Small companies often partner with bigger companies to work together on projects. The small companies gain access to opportunities they can't win on their own; the bigger companies get the smaller firms' specialized expertise, dynamism, and creativity. For these partnerships to succeed, the responsibilities and obligations of both firms need to be spelled out clearly in the contract. These are some of the aspects contracts should address:
The most basic aspect of the contract will be the price to be paid for services. Neither side should agree to the contract if the financial terms are unsatisfactory. However, even if the contract's financial terms are acceptable, other contract points may need to be negotiated.
Indemnification clauses state that one of the parties to the contract will be held harmless, in case a third party sues over a specified matter. Typical contracts dictate that the larger firm will not be liable for matters related to new technology introduced by the smaller firm. Because the smaller firm cannot rely on the resources of the larger company to support it in case of a lawsuit, indemnification insurance may be necessary for both parties to be adequately protected.
• Non-infringement of intellectual property
These clauses state that the smaller firm represents that its intellectual property is its own, and not infringing any existing patents. Agreeing to this clause can be difficult for firms that use emerging technologies where patents have been applied for but not yet granted. This contract clause may therefore require negotiation and flexibility on the part of both parties to reach agreeable wording.
• Filing for patents
If the partnership between the two firms will generate patentable ideas, the contract should specify where patents will be applied for and which party will pay for the applications. Big firms may have global reach and require patent coverage around the world, while the smaller firm may not have resources to apply for patents in every market. Frequently, contracts specify that the larger firm will pay the fees in certain markets or split the cost of filing fees with the smaller firm.
• Limitation of liability
Limitation of liability clauses cap the damages that can be owed due to breach of contract. Agreements between large businesses often cap damages to a low multiple of the prior year's fees. However, small firms may be heavily dependent on a single contract, and financially devastated if the contract is breached. Negotiating the limit to an appropriate value is one of the critical points to be addressed when large and small firms need to do business together.