Joint Development And Contracted Development Are Not The Same Thing

When forming partnerships between companies, or collaborations between business companies and academia, the boundary between joint development and contracted development sometimes blurs. If one side is talking with joint development in mind while the other assumes contracted development, trouble erupts the moment it comes time to draw up a contract. Or the two parties sign a contract without ever clarifying which arrangement they’re actually in, a mismatch surfaces partway through development, and the project falls apart in midair.

Using joint development and contracted development well matters

Very few companies today build their business through purely in-house development. Relying solely on contracted development also creates funding problems, so knowing when to switch between the two is, I think, an important piece of technology strategy.

Partly to organize my own thinking, I put together the slides below. Please read through them first. I’ll add some supplementary notes afterward.

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

Below, as my own opinion, a few points I think deserve attention.

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

In joint development, I often see both sides say “let’s just start out of pocket for now,” leaving the arrangements around intellectual property and license fees undefined.

If the outcome never reaches commercialization, both sides can simply present the results internally and call it done. But once commercialization becomes real, each side’s expectations swell all at once. So however tedious it may be, settling things properly in advance matters enormously.

In that sense, the arrangement I recommend most is this:

• Rights to deliverables arising from the joint development project belong to both parties. However, both parties hold the right to use them.
• Neither side touches the profits generated in the other’s own business.

This is an arrangement you can always put together quickly. Though of course things rarely go that smoothly.

Point of caution ② ‘Get clear first’

When someone thinking in terms of joint development and someone thinking in terms of contracted development talk past each other, the conversation never really connects.

Rights to deliverables

In contracted development, rights transfer to the requesting party in most cases (in exchange for payment for that portion). In joint development, rights belong to each party separately in most cases.

Cases where no money changes hands are easy to understand in the latter sense (no one is generous enough to hand over results without getting paid). But when payment is involved, the two sides need to align clearly on what exactly that amount covers, and what the money is actually being paid for.

Point of caution ③ ‘Academia shedding its skin’

In academia, joint research is the default approach in most cases. This preserves the freedom to decide research direction by keeping the arrangement collaborative rather than contracted.

This often becomes an obstacle to industry-academia collaboration. Business companies demand results even from research, and those results ultimately aren’t academic achievements but achievements in actual business.

Commitment to the business

In that situation, partnering with academia that won’t commit to the business naturally carries risk. So decision-makers inevitably judge conservatively. And that’s how the returns to academia shrink. To be clear, “not committing to the business” doesn’t mean academia lacks a sense of responsibility or mission. Academia is an organization oriented toward academic contribution. Given that orientation, it simply can’t share business benefits smoothly. If the partnership were instead between two business companies, setting up a “profit-sharing” mechanism would be easy: each side’s technology gets used in the other’s products to generate profit, or profits get split proportionally after the fact.

That’s why, overseas, many research labs break away from their universities and form business companies. Taking on a corporate form makes it easier to build a scheme for sharing business benefits.

But most cases end up condensed into something small: running joint experiments based on research results accumulated up to that point. That in itself is meaningful. But it inevitably isn’t a framework aimed at pursuing new research or drastic results, and as a result, large research budgets struggle to move.

How academia can design joint development that stays close to the needs of business companies remains a major challenge.

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