Creating Profit Through Alliances - business models for collaboration E-book | Page 98

While a partnership involving natural persons runs
the risk of one the partners passing away, in a
partnership between businesses there is the risk of
one the partners going bankrupt. Also for that
situation, the continuation of activities needs to be
arranged properly, for instance by arranging to
transfer the patents to the surviving company.
One of the most important aspects to consider is
what risks you run that could lead to a termination of
the collaboration, and what you can do to guard
against that. The product or service that you have
developed may fail to generate interest. If you are
the one contributing the concept (preferably
protected by a patent or copyright), are you in a
position to switch to a partner with more marketing
power without incurring excessive costs? Or if you're
the bigger company considering collaborating with a
small inventor, what will happen if you run into a
dispute, or if his venture collapses? Does it mean you
lose your entire investment, or can you acquire the
patent for a small fee? Since there is no legislation on
this point in many countries, you are free to make
your own arrangements in a contract.
An important tool to help settle disputes and prevent
a premature exit is to appoint what is called a
„contractual board‟. This board is composed of
representatives of both parties, that all have equal
voting power. All parties thus need to come to an
agreement in this board in order to take a valid
decision. In a joint venture this board may coincide
with the shareholders meeting. For two small
companies it may simply consist of both owners.

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The competences of the contractual board should be
laid down in the collaboration agreement, and may
range from defining the research or marketing
budgets to appointing the daily operational
management of the partnership. The board members
can also address opportunistic behaviour exhibited by
one of the partners. If the contractual board fails to
reach agreement, the next step would be to call on
mediation by a neutral third party, or to dissolve the
alliance in accordance with the provisions of the
collaboration agreement. The simple fact that this
possibility exists without it being necessary for one of
the partners to have committed a real breach of
contract, with all the ensuing damage to reputation
and lost opportunities, is often enough to desist a
partner from engaging in opportunistic behaviour 36.
Precisely which rights you can negotiate depends
primarily on your dependency on the alliance, and
the value attached to it by your partner. Many
biotechnology firms develop components for
medicines and enter alliances with pharmaceutical
companies that will market these products. An
analysis of a large number of alliances indicates that
the distribution of revenue is more favourable for the
biotech firms to the extent that their products are
more successful, and the medicines have been
developed further. Pharmaceutical companies receive
a larger share to the extent that their product
portfolio is healthier, meaning that they actually have
less need for a new medicine.