Joint Research and Development Agreement

What is a Joint Research and Development Agreement?

A joint research and development agreement is a contract that confirms the roles of each party, cost sharing, and ownership of the results of research and development when multiple companies jointly conduct research and development. Joint research and development by multiple parties enables the creation of new products and technologies by taking advantage of synergies among the technologies and know-how possessed by each party.

Key Points of Joint Research and Development Agreement

The Joint Research and Development Agreement should clearly define the roles of each party, cost sharing, and ownership of R&D results. In particular, when concluding a joint research and development agreement with a foreign company, it is necessary to clearly define the subject of the joint research and the ownership of the results.

Stamp Tax on Joint Research and Development Agreement

In the case of an international agreement, it is important to determine which country the agreement was drafted in in order to determine which country’s stamp tax will be applied. Normally, when a contract is signed by parties from multiple countries, the contract is considered to have been executed in the country of the party who signed it later. For example, in the case of a contract between Japan and Korea, if the Korean party first signs the contract and sends it to Japan as a PDF file, and then the Japanese party signs it and emails it back to the Korean party, the Japanese party is the one who signs it later, so the contract is considered to have been executed in Japan. Whether or not stamp tax is required to be paid on this agreement (i.e., whether or not stamps need to be attached) is determined by Japan’s Stamp Tax Law.

Stamp Tax Law in Japan

The Japanese Stamp Tax Law clearly defines contracts that are subject to stamp tax as taxable documents. Since the Joint Research and Development Agreement is not stipulated as a taxable document under the Stamp Tax Law, it is exempt from taxation and does not require the attachment of stamps. However, even if the agreement is named as a joint research and development agreement, if the agreement is regarded as a mere business entrustment contract, it must be attached with stamp duty as a No. 2 document (a contract related to consignment).

Preamble to the Joint Research and Development Agreement

The preamble of the joint research and development agreement should briefly describe the type of transaction that will be conducted under the agreement. For joint research and development, it is sufficient to state that the parties will work together to conduct the research and development. In the case of joint research and development, since both parties cooperate with each other in the development process, it can be said that both parties are giving consideration to the other party.

Definitions in the Joint Research and Development Agreement

In a joint research and development agreement, it is necessary to clarify what the research and development covered by the agreement refers to. This is because, by concluding a contract, the parties mutually have rights and assume obligations with respect to the subject research and development. Since the subject of research and development may be discussed until the final stage of drafting the contract, or the subject of research and development may gradually change in the future, it is possible to describe the subject of research and development in a separate document or schedule, rather than directly in the body of the contract, to allow flexibility to deal with future changes.

(Sample Clause)
Unless specifically set forth to the contrary herein, the following terms shall have the respective meanings set forth below:
“Agreement” shall have the meaning set forth in the preamble hereto
“Effective Date” shall mean the date first set forth above.
“Product” shall mean XXX as set forth in Exhibit A, or as amended from time to time by mutual written consent of the Parties.
“Project” shall mean the research project described in the attached schedule.

Purpose of Joint Research and Development, Division of Work

Joint research and development involve multiple parties working together to conduct research and development, and how each research and development project will actually proceed should be defined on a project-by-project basis. If the content and schedule of the R&D are clearly defined, they should be specifically described in the Attachment or in the attached schedule to the agreement. In the draft text below, the purpose of the joint research and development to be conducted jointly by AAA and the company is stated in a rather abstract manner. Clarifying the roles and responsibilities of each party will also help to facilitate development activities.

(Sample Clause)
AAA and BBB shall use their commercially reasonable efforts to collaborate in a mutually beneficial and cooperative fashion to conduct research.

The Services to be rendered by each Party under this Agreement shall be as follows:
AAA:
BBB:

Cost Sharing in Joint Research and Development (Cost)

In some cases, the sharing of costs is defined in detail. If one party bears the cost of R&D, that party may think that all the deliverables belong to him/her since he/she developed the rights at his/her own expense. It is important to clarify the relationship between the sharing of expenses and the attribution of R&D deliverables.

(Sample Clause)
Each Party shall bear its own direct and indirect costs and expenses, including internal costs and expenses, incurred in connection with the Projects, the Development Process, and the performance of such Party’s obligations under the Agreement.

