Strategic Alliances

1. Strategic Alliances Bootstrap Your Business September 25, 2006 By: William A. Price, Attorney at Law wpriceiit@yahoo.com

2. Possible Legal Relationships Resulting From Alliance Formation • Parallel Play—No Explicit Agreements • Alliances For Profit, With or Without Agreements • “Nonprofit” Alliances

3. Alliances for Profit • Partnership—two or more “persons” engaged in an activity for their mutual profit • Joint Venture—Explicit agreement for one or more profit-making activities

4. “Nonprofit” Alliances • Unincorporated Association—two or more “persons” engaged in an activity not for profit • Consortium—Explicit agreement for one or more “nonprofit” activities

5. Microsoft: We are the World Proprietary design standard Alliance “partners” We make software, Intel the chips, others the boxes Linux: Cooperative Play Open license Design community Proprietary systems built on open license cores: eg Linux + Apache Cross-platform software design Parallel Play: Microsoft vs. Linux

6. More Parallel Play Infomediary-Mediated Play: • Independent truckers and shippers (multiple exchanges), • Lawyers and clients (Guru.com, elance.com)

7. Parallel Play With Rules • Formal Exchanges: Chicago Board of Trade, wheat pit, or other defined transaction environments • Parallel networks: Archipelago and other interbroker trades, using exchange contract definitions

8. Unregulated Play • Non-exchange defined contracts, hedge fund players: can be risky business • Amaranth Advisors: $9.2 billion to $3.5 billion, August-September 2006 gas trade loss

9. Partnerships:805 ILCS 202 Formation of partnership. …the association of 2 or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.

10. Consequences of Partnership Relations • All partners are general agents for the partnership: they can make contracts that bind the other partner • Partners have fiduciary duties to the partnership and to each other: they may not be able to compete or to fail to inform each other in areas of information relevant to their partnership • Partnership tax rules apply to all partnership income and expenses: partners realize their share of each every tax year.

11. Are These People Legal Partners? • IMI and Can-Am Form Strategic Alliance - Packaging OnLine - Sep 22 10:55 PM • Claris in Strategic Alliance for Spanish Market - New Kerala - Sep 22 11:15 PM • SmartCare Family Medical Centers Enters Deeper Strategic Alliance With Wal-Mart Stores - RedNova - Sep 20 7:24 AM

12. IMI and CAN-Am:A Joint Venture (From PACKAGING WORLD): • “Independent Machinery, Inc. (IMI), Palatine, Ill., and Can-Am Packaging Equipment Corp. have formed a strategic alliance encompassing joint representation for quality finishing equipment, excellence in engineering, and service and training in North America, South and Central America, and Mexico. This joint venture is a commitment to … supply the most advanced finishing equipment to the folding carton and corrugated container markets.”

13. A Joint Venture Is A Partnership “A joint venture is not regarded as identical with a partnership, although, as a practical matter, the only distinction between the two is that the former relates to a single specific enterprise or transaction while the latter relates to a general business of a particular kind.” -- Ambuul v. Swanson, 162 Ill. App. 3d 1065, 114 Ill. Dec. 272, 516 N.E.2d 427 (1 Dist. 1987).

14. Marketing Agreement=Partnership Example: “Claris Lifesciences Ltd today announced its foray into the Spanish market with the signing of a marketing agreement with one of the country's leading firm Juste Pharmaceuticals.”

15. Additional Legal Complications • Unbreakable Deals: EU, for instance, may create a quasi-property right in local dealerships: no termination allowed without a legal basis • Antitrust Law: All agreements “in restraint of trade” are potentially illegal

16. Dancing With Elephants • To survive, you are either quick • Or dead

17. A Pygmy-Elephant Alliance “SmartCare Family Medical Centers, a rapidly growing operator of retail healthcare centers, will increase its expansion into the Denver area with an agreement to design, build and operate a significant number of SmartCare Centers inside Denver-area Wal-Mart stores.”

18. Two Levels of Play • Equals: Compete or Play, By Agreement or in Paralell • Small and Big Business: Big Business Makes The Market, Small Has The Product Big Doesn’t Have

19. Nonprofit Alliances Religious Organization Example: Short-Term Mission Parallel Play: Immanuel Presbyterian, Warrenville and Interlagos Presbyterian, Sao Paulo: Both exchange visits, prayer, communication

20. Nonprofit Alliances Infomediary Example: www.strategicalliance.org Sets up short-term mission trips for many mission agencies and churches

21. Formal Nonprofit Alliances A consortium example: http://www.preventioninstitute.org/sa “The Strategic Alliance for Healthy Food and Activity Environments (Strategic Alliance) is a coalition of nutrition and physical activity advocates in California.”

22. Common Issues, For-Profit And Nonprofit Alliances • Control: Parallel play and undefined exchanges, alliance without ownership or agreement, present risks for all parties • Liability: Partnership, antitrust (e.g. ADM and Lysine), other liabilities from joint market activity and discussions • Property: IP (new and old), customers, employee loyalty may be with one, not all partners

23. For-Profit Special Issues (I) • Antitrust is of particular concern if product pricing may be at issue: joint ventures or other joint ownership may avoid problems • Greed may be the opposite of trust: have a formal exit agreement if significant property is involved • Players need rules: if there are predefined boundaries, then unfair play can be detected

24. For-Profit Issues (II) • Capital Availability may dictate alliance elements: corporate “venture capital” or opportunities may defined alliance rules • Liability allocation (or at least appropriate insurance cover) is essential (e.g. builders vs. architects vs. owners)

25. For-Profit Issues (III) • Cash Flow Issues Are Important: Lack of cash flow kills alliances as well as businesses • Taxes need to be paid: local, state, federal, and international jurisdictions try to reach as many income streams and property elements as possible: try to arrange alliance affairs to eliminate tax liability

26. Example, Tax Planning • Boeing, other U.S. companies have international trade and leasing companies in tax-advantaged jurisdictions • Boeing still may use more than ½ of all U.S. Eximbank financing every year—but may not pay U.S. tax on all sale proceeds.

27. Example, Liability Planning • Chicago Board of Trade, NYSE considering incorporation • Eliminates Illinois liability shield for nonprofit directors • But: allows payment of dividends for exchange’s “infomediary” profits • Expect large Director and Officer Errors and Omissions Insurance premium payments

28. Small Business Alliances Example: Event Cosponsorship Regional Chamber “Business Networking” events, with sponsors IIT/MEF meetings, Rice campus What organization could you help support, with others, to get visibility?

29. Small Business Alliances Parallel Play: “Leads Clubs”: Noncompeting organization meetings Formal Alliances: “Certified” grocers, common trademark “car care” providers

30. Your Alliance Portfolio • Parallel Play: What sandboxes am I in/could I be in? • Formal Alliances: Who wants to talk to the same people I do, and doesn’t do what I do? What value chains am I in? What rules do we need? • Nonprofit alliances: do well, by doing good.