Thursday, November 5, 2009

Understanding Technology Consortia and Their Importance to Your Business

Consider the following scenario: late one afternoon you receive a frantic call from one of your company’s engineers. He or she wants to join a new technology consortium to allow your company to align its R&D efforts with what appears to be an emerging industry standard. The problem is that the engineer needs your approval “right away” to allow the company to become a member of the consortium, because it’s having a critical technology meeting tomorrow. The engineer emails you a copy of the consortium’s membership agreement, which looks fairly straightforward, so you authorize your company’s participation as a new member. Unknowingly, you may have just compromised some of your company’s most lucrative proprietary technology.

What are Technology Consortia?

Technology consortia are generally defined as collaborative efforts among companies and other key players (such as research institutions) in a particular industry that collectively try to address and solve key technology or research challenges.

Some technology consortia, for example, are formed to create “standards,” which facilitate greater compatibility among the various technologies in that space, so that the industry can collectively develop increasingly innovative products. Other consortia may be formed to address other technology or research roadblocks, which are challenging an entire industry sector. In many of these situations, the consortium members, who are often fierce competitors, are voluntarily coming together to collaboratively solve significant obstacles, which are holding back the next generation of research and development.

Many sectors of the high technology industry have seen a rapid growth in the number of technology consortia, including the hardware, software, semiconductor, Internet, wireless, telecommunications, electronic funds transfer, and cable industry sectors. Consortia have also expanded in the life sciences industry, due in part to the increased cost of research and development.

The decision of whether your company should participate in a particular consortium can have significant implications for your company’s future. How a particular consortium functions and the specifics of its membership can have a profound effect on your company’s business and your intellectual property rights. So, before you join any consortium, you should always take a closer look at the business and legal ramifications of your participation.

Benefits of Participating in Technology Consortia

Though technology consortia are often promoted by major technology companies, membership can be a benefit for small to mid-sized companies, and even research institutions, because such participation can give you a “voice” in the research and development that might impact your industry for years to come. However, every company needs to evaluate the specific pros and cons of participating, or not participating, in any particular consortium.

Some potential benefits of participating in a particular consortium include: increased market acceptance of your technology, the ability to help create new technologies that would not exist absent broad industry collaboration (such as new standards or other technological solutions) and the ability to spread substantial research and development costs across multiple consortium members. There are, however, potential pitfalls to joining a particular consortium—or the wrong consortium—which could prove to be detrimental to your business. Generally, these pitfalls fall into two categories: business and legal risks.

Business Risks

If your company joins a consortium that promotes a “losing” technology or standard, there is a possibility that your company’s market share will decline, perhaps precipitously. Trying to play “catch up” with your own R&D (if catching up is even possible) could be prohibitively expensive. Eventually, your existing technology or products could approach obsolescence as competing technologies or standards evolve in a different technological direction.

To avoid the negative business implications of not joining the “right” consortium, it is critical to evaluate competing consortia and then analyze which collaborative initiative has the potential of winning the broadest industry acceptance. It’s also imperative that you make sure that a particular consortium’s purpose aligns with your company’s overall business plans and direction.

Moreover, it is important to examine the organizational structure of each consortium. These factors could determine the extent and nature of your company’s participation in the consortium’s governance and the obligations imposed on you as a member.

Legal Risks

One of the most significant legal risks posed by joining a consortium that your company could inadvertently relinquish some of its most crucial intellectual-property rights. Membership agreements increasingly require each consortium member to comply with all of the consortium’s “policies and procedures.” This commitment, when fully evaluated, could mean your company is obligation to: (i) disclose confidential patents and other intellectual property to the other members of the consortium (at a minimum); (ii) license certain company patents and other intellectual property, sometimes royalty-free, to other consortium members; and (iii) share, or even transfer, ownership of your company’s technology if you contributed it to the collaborative efforts of the consortium. Thus, it is essential for a company to carefully review all consortium agreements and policies to fully evaluate how membership might impact your company’s valuable intellectual property rights.

Maneuver Carefully

Technology consortia are already an essential part of research and development in many companies. Companies that are often competitors increasingly are turning to consortia to collaboratively address technology and research challenges impacting that industry sector. While consortia membership could catapult your company toward greater industry-wide success, the decision to join a particular consortium is fraught with complexity and should not be undertaken lightly. Evaluation of each consortium should be part of your larger business plan. As with every other piece of your company’s business roadmap, maneuver the path with caution, and make sure you fully understanding every avenue you pursue.

Frank X. Curci is Chair of Jennings, Strouss & Salmon's Intellectual Property & Technology Practice Group and Biotechnology & Life Sciences Industry Group. Mr. Curci represents technology and life sciences entities in domestic and international intellectual property and technology law matters in a variety of industries including high technology and life sciences companies as well as research universities and research institutions. He can be reached at 602-262-5851 or