Joint Development And Contracted Development Are Not The Same Thing

When companies form alliances with each other, or business firms link up with academia, the line between joint development and contracted development sometimes blurs. One side has joint development in mind while the other has contracted development in mind, and they keep talking past each other until, right when it comes time to draft the contract, trouble breaks out. Or the two parties sign a contract without ever clarifying which of the two arrangements they’re actually in, a mismatch surfaces partway through development, and the project simply falls apart in midair.

Using joint development and contracted development well matters

Very few companies these days build their business entirely on in-house development. Relying solely on contracted development also creates funding problems, so knowing when to use joint development at the right points is, I think, an important piece of technology strategy.

Partly to organize my own thinking, I put together the following slides. Please read through the slides first. I’ll add some commentary afterward.

The difference between joint development and outsourcing from Yuichiro Kuzuryu (Kuz)

Below are a few points worth watching out for, as I see them.

Point of caution ① Don’t ‘just start’ joint development

With joint development, you often see a scene where both sides say, “Let’s just start on our own steam for now.” The terms for intellectual property and licensing fees stay unclear.

If the effort never grows into something viable as a business, both sides can just present the results internally and call it done. But once it turns into an actual business, each party’s ambitions swell up all at once. So no matter how tedious it is, settling things properly in advance is extremely important.

In that sense, the arrangement I’d recommend most is one where

• rights to any deliverables arising from the joint development project belong to both parties; however, both parties hold usage rights
• neither party touches the profits generated by the other’s own business

This is an arrangement that can always be agreed on right away. Though, well, it rarely goes that smoothly.

Point of caution ② ‘Get things clear first’

When someone thinking in terms of joint development and someone thinking in terms of contracted development end up talking at cross purposes, the conversation, unsurprisingly, doesn’t mesh at all.

Rights to deliverables

With contracted development, in most cases the rights transfer to the client, who pays consideration for that. With joint development, in most cases the rights belong to each party respectively.

Cases where no money changes hands fall clearly into the latter category (nobody is generous enough to hand over results without getting paid). But when payment is involved, both sides need to align clearly on what exactly that payment covers and what it’s meant to be for.

Point of caution ③ ‘Academia shedding its skin’

For academia, joint research is, in most cases, the default approach. This is because being joint rather than contracted secures freedom in deciding the direction of the research.

This ends up being a barrier to industry-academia collaboration in many cases. Business firms demand results even from what is nominally research. And those results are ultimately business results, not academic ones.

Committing to the business

In that context, partnering with academia that won’t commit to the business obviously carries risk. So the judgment made by decision-makers inevitably tilts conservative. And that’s how academia’s take ends up shrinking. To be clear, “not committing to the business” doesn’t mean academia lacks a sense of responsibility or mission. Academic institutions are organizations aimed at academic contribution. Given that underlying philosophy, they simply can’t share in business advantages very well. If it were instead an alliance between two business firms, you could easily set up a “profit-sharing” mechanism—using each other’s technology in their respective products to generate profit, or splitting the profit proportionally once it’s made.

That’s why, overseas, many labs break away from their universities to start companies. Taking the form of a corporation makes it easier to build a scheme for sharing business benefits.

But most of the time, things settle into something small: running joint experiments based on research results achieved up to that point. That in itself is meaningful. But it’s inevitably not a framework aimed at throwing themselves into new research or chasing drastic results, and as a result, the problem arises that large research budgets have a hard time moving.

How academia can design joint development that meets business firms halfway remains a major challenge.

Originally published in Japanese at https://clazytech.com/2021/10/810/. Translated with LLM assistance and reviewed before publication.