Enterprises increasingly recognise the efficiencies that collaborative commerce can bring to their businesses; but the legal implications of these emerging relationships are still being debated. And some of the opinions being expressed are alarming. Adam Rose, partner at law firm Berwin Leighton and Paisner, believes that "there is a very real danger that collaboration can be construed as an old-fashioned cartel arrangement."
Embarking on a collaborative project inevitably triggers legal considerations and, like many technology initiatives, it is an area where business is ahead of the law, says Rose. So partners must consider potential disputes that may arise. These fall into four main categories: competition law; ownership of information, data and intellectual property; liability and responsibility; and confidentiality of data.
Competition law remains perhaps the most important consideration. Whenever parties collaborate in industry, explains David Naylor of Morrison and Foerster (MoFo), there is a risk of running foul of European Union competition law. The potential penalties can be crippling – the European Commission, the final arbiter of competition issues, can fine an organisation up to 10% of its worldwide revenues.
Many market thresholds have to be reached and tests met before competition authorities use such stringent tools. And, the European Commission does look favourably on arrangements that promote innovation and achieve cost efficiencies. It also makes recommendations on how to avoid coming up against competition issues. For example, when a consortium of six banks, including Citibank, Deutsche Bank and Goldman Sachs, launched a B2B electronic trading platform for foreign exchange options, they were advised to create a separate company, Volbroker.com, with a distinct management team.
Intellectual property (IP) is core to the success of technology suppliers; as is product time-to-market. Recognising that design collaboration can slash development times, vendors are increasingly inviting partners on board. Last year, for example, Iomega shaved four months off the development of a new disk drive by including a key engineer from a component supplier, Nidec, in the design process. In such cases, to avoid conflict over which partner owns the IP rights to a jointly developed product, manufacturers must establish agreements upfront.
Surprisingly, many companies, even in the technology sector, "don't have a sophisticated understanding of the IP they own", according to MoFo's Naylor, and often fail to introduce such protection. This can undermine valuable assets and threaten the viability of a vendor.
Liability for a product or service in an extended supply chain and responsibility for maintaining confidentiality and privacy must also be defined early on. Creators of public and private marketplaces in particular need to bear this in mind.
Increasingly, 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. Sharing data becomes an even bigger issue when it crosses borders, invoking additional restrictions.
The legal ramifications of large-scale collaborative commerce will remain unclear for some time to come. Rose suggests the march toward greater and wider collaboration may lead to more disputes because initially many collaborative projects develop from informal arrangements, and the legal implications are not properly thought through.
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."
The risks can be minimised by "thinking through carefully who owns what, who's responsible for what and what happens if things go wrong," says Rose. Setting down ground rules and establishing deterrents to data misuse early on can also allay participants' fears about sharing sensitive data.
Using a measure of foresight will be necessary because collaboration is likely to take many forms, and may even create new and ad hoc types of relationships. This, say experts, means that for the time being, collaborative efforts and their legal implications will have to be analysed on a case-by-case basis.
About: Adam Rose
Adam Rose heads up Berwin Leighton & Paisner's TechMedia Group and specialises in IT and Internet-related law. In particular, he advises on software and IT contracts and co-authored the book Getting out of a contract, published by Gower Publishing. Rose is a member of the International Bar Association and the Society for Computers and Law.