Joint ventures can be lucrative, but risky as well

| Dec 23, 2020 | business litigation

Joint ventures can be a profitable relationship for both businesses involved. For example, one of the most famous joint ventures in recent years has been Google and NASA to create Google Earth. The companies, as well as the venture, remain separate entities, but work together to create products or even share information for the common good of the overall industry.

However, business owners must also be aware of the potential risks that joint ventures might involve, so they can avoid the risks and protect their own ventures in the long run.

WHAT ARE THE COMMON REASONS FOR A JOINT VENTURE DISPUTE?

In a joint venture, the parties initially negotiate who is responsible for the venture’s costs, profits and losses. These items should be, but generally are not required to be, memorialized in writing. This shared responsibility and liability could potentially lead to disputes over:

  • The percentage of profits that each company collects;
  • If one business does not fulfill their responsibilities;
  • If businesses disagree over their obligations; or
  • If businesses accuse each other of fraud.

JOINT VENTURES MIGHT ALSO LEAD TO INTELLECTUAL PROPERTY DISPUTES

Businesses in similar industries are often the ones who pursue joint ventures. In the example of the Google and NASA joint venture, both companies play a significant role in technology innovation. Therefore, joint ventures might also involve disputes over intellectual property, including:

  • The ownership of the intellectual property if it was developed in the venture;
  • Intellectual property theft; or
  • Trademark infringement.

If businesses pursue a joint venture, they must take great care to ensure their intellectual property is properly protected.

AVOID COMPLEX DISPUTES WITH AN EFFECTIVE AGREEMENT

Under California law, a joint partnership is viewed similarly to a general partnership. However, businesses often cannot approach disputes in the same way as they would in a general partnership.

Understanding potential disputes and complicated legal issues involved in a joint venture can help business owners to create effective agreements to protect their future. To assist in the process in order to avoid the many potential pitfalls, it is typically highly beneficial to consult an experienced attorney to help structure and document the deal.