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Forming a Strategic Alliance - Key Issues

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There are some key issues to look out for when drafting a
Strategic Alliance Agreement. The most important provision to
include, in my opinion, is a "No Partnership" provision. A
strategic alliance is different in purpose and form than a
partnership, and the agreement should expressly reflect the
intentions of the parties not to form a partnership. The legal
status of a "partnership" involves a whole series of rights and
obligations that neither party to a strategic alliance would like
to assume. Therefore, a "No Partnership" provision must be
included and must clearly stress that the parties do not intend
to create a partnership in this agreement.

A second key area to deal with is a provision addressing
confidential information. Parties to a strategic alliance will
inevitably share proprietary and confidential information to
realize the purpose and goals of the arrangement. Thus, the
agreement must include a "Mutual Nondisclosure" provision that
defines "Confidential Information" and expressly states the
respective parties' rights and obligations in respect to this
confidential information. Most likely, each party will want a
promise from the other that they will not disclose confidential
or proprietary information to third parties.

In addition, the agreement should address the contributions of
each party. In other words: What will each party be bringing to
the agreement? Capital contributions of cash, intellectual
property (patents, trademarks, copyrights), technology transfers
or licenses, distribution network, market access, personnel and
other transfers of resources are key components of the alliance
agreement.

The alliance agreement should also provide a mechanism for
dealing internally with disputes between the parties. This
provision may set-up a board, composed of members from both
parties, responsible for hearing and resolving disputes. Due to
concerns of both time pressure and wanting to maintain internal
harmony, partners to an alliance will likely not want to send
matters of internal dispute to an outside arbiter. Thus, the
agreement should provide a mechanism for dealing with problems or
disputes internally.

The sharing of risks and rewards is central to a strategic
alliance. This issue is generally the most fiercely negotiated
item in any alliance agreement. Profit sharing in proportion to
each party's ownership interest in the alliance is often used.
This does align the interests of all parties because each seeks
to maximize profit. Losses can be shared in the same manner or
limited to the extent of capital contribution. Great care must be
taken in defining how net profits will be calculated.

In conclusion, when negotiating strategic alliance agreements, a
"no partnership" provision must be prominently included, and the
issues of confidentiality of information, party contributions,
and allocation of risks and rewards generally require substantial
negotiation. If the parties approach that negotiation creatively
and work cooperatively to consider a variety of options,
provisions can be negotiated that provide acceptable protection
to all parties and support a common strategy.

Mark Warner is a Legal Research Analyst for RealDealDocs.com.
RealDealDocs gives you insider access to millions of legal
documents drafted by the top law firms in the US. Search over 10
million <a href="http://www.realdealdocs.com">Documents,
Clauses</a>, and <a
href="http://agreements.realdealdocs.com">Legal Agreements</a>
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