Ancillary Agreements

Technology Transfer or Pooling

There may be a transfer of technology by one or other party or both parties for the purpose of the venture.There may be a transfer or licensing of intellectual property rights where one party is bringing intellectual property and technology to the venture. There may be a pooling of technology.

Technology transfers commonly arise when an entity which owns valuable intellectual property rights invests in a particular jurisdiction or with a local partner in a particular territory allowing the use of its intellectual property rights by the joint venturer.

The technology transfer agreement or licence may define the terms on which the intellectual property rights are made available. The intellectual property may be assigned or more commonly licensed to the joint venture entity.

There may be ongoing provisions for technical assistance in relation to the technology provided to the joint venture company. This may involve the presence of personnel onsite or online support assistance remotely.


Intellectual Rights Issues

Intellectual property rights issues need to be provided for. The terms of the transfer or licence to the joint venture company must be considered. It may be a royalty-free or subject to a fee. It may exclusive or non-exclusive. It is likely to be non-transferable. Provision should be made for the duration of any licence and the termination and handing back of materials rights and termination.

Provision should be made for new intellectual property which is developed as part of the venture. The rights may be acquired by the JV company itself. The rights may be exclusive or not exclusive. The joint venture parties (one or both) themselves may obtain a license or assignment of rights upon termination, or on an ongoing basis depending on the circumstances.

There may be variations in treatment depending on whether the joint venture purpose is completed, and for example, whether the termination occurs because of default by one of the venturers.

Warranties may be given with respect to the intellectual property rights. A party providing intellectual property may give warranties and representations in relation to its ownership and entitlement to the intellectual property rights. There may be ongoing obligations to preserve and maintain the intellectual property rights.

It may be that no warranty or a limited warranty is given, particularly where there is no cash or immediate valuable consideration given in return.


Licensing of IP Rights

Provision may be made for royalty fees and other payments for the use of the intellectual property. Provision may be made for payment, the currency of payment, time of payment and other relevant matters. This arrangement formerly benefitted from favourable tax treatment in Ireland.

There should be provisions in respect to confidentiality in order to preserve the integrity of the intellectual property. Parties and their employees etc. will be required to keep the requisite information confidential.

The licence term may be fixed or terminable. It may be terminable if there is a material breach or other termination of the joint venture agreement. The joint venture company may lose the right to continue to use the technology in certain circumstances such as a breach, change of control et cetera. Provisions for arbitration, non-assignment and other “template” terms are normally provided.


Transfer of Employees

Some joint ventures involve the transfer of employees from a joint venture party to the joint venture company. This gives rise to requirements under the Acquired Rights Directive. Employees are entitled to the continuation of the terms of their employment with the joint venture entity. The Acquired Rights Directive provides for continuity of service and the preservation and continued accrual of rights for all contractual and statutory purposes.

Prior consultations are required. Consultation is usually undertaken with a trade union or other representatives. Where no representatives are in place, it may be necessary to appoint representatives for the purpose of the legislation.

A dismissal may be justified on redundancy grounds where there are economic, technical and organisational reasons which involve a change in the workforce and which justify the dismissal. The relevant redundancy procedures must be followed.


Key Employees

The transfer of key employees may be critical to the success of the joint venture. The consent of the employees concerned may be required for the transfer. Their consent may be implied if the employee continues to work without objection for the joint venture company. Their existing employment contract may provide that they can be required to move to work for affiliate companies such as the joint venture company.

Regulatory consent issues may arise in relation to the approval of senior managers and other key personnel in the financial and insurance sectors.

Where key personnel are required as part of the joint venture, the parties may seek to enter restrictive covenants with them. Restrictive covenants are enforceable provided that they protect a legitimate interest of the employer and satisfy a reasonableness test under the restraint of trade doctrine and competition law.

The restriction of competition in itself is not legitimate. Restrictive covenants are permissible only for a legitimate purpose, such as the misuse of confidential and proprietary information after termination of their employment. Difficult questions may arise as to the boundary between the two.


Secondment

Some employees may be seconded from a joint venture party to the joint venture entity and become its employees on a temporary basis. Unless those employees so agree, there must be specific requirements for mandatory secondment in their employment contract.

Secondment raises ongoing issues in relation to employee and employer obligations and liability issues as between the joint venture parties, the joint venture company and the employee. The applicable position will depend on the agreements entered. There may be provision for one party indemnifying the other.

The seconded employees’ line of reporting and authority should be clearly specified. Given the possibility of blurred lines and split loyalty, it should clear who has authority and control over the employees in the event of a dispute. There should be clear lines of responsibility as between the employer party and the JV entity to whom they are seconded.

Although VAT does not arise on the payment of salaries, it may arise under a service agreement by which an employee’s services are provided to another.


Pensions and Share Schemes

Generally, pension rights do not carry over under the transfer of undertakings / Acquired Rights Directive. The joint venture company may wish to put in place pension arrangements similar to those already enjoyed by its own employees. The joint venture company itself may establish a pension scheme. The general considerations applicable to pensions arise.

Contractual issues may arise in relation to pension rights for the transferring employee. The employee may be entitled to continue to be a member of the joint venture pension scheme. It should be provided as to who is to make the relevant pension contributions during secondment.

More generally, the issue of pensions and other employment benefits arise in the context of the joint venture employees. It may be that payments are continued to the scheme of the existing employer. It is usually possible for employees of subsidiaries or other entities with a business association to continue to participate in the employer’s scheme. A scheme amendment may be required to allow this.

Similar issues may arise with employee share incentive schemes. Subject to Revenue approval, employees may continue to participate in the joint venture party’s scheme. The joint venture itself may establish a share incentive scheme for senior management or more generally. The general considerations applicable to such schemes apply.


Other Agreements between Parties

A suite of other agreements may be entered in the context of a joint venture agreement. There may be related agreements between the joint venture parties, the joint venture company and / or others. The position will depend on the nature of the venture. This may depend on the industry concerned, whether it is a full function or limited function joint venture, its purpose, duration et cetera.

As well as the transfer of technology, personnel and capital, there may be supply contracts, distribution contracts, agreements for the sale and purchase of goods and technical assistance. There may be leases and property agreements.

Generally, agreements of this nature are structured as separate agreements to the joint venture agreement as such. They may endure after it ceases. They may be terminated with replacement suppliers before the joint venture runs its course. There may be a change of parties, and it is desirable that they are not made interdependent unless this is commercially required.

It may be desirable that the joint venture agreement dispute resolution procedures are the same for the ancillary contract as the joint venture agreement itself. In a case of an international joint venture, questions may arise as to the governing law or the ancillary agreement. The governing law may not necessarily be that appropriate to the joint venture agreement itself.


Conflicts of Interest Issues

Ancillary agreements between the parties may raise conflicts of interests issues. Generally, the other party to the joint venture will seek the right to consent to such arrangements on behalf of the joint venture company so as to ensure that one party cannot benefit itself at the expense of the joint venture. Equally, issues that arise under the agreement such as enforcement and disputes may be subject to the overriding control of the independent party.

In principle, ancillary agreements may be entered by the joint venture company after it is established on an ongoing basis. However, given that the unconnected party is likely to negotiate it or have the right to object to its terms, it is desirable that the terms of the agreement or at least the basic principles are agreed contemporaneously with the principal joint venture agreement, where the agreement is critical to one party’s participation in the joint venture itself,