Beware the legal pitfalls of collaborative commerce

Embracing collaborative working practices inevitably triggers legal considerations and, like many technology initiatives, it is an area where business is ahead of the law, says Adam Rose of Berwin Leighton and Paisner.

Initially at least, collaborative projects can develop from informal arrangements, and the legal implications are not thought through properly. But the flashpoints are numerous – from ownership of information, data and intellectual property to the definition and allocation of liability and responsibility in relation to processes and data.

One area that is often overlooked, says David Naylor of law firm Morrison and Foerster, is competition law. "Whenever parties collaborate in industry there is a risk of running foul of European Union competition law," he warns. Rose of Berwin Leighton and Paisner concurs: "There is a very real danger that collaboration can be construed as an old-fashioned cartel arrangement."

Competition law comes into play when companies are deemed to be colluding to enforce a dominant position. The European Commission, the final arbiter of such issues, can fine an organisation up to 10% of its worldwide revenue if it is found to anti-competitive.

Many market thresholds have to be reached before competition authorities use such stringent tools, however, and the European Commission currently appears to be looking favourably on arrangements that promote innovation and achieve cost efficiencies.

It has also made a number of recommendations on how to avoid clashing with competition authorities. For example, when a consortium of six banks, including Citibank, Deutsche Bank, Goldman Sachs and JP Morgan, launched a business-to-business (B2B) electronic trading platform for foreign exchange options, they were advised to create a separate company,, with a distinct management team to run the marketplace.

To minimise the risk of disputes between collaborating partners, say lawyers, liability for a product or service throughout the supply chain and responsibility for maintaining confidentiality and privacy must be established and defined early on. This will help to build trust among partners and ultimately promote greater collaboration. Founders of public and private marketplaces in particular need to bear this in mind.

Increasingly, of course, access to partners' databases is at the heart of joint ventures and collaborative commerce. Not only does responsibility have to be allocated for ensuring accurate data, but certain legal obligations must be met when processing it.

For example, a business must secure consent to use or distribute personal information beyond its internal organisation. The sharing of data becomes an even bigger issue when it crosses borders, invoking additional restrictions. This is further complicated by the fact that different countries and governments take different approaches to the very concept of privacy.

Most companies will assume it is simple to build in legal protection: get the contracts together, set up data protection schemes or create a separate new company through which to collaborate. But there are unexpected consequences. For example, a marketplace might need merger approval.

Inevitably, the legal ramifications of large-scale collaborative commerce will be unclear for some time to come. But, says Rose, the risks can be minimised by "thinking through carefully who owns what, who's responsible for what and what happens if things go wrong."

Setting down ground rules and establishing deterrents to data misuse early on can also allay any participants' fears about sharing information. Although larger companies "probably take advice some time during the process", says Mark Crichard of Andersen Legal, "whether they take it early enough is up for debate."

Using a measure of foresight will be necessary because collaboration is likely to take many forms. As companies increasingly collaborate with suppliers, customers and even rivals, it might even create new and ad hoc types of relationships.

Avatar photo

Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

Related Topics