“The question we will be asking from here on out is, can we do it faster, smarter or cheaper? If not, we partner” Steven Heyes of Coca-Cola has said.

Mergers and Acquisitions - long the legal blood sport – are increasingly being overshadowed by strategic alliances. Such alliances are important to corporate strategy and even more vital for growth. Thomson Financial estimates that U.S. companies with at least $2 billion in revenues formed an average of 138 alliances from 1996 to 1999.

Strategic alliances have always existed. What’s changed is that businesses are recognising alliances as a part of their strategy. Alliances need a specific reason to exist, and each must be justified in the context of a business strategy. Each alliance impacts on the business as a whole and as a consequence, must be consistent with other alliances and the existing core business. Perhaps more importantly, they must allow for future alliances and business developments.

It has been estimated that each month 4000 strategic alliances are created in the US alone. For nearly 10 years, strategic alliances including the world’s top 2,000 companies have consistently produced an average annual return on investment of nearly 17% - 50%, higher than non-alliance activities produce. So they are important, but what is a strategic alliance?

Genentech lists 28 strategic alliances on its web site. They cover:

• Research licences out

• Collaboration agreements to develop and co-promote

• Licences to use third party intellectual property rights (IPRs)

• Collaboration agents

• Development agreements

• Licences in of technology

Each alliance may be of two types: “Elephant” strategic alliances - intended to last for a long time and “Fruit Fly” alliances – more short term in nature. For lawyers and clients alike strategic alliances of the “elephant” type present particular challenges. They are open ended, so flexibility is key. These alliances (and their members) must react quickly to changing circumstances; likewise the legal structure supporting the alliance must be flexible enough to cope. This legal structure must effectively manage IPRs. If IPRs are not considered properly at the inception of an alliance (and throughout its existence) serious problems can arise for the parties to the alliance and the alliance itself.

It was threatened with legal action by B for infringement of IPRs existing at the start of their alliance. B claimed that anything developed through the strategic alliance with A belonged to it and A and could not be used without both parties’ permission. A had no idea, because it had kept no record of what IPR belonged to it and/or B.

The action against A would be difficult and time consuming.

Product Y was under threat.

Management of IPRs in relation to strategic alliances needs to be taken in 4 stages.

1. Each party must identify any IPRs which belong to, or have been used by it prior to the strategic alliance. Each must decide whether to transfer or license its IPRs to the strategic alliance. In the case of third party IPRs, each must establish that those rights can be used by the strategic alliance.

2. The parties must decide what their respective rights in IPRs created through the strategic alliance will be.

3. The parties must implement strategies to ensure that decisions made above are reflected in the reality of the strategic alliance operation.

4. The parties must agree what happens upon termination of the strategic alliance. This, of course, may require different approaches depending on why the alliance was terminated.

As the use of alliances increases, their operation becomes a central concern for senior management. Correspondingly as IPRs grow in importance in the knowledge economy their management in alliances must also be central.

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