Joint Ventures Attorney in Minneapolis, Minnesota

The Case of the Joint Marketing Agreement Gone Bad

Minneapolis patent attorney Mark Stignani discusses what can go wrong in a joint marketing agreement.

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Bob Griswold: About two years ago, I met Doug for drinks, and he was with Upstart Inc., a small company, about $5 million in sales, some really nice tech, but pretty inefficient sales and distribution. We here at BigCo – kinda the opposite, $300 million in sales, some of the best sales and distribution system in the industry, you know – but lousy tech. I mean, we know it’s not our thing. So the synergies, as they say, were there, and this was a match made in heaven.

So I was there with drinks with them, and right there and then we put together a JMA, joint marketing agreement, and I think we even signed a memorandum of understanding right there. And that MoU served us great for the first six months, and then I think we did something more official. Doug drafted something more formal and we signed that contract. I mean we didn’t want to give it to legal or anything and slow this thing down, ’cause we were on a roll and everything’s smooth sailing. It really took off.

We put in about $1 million in distribution and marketing and some branding, and we did some joint RFEs together, and then bingo. We hit pay dirt. Our team is now in the lead for a first joint contract together worth about $30 million. Not bad. Not bad at all. Contract is set to be signed by the end of the month and, you know, we’re doing really, really well.

[Music]

You know, but this morning I got this e-mail. There’s some rumor that Doug’s company was acquired by Rival Industries, our main competitor, you know, but… Still, I was thinking if that’s true – which, you know, if it is – I wonder what that means for our JMA, you know? Hey, is this bad for us? Huh, I mean what could possibly go wrong?

Mark Stignani: So what could go wrong? The first thing that could go wrong is that you could suffer the loss of all of your intellectual property that you’d shared between your soon-to-be ex-partner and the competing company that’s purchasing you. Because you don’t have confidentiality in place, because you shared a great deal of information, you have no idea where a particular piece of information was shared or not, whether it was under any type of agreement, whether it was under any respect of confidentiality. So you have a huge due diligence problem on your hands that you need to figure out immediately if you’re gonna respond adequately.

[Music]

Bob Griswold: I mean it’s a sweet deal. I mean it’s our first one, $30 million.

[Email Notification from Computer]

Bob Griswold: Ah, yeah, I think it’s –

[Email Notification from Computer]

Bob Griswold: I just got another one.

[Email Notification from Computer]

Mark Stignani: So problem number two that you’ve got is that you may have lost all of your intellectual property. Because there was no agreement in place that helped you understand what was yours before the agreement and what was yours during the agreement, there’s no clear delineation as to what you own versus what the joint venture owns versus what the company that is being bought out owns. So, theoretically, you could have contributed all of your intellectual property without restrictions to this joint venture, or in perpetuity to the company that’s being bought. You just have no way of proving it.

Bob Griswold: Yeah, I don’t think it’s a problem.

[Email Notification from Computer]

Bob Griswold: Oh, they’re coming out a little faster now.

[Music]

I think I’m gonna need to take this. Do you mind if I just –?

Mark Stignani: So the third thing that can go wrong is you possibly have lost all the trade secrets and all the market leverage you brought to the party. So what you brought to the party could have been customer lists. It could have been, you know, sales and marketing expertise. During the time that you have spent together with this Upstart Co., you have contributed a lot of your trade secrets, a lot of your customer knowledge, a lot of your customer capability. And you’ve given that all to essentially now your rival company competitors. That’s the third thing that can go wrong.

[Email Notification from Computer]

Bob Griswold: They’re congratulatory, probably.

Mark Stignani: So the fourth and final problem is that you may have just given up your entire market position. Why have you done this? You may have given up all of your intellectual property, all of the knowledge that you had that was special to your company, all of the aspects of what made you special or, you know, your advantage in the marketplace. You may have lost to a certain point – by giving everything over to your competitor in this loss – the entire marketplace. You may have given them a 30 percent market share just by this effort. We’ll never know.

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