs”) are a credible and more efficient alternative to outsourcing these services.
JV’s are of particular interest in the renewable energy sector due to the capital-intensive nature of the projects coupled with the large-scale deployment of new technologies. Using a joint venture structure can both expedite the successful implementation of technology and serve as a buffer against project-specific underperformance or failure.
Principally in the renewable energy sector JV’s are entered into for the following reasons:
- to bring different skill sets together such as asset development with EPC and O&M expertise;
- to enable financial investors to participate and fund the project for development and/or construction;
- to allow partners to hedge their risk particularly on larger projects with significant capital demand; and
- to allow developers to partner with those with local knowledge in emerging renewable energy markets.
Intellectual property rights in joint ventures
JVs are governed entirely by the legal agreements which bring them into existence. A well-structured agreement will allow partners to align their aims and minimise disputes. A key consideration in such agreement will be the intellectual property rights (“IPR”) of each party.
IPR encompasses inventions, drawings, branding, logos, trademarks, software code, user manuals, databases, trade secrets, confidential information and importantly includes know-how, which can extend generally to how a party manages the project lifecycle and can even extend, for example, to how one party approaches and negotiates key contracts such as turbine supply.
Technology and innovation breed IPR. Safe-guarding these rights is paramount and should begin before the JV commences and continue after the JV has expired. IPR should be monitored and protected throughout the entire project lifecycle from development through to construction, financing and operation, including during and after decommissioning.
Protecting your IPR; during negotiations
During negotiations partners will need to share information, some of which will be confidential. Both parties have an interest in keeping it that way so entering into a non-disclosure agreement (“NDA”) before negotiations commence is essential.
Once negotiations are in full swing, the partners should consider how best to protect their existing IPR. An IPR audit may assist in this process and an action plan should be drawn up to address any additional protection required.
Due diligence is another important task carried out by a prudent venturer who wishes to ascertain the technology that their partner owns and if they have the rights to share it unencumbered with the JV. This will also be backed up by representations, warranties and indemnities within the agreement.
Protecting your IPR; in the agreement
IPR in existence before the date of the agreement and used by the JV is commonly known as the background IPR. The party who generates this IPR is likely to retain ownership of it, including, if drafted correctly, any improvements and modifications therein, but they will need to grant the JV a right to use this IPR during the project or for the purposes of the JV.
Technology transfer is also common. At this stage it will be necessary for the owner of the technology to separate the element being transferred from the core technology and prevent disclosures of it to third parties. The transfer will also need to come to an end when the JV does and so determining who will own the IPR on expiry or earlier termination is key.
Defining background IPR is frequently missed in the JV agreement and this can be problematic if subsequently the owner of that IPR seeks finance or sell it and cannot prove ownership. To avoid such problems, the parties should clearly describe background IPR in the agreement, undertake periodic reviews of the new IPR created by the JV and obtain assignments from inventors at the time any inventions are made.
Foreground IPR is the term usually used to describe any IPR created during the course of the JV. IPR created could include: the JV name or logo, website, inventions and new tools, device or technology, better methods of undertaking activities or new processes, guides or recordings. Identifying and deciding how to protect this IPR is not an easy task and it should be reviewed on a regular basis to avoid disputes. The agreement will therefore need to include a mechanism by which either party can periodically initiate a process for agreeing how such IPR should be protected.
The JV agreement should consider new technology coming into the possession of a venturer during the term of the JV and whether this technology should be licensed or assigned to the JV and on what terms. A mechanism should be included to deal with these situations which is flexible enough to cover technology not yet in existence.
Other important provisions in the agreement will protect confidential information and its disclosure to third parties and consider the ability to take enforcement action in respect of IPR owned by the JV or the parties.
When drafting JV agreements consideration should be given to national, EU and international competition law to avoid breaches of those requirements. This will happen if the agreement has as its object or effect of preventing, restricting or distorting competition within the market.
Protecting your IPR; after expiry or termination
Only about 40% of joint ventures are successful within the first five years. If we exclude JVs in emerging markets however and assume that partners have been chosen after appropriate due diligence, then this figure rises somewhere closer to 80%. Even successful JVs however will ultimately expire and this is why there needs to be a well thought out exit strategy. This strategy should address how IPR is to be owned and whether any of the joint venture parties need to effect a licence or transfer to achieve this.
Termination trigger events will need to be considered. Events such as deadlock, failing to meet sales targets or quality certificates are common trigger events and the IPR may vest differently depending on what that event is and the contributions of the parties at the date of termination.
In many ways the renewable energy sector is a perfect fit for joint ventures. There is a diverse range of expertise and knowledge which is required for each stage of the project development chain; upstream manufacturing, construction engineering, interacting with the financial community, site control, operations and maintenance, which lends itself to a JV arrangement.
With such a diverse array of skills and assets required it seems natural that parties may be motivated to contractually partner with each other. A key to the success of such a venture is a well thought out agreement appropriately dealing with each party’s IPR. With the shared risks, greater financial reward and benefit of additional expertise, joint ventures are a valuable option for those parties interested in achieving a successfully operating renewable energy facility.