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COVID-19 Tip: Action Items for Businesses after a Stay-at-home order

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Following a stay-at-home order, businesses should:

(1) determine whether any portion of operations is “essential”;

(2) get clarification and/or exemptions from government officials for unclear cases;

(3) document any such determination and communicate it to employees; and

(4) optimize on-site operations to reflect the determination.

If you have questions about the foregoing or need assistance with any of these action items, please contact us.

Tips for Negotiating Commercial Agreements during the COVID-19 Pandemic

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The global impact of the coronavirus has caused some U.S. companies to end their traditional commercial activity and consider new lines of business or other activities to support the global fight against the coronavirus pandemic. Companies that are considering novel engagements in light of the coronavirus pandemic will likely need to enter into commercial agreements to accomplish these goals with investors, unions, co-development partners, suppliers and other third parties.

Under traditional circumstances, these commercial agreements would take weeks or months to negotiate before implementation. However, in the current environment where speed can save lives, such commercial agreements need to be structured to permit negotiating parties to move swiftly to execution and implementation of projects, while protecting their interests. Described below are a few ways in which commercial agreements can be structured to accomplish these goals:

1) Play the Short Game. Structure commercial agreements with short terms, termination for convenience provisions and flexible renewal provisions that permit the contracting parties to engage swiftly, but exit easily when necessary or, if the working relationship proves to be positive, renew and extend future terms for longer periods.

2) Kick the Can. When time is short and parties are aligned, less may be more. Consider structuring high-level agreements with provisions that permit the parties to subsequently modify certain less time-critical items in a separate document. The high-level agreement should provide that upon execution of the separate document, the separate document will be deemed to be incorporated in the high-level agreement without further action by the parties. The resultant agreement should give comfort to the parties that key terms have been agreed, while punting less critical items to be negotiated at a later time.

3) Play Nice with IP in the Short Term. For potentially contentious issues like ownership of jointly developed intellectual property, allow each party equal ownership of such intellectual property developed within a limited window of time and state that the parties will agree as to the appropriate ownership of such property at a later time. This provision should be coupled with a covenant of each party to take all necessary action to assign ownership of intellectual property as necessary to comply with the subsequent agreement.

4) Dodge the Tax Fight. If parties are unable to come to speedy agreement on the appropriate tax treatment of various activities, provide that each party may pursue its own preferred tax treatment and thereby bear the risk associated with disapproval of such tax treatment by tax authorities in the near term. Couple this provision with language that permits the parties to come to alignment on tax treatment following execution of the agreement.

5) Delegate, delegate, delegate. Save time in near-term negotiation by including provisions that require teams to be established that are tasked with working together to determine processes and procedures for non-immediate activities. Such teams can be charged with idea generation and negotiation of such procedures, subject to final approval of management members of the contracting parties.

If you would like assistance in drafting any