Picture this:
You’ve got a great idea for a project – it could be a game, a movie, a book, or whatever.
Together with a few friends or colleagues, you all work on this project. Each of you contributes something unique to yourself.
Then it starts making money. And the real trouble begins.
In this post, I’ll answer the question of “what is a collaboration agreement?” as well as discuss what should be in one and how to get one drafted.
Let’s start with the problems that happen when you don’t have an agreement:
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What happens next?
Once money gets involved, a lot of the “gentlemen’s agreements” you may have been working under can break down. Any number of problems can crop up:
- Someone who didn’t pull their weight on the project is demanding an equal share of the profit
- One of the contributors wants to use their work in another project
- Another contributor doesn’t want anything to do with you anymore, and wants their work taken out
- A third party sues you over something that one of the collaborators put in the project
Yikes.
All of these can be major issues, especially when there’s nothing in writing.
Luckily, there is a solution (of course)…
What is a collaboration agreement?
A Collaboration Agreement is one name for the type of agreement that covers the terms of more than one party getting together to (literally) collaborate on a project.
It’s also known as a Joint Venture Agreement or a Strategic Alliance Agreement.
It’s different from what’s generally known as a “partnership,” since it’s only for one specific project. Partnerships are usually ongoing relationships that span multiple projects.
Collaboration agreements are usually found when individuals or companies who have their own separate businesses get together for something special and one-off.
The 2 main types of collaboration agreements
There are 2 types of collaborations – contractual and “entity”- based.
We’ll be discussing contractual collaboration agreements in this post, which are basically fully contained within that contract.
On the other hand, an entity-based collaboration or joint venture is one where the parties collaborating form a separate business entity to handle it.
This is usually an LLC or a corporation, which will have its own limited liability (something a contractual collaboration doesn’t have).
Do you need limited liability?
Maybe.
It really depends on the type of project that you’re doing. I wouldn’t be a very good attorney if I didn’t recommend to all clients that having a limited liability entity is the way to go.
However, if you’re just kind of feeling things out with a group of collaborators, a Collaboration Agreement is probably sufficient for now. Later on, if you plan to sell the project or do other things that could incur liability, transitioning into an LLC is probably the way to go.
Given the greater costs involved with forming a company, just having a contract is often a better way to start things off.
Also, if the individual collaborators are already LLCs or corporations, it may not be necessary to form a new entity for them to work together (they’ve already got limited liability). They may want to compartmentalize the liability for this new project, though, particularly if it’s a risky venture.
What terms should be in a collaboration agreement?
Your Collaboration Agreement usually handles a number of different terms that govern the collaboration, including:
- Who is part of the collaboration
- Who is responsible for what
- Who owns what part of the collaboration (or what percentage of its profits)
- How will the collaboration operate
- How does someone leave the collaboration
And others, as necessary depending on the specific type of project that you’re working on.
The purpose of the collaboration
One important thing to have in any collaboration agreement is a very clear statement of the collaboration’s purpose. Because these are for very specific projects, they should state that plainly in the agreement.
This helps avoid any claims that the terms cover other things that you’re working on separately (and protects any money coming from those separate projects, for example).
Who contributes what?
Another key thing to have in your collaboration agreement is defining (as specifically as possible) what each collaborator is responsible for contributing.
This could be:
- Money (often an essential ingredient in any venture)
- Time (the agreement should have some minimum time commitments defined)
- Specific skills (make clear what types of jobs each collaborator will perform on behalf of the venture)
- Outside intellectual property (maybe one of the collaborators owns a trademark that you want to use)
Whatever the contributions are, they should be clear in the agreement. Any outside intellectual property, as well, should be licensed to the collaboration in writing within the Collaboration Agreement (or in a license agreement signed at the same time).
You don’t want to rely on something that could potentially fall through later on if they refuse to sign it over!
Working on other projects
In most cases, collaborators are going to have other things going on at the same time.
This should be clear in the Collaboration Agreement, so that there can be no claims otherwise later on.
Be careful that the minimum time commitments agreed to are workable with your other commitments, as well. And that there are no non-compete agreements within the Collaboration Agreement.
Ownership of the Collaboration Intellectual Property
One vital term to have in any Collaboration Agreement is how to deal with ownership of whatever is created.
If you’re collaborating on a game or other creative project or invention, this is especially important.
This ownership can be handled in a few ways:
- Each collaborator owns their own contributions (writing, music, artwork, etc.), and licenses it to the collaboration (exclusively or non-exclusively)
- The venture owns the contributions, which can be difficult if the venture is limited in time (what happens after the collaboration ends?)
- Each collaborator assigns their ownership to a third-party company (possibly one that is formed specifically for holding that intellectual property)
How you deal with this depends on the goals of the parties involved.
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Where does a collaboration agreement fit into your overall legal strategy?
Good question!
From my perspective, as I hinted at earlier, a Collaboration Agreement is kind of a first step in getting together with others on a project.
It’s great for the time when the parties are feeling each other out and aren’t sure if a long term partnership or new company is appropriate.
Let’s face it:
We don’t always know what we’re really getting into when we start a new project!
It’s impossible to know how well you will work together with partners, unless you’ve worked with them before. It’s also difficult to see the path that any collaboration will take, when you’re right at the beginning.
Once you’ve got a Collaboration Agreement and start working together well, it’s time to rethink things.
Forming a new LLC or corporation to house the project is often a good idea, unless you’re working on a script or something that you plan to sell to a third party.
Ultimately, it’s up to you to decide how far you want to take things. Each step in ramping it up has costs that come with it, but those costs help to remove the risk of legal liability and fighting between the collaborators.
And that’s a really, really good thing.
How do you get a collaboration agreement?
It’s true:
There are a lot of sample collaboration agreements floating around the Internet.
But as an attorney, I would caution anyone using something found on the Internet without having a professional look it over. This is for a few reasons:
- It’s difficult to know what the agreement is missing
- You may assume that because it’s online, it’s been vetted – wrong!
- The terms that are in there may not be the best for your particular situation
If you need help getting a Collaboration Agreement drafted, feel free to contact me to talk through it and get your project started on the right foot!
