In the world of federal contracting, small and medium-sized businesses often find that they cannot win large projects on their own. These companies frequently decide to pool their resources, technical expertise, and past performance records to pursue complex government solicitations. This joint approach is usually governed by a teaming agreement.
While these arrangements are common in the defense and technology sectors, they often yield unique legal issues that differ significantly from other forms of business partnerships. If you don’t approach these joint efforts with a clear strategy, you may find that your most valuable innovations are at risk.
At Martensen, we recognize that these agreements are sometimes necessary for growth. However, we also know that many businesses enter into these arrangements without completely understanding the long-term consequences for their intellectual property (IP). Protecting your rights calls for an in-depth understanding of how collaborating on government contracts intersects with patent, copyright, and trade secret laws.
Defining the Nature of Teaming Agreements
It is important to understand what a teaming agreement actually represents in a legal sense. Unlike a joint venture, which generally involves the creation of a separate legal entity, a teaming agreement is a preliminary arrangement between two or more existing companies. In most cases, one company acts as the prime contractor while the others serve as subcontractors. Together, they submit a proposal to a government agency with the hope of being awarded a specific contract.
One of the most critical things to realize is that these documents are often considered an agreement to agree. This means they are not always legally enforceable as a final contract for work.
The document describes how the parties will cooperate during the proposal phase, but it does not always guarantee that the subcontractor will actually receive work if the prime contractor wins the award. Because the prime contractor ultimately chooses what information to include in the final proposal, the subcontractor has a limited amount of control over the process.
The Risks of Strategic Alliances in Government Contracts
Because teaming agreements are often used in the context of government contracts, they carry risks that you do not typically see in the purely commercial sector. One of the primary dangers is the lack of exclusivity.
A prime contractor might be talking to multiple potential partners, or they might decide to perform the work themselves after winning the contract. If you have shared sensitive technical data during the proposal phase without the proper protections, you might have little recourse if the prime contractor moves forward without you.
Additionally, the costs associated with preparing a proposal can be substantial. Parties must decide upfront who is responsible for these expenses. In many situations, a subcontractor may invest significant time and money into a project only to find that the relationship dissolves before any revenue is generated. Without a clear and enforceable agreement, you may find yourself in a position where you have contributed important insights to a winning proposal but have no way to claim your share of the project.
Critical Intellectual Property Issues
When companies collaborate on technical projects, the question of who owns the resulting innovations is always a major point of contention. If the agreement is not carefully drafted, the default rules of law may result in shared ownership, which can be disastrous for a growing business.
There are several ways that these arrangements may impair the value of your assets, including:
- Loss of exclusivity. When you share ownership of an intellectual property asset, you lose the ability to prevent the other party from using or licensing that asset.
- Enforcement barriers. A co-owner may be able to block you from taking legal action against an infringer, especially if every owner is required to join a lawsuit for it to move forward.
- Complicated diligence. Shared ownership makes it much harder for investors or potential buyers to evaluate your company because they want to see clear and exclusive rights to technology.
- Trade secret dilution. If multiple parties have access to a trade secret, the risk of it being leaked or lost increases significantly, which can destroy its legal protection.
- Future competition. Your teaming partner today could be acquired by a direct competitor tomorrow, which could give that competitor access to your proprietary methods.
- Fragmented patent prosecution. Coordinating the filing and maintenance of patents becomes very difficult when multiple parties have a say in the process.
Why Joint Ownership Is Rarely the Best Solution in Government Contracts
Many businesses assume that sharing ownership of new projects is the fairest way to handle a collaboration. In practice, however, joint ownership of intellectual property is often a recipe for disaster, especially in government contracts.
This is particularly true for patents and trademarks. Under patent law, joint owners can often use an invention without the consent of the other owners, and they generally do not have to share the profits they earn from that use. This may cause a situation where your partner is effectively competing against you with your own technology.
Trademarks are even worse candidates for shared ownership. Because a trademark is intended to tell the public that a product or service comes from a single source, having multiple owners can result in consumer confusion.
If the parties do not maintain a consistent level of quality, the value of the brand can be eroded. Often, a better option is to have one party retain ownership of the core intellectual property while the other party receives a structured license that defines exactly how they can use the technology.
Pursuing Government Contracts? Due Diligence and Professional Counsel Are Essential.
Before you sign any joint agreement, you must perform an extensive due diligence review. This means looking at what each party is bringing to the table and making sure that those assets are valid and do not infringe on the rights of others.
You also need to consider how you will handle any improvements or derivative works that come out of the project. If these issues are not addressed early, they will almost certainly result in disputes later on.
A strong IP strategy should also include a plan for what happens if the partnership ends. You need to have a clean exit strategy that defines who keeps what assets and what happens to any licenses that were granted during the collaboration. This is especially important in government contracts, where the requirements of the project can change over time.
Get Help in Addressing Intellectual Property and Collaboration in Government Contracts
Operating at the complex intersection of business, law, and technology demands a legal team that understands the distinct pressures of the federal marketplace. Our attorneys at Martensen have decades of collective experience in these areas. We don’t just look at the technical language of a contract. We also consider how that contract fits into your overall business goals.
Whether you are a prime contractor looking to secure a specialized subcontractor or a small business trying to protect your innovations in a teaming arrangement, our attorneys can provide the guidance you need to stay competitive. We assist clients with IP strategy, licensing contracts, and government contract concerns to ensure that their assets are secure.
Protecting your intellectual property is essential for long-term success in a crowded and complicated market. If you have questions about how a teaming agreement might impact your rights when working under a government contract, contact us today to discuss your situation.
Book Your Free Consultation