Attribution of Intellectual Property Rights

The ownership of the deliverables in a joint research and development agreement is the most important part of the joint research and development agreement. Since the parties to the Joint Research and Development Agreement are conducting joint research and development while mutually providing each other with technology and know-how, it is expected that both parties will want the research results to belong to themselves. The attribution of the results of the joint research and development agreement to either party is determined by mutual consultation in each case, so there is no rule that says that this is the only way to do so. However, from the viewpoint of protecting fairness between the parties, the fairest approach would be to determine that (1) technology and know-how provided by each party shall belong to the party who provided it, (2) technology and know-how developed independently in the course of joint research and development shall belong to the party who developed it, and (3) technology and know-how developed jointly shall be jointly owned by both parties. Even in this case, in some actual situations, it may be unclear whether the technology or know-how was developed solely or jointly by each party, so it may be necessary in some cases to provide further details regarding such provisions. In some cases, one party may bear the entire cost of research and development. In this case, the party who bears the costs conducts its own R&D at its own expense and asks the other party to support the R&D as an outsourcing service in the process. In such a case, even if multiple parties are engaged in the research and development together, it is considered to be the sole activity of the party who incurs the expenses, and therefore, it is often stipulated that the deliverables belong solely to the party who incurred the expenses.

(Sample Clause)
All intellectual property and related rights of either Party which is provided to the other Party in the course of the development shall continue to belong to such providing Party.

All patents and other intellectual property rights in and to all inventions made and/or developed solely by either Party in the course of the development shall belong exclusively to the Party developed.

All patents and other intellectual property rights in and to all inventions made and/or developed jointly by both Parties in the course of the development efforts hereunder shall be jointly owned.

Grant of Rights

Joint research and development are a contractual relationship in which both parties bring together their intellectual property rights and know-how to jointly develop new products, and in the process, both parties are required to disclose their rights and know-how to the other party. In the process, mutual rights and know-how will be disclosed. Therefore, it is considered to clarify that the intellectual property rights and know-how of the other party may be used for the purpose of research and development. In addition to the above, it is also important to specify how the intellectual property rights and know-how resulting from the joint R&D can be utilized. In particular, if the other party cannot use the rights developed by one party in the process of research and development, the other party may not be able to fully utilize the results of the joint research and development, even though it is a joint research and development project. Therefore, it is often stipulated that intellectual property rights and know-how developed in the course of joint research and development may be used by both parties free of charge.

(Sample Clause)
Each Party shall grant to the other Party a right to use any technical information disclosed to the other Party hereunder, the Party’s inventions and any and all of its intellectual property rights with respect hereto, in order to commercially exploit the Projects.

Press Release

If one party discloses the results of research and development without permission, there is a risk that the inventive step of the technology will be lost or that misunderstandings will arise as to whose invention it is. When disclosing the results of joint research and development, it is important for both parties to do so jointly or with the consent of the other party.

(Sample Clause)
Neither Party shall release any press statement or any other public comment about the Project or the development hereunder without prior written consent of the other Party.

Term and Termination

When concluding a joint research and development agreement, it is necessary to clarify when the term of the joint research and development began and how long it will continue. If the term of the R&D agreement is unclear, there may be cases in which a claim is made that the product was independently developed after the R&D agreement was terminated. By clarifying the term of the R&D contract, it is possible to clarify the rights of the parties after the contract ends and to clarify how to proceed with future research and development. The following example sets the term of the R&D agreement as one year, with a clause that allows either party to request the termination of the joint R&D agreement during the term of the agreement. Since joint research and development is conducted based on mutual trust, it is not necessarily bound by the term of the agreement, and in many cases, both parties may terminate the agreement if they feel that they no longer have a relationship of trust with the other party.

(Sample Clause)
This Agreement is effective on the date of this Agreement and continues to be effective for one year unless earlier terminated.
Either Party may terminate this Agreement upon thirty days prior written notice to the other.

Confidentiality

In joint research and development, both parties bring their own technologies and know-how to the research and development in pursuit of the establishment of new technologies and know-how. Since the disclosure of such information begins before the conclusion of the R&D agreement, a confidentiality agreement is often drafted independently of the joint R&D agreement. If a confidentiality clause is included in a joint R&D agreement, it is necessary to clarify the relationship between the confidentiality agreement and the confidentiality clause included in the joint R&D agreement. Even if the inclusion of a nondisclosure clause restricts the disclosure or use of information for other than its intended purpose, it is not always clear whether it is a brake in practice. When disclosing core company information in joint research and development, it is also important to take measures such as clarifying how the information is to be managed and the attribution of the information on a case-by-case basis. Although this section describes general confidentiality clauses, it is necessary to consider how to devise such clauses for each individual case.

(Sample Clause)
The Parties acknowledge and agree that each Party may disclose and receive confidential information in relation to this Agreement (” Confidential Information”). The Party agrees to use the Confidential Information and data acquired from the other Party only to perform its services under this Agreement and not to disclose to any third party any such Confidential Information during and for a period of five years from the date of disclosure.

The obligation to protect Confidential Information shall not apply to any information that (1) is already in the possession of the receiving party prior to the disclosure to it; (2) is independently developed by the receiving party; (3) becomes publicly available other than through breach of this provision; (4) is received by the receiving party from a third party with authorization to make such disclosure; (5) is released with the disclosing party’s written consent; or (6) is required to be released by law or court order.

General Provision

The general provisions in a joint research and development agreement are not particularly different from those in other agreements. However, in a joint research and development agreement, the parties mutually disclose their own confidential information to conduct research, so it is necessary to trust the other party, and it is extremely important to prevent the leakage of one’s own confidential information to outside third parties or rival companies. From this point of view, it is also important to consider the possibility that the other party may, for example, assign its contractual position, or that a rival company may acquire rights due to a shift in control of the other party as a result of an M&A transaction. In this regard, it is extremely important to have a change of control clause that prohibits transactions that would result in a transfer of control of the company, and that provides for immediate termination of the contract and recovery of disclosed rights in the event that management control of the company is transferred to a third party. In addition, even if management control is not transferred, if the contract is terminated, the relationship of trust between the parties may no longer exist, so it is also important to stipulate the rights and obligations of the parties in terminating the contract, such as the treatment of confidential information that has already been provided. When drafting general clauses, it is necessary to pay sufficient attention to these points.

Prohibition of Assignment

(Sample Clause)
This Agreement is not assignable, in whole or in part, by the Party without the prior written consent of the other Party. Any such attempt to assign any of the rights, duties or obligations of this Agreement without such consent shall be null and void.

Entire Agreement; Waiver

(Sample Clause)
This Agreement, including Exhibits attached hereto, as amended from time to time, reflects the entire understanding of the Parties. The provisions of this Agreement may not be waived or changed by the Party except by a written consent of the other Party.

Notices

(Sample Clause)
All notices or other written communications required in this Agreement shall be deemed to have been duly given if delivered personally, by certified mail return receipt requested to the address of the receiving Party set forth below in this Agreement. Notices personally delivered shall be deemed effective upon their receipt; notices sent by mail shall be deemed effective three (3) says after mailing.

Force Majeure

(Sample Clause)
In the event of the circumstances that are beyond the control of the Parties, such as natural catastrophes, war or acts of God that prevent or materially limit a Party’s ability to perform the obligations required by this Agreement, it shall not be cause for termination of this Agreement. Parties further agree that in the event a force majeure does occur, they will work cooperatively to develop solutions which are mutually beneficial to both Parties.

Severability

(Sample Clause)
In the event that any provision of this Agreement shall be held by a proper court of law to be invalid, such invalidity shall not affect the enforceability of the remaining provisions of this Agreement.

Headings

The headings, subheadings, and other captions in this Agreement are for convenience and reference only and shall not be used in interpreting, construing or enforcing any of the provisions of this Agreement.

Language

(Sample Clause)
This Agreement is in the English language only, which language shall be controlling in all respects, and all versions hereof in any other language shall be for accommodation only and shall not be binding upon the Parties. All communications and notices to be made or given pursuant to this Agreement shall be in the English language.

Governing Law and Jurisdiction for Joint Research and Development Agreements

Since disputes between the parties may arise even in a joint research and development agreement, it is necessary to stipulate the governing law and jurisdiction (method of dispute resolution) that will serve as the basis for interpretation of the agreement. In particular, when both parties from different countries are involved in the contract on an equal footing, as in a joint R&D contract, there are many matters to consider from the perspective of equality between the parties, such as which country’s law should govern, which country should resolve disputes, and whether litigation or arbitration should be used as a means to resolve disputes. The following is a brief overview of some of the issues that should be considered. This section stipulates that the dispute should be governed by and construed in accordance with the laws of Japan, and that the place of dispute resolution should be by arbitration under the Commercial Arbitration Rules of Japan.
If both trial and arbitration are listed, it is not clear which will be used, and the meaning of the dispute resolution clause will be lost. It is preferable to select the place of most proximate relation as the place of dispute settlement, but if it is not possible to specify the place of dispute settlement as the place of dispute settlement for one of the parties, a third country may be used as the place of dispute settlement. For example, in a dispute between Japan and China, the place of dispute settlement (court or arbitral tribunal) may be Singapore. When stipulating a dispute resolution clause, it is also necessary to consider the cost of the dispute resolution method and whether the court judgment or arbitration decision is enforceable in the other country.

Dispute Resolution

(Sample Clause)
All disputes controversies or differences that may arise between the Parties hereto arising out of or relating to or in connection with the terms and conditions of this Agreement or for any alleged breach thereof, shall be settled by arbitration to be conducted in Tokyo, Japan under the Rules of the Japan Commercial Arbitration Association. The Parties hereby agree that any award rendered by the arbitrator shall be final and binding upon the Parties and shall be enforceable in the courts of the countries where each Party maintains its principal office. In the event either Party is required to initiate arbitration or legal action to enforce this Agreement, the prevailing Party shall be entitled to recover its reasonable attorney’s fees and other expenses. In this regard, the normal hourly rate charged by the prevailing Party’s attorney shall be deemed reasonable by the parties.

Governing Law

This Agreement shall be governed by and construed in accordance with the laws of Japan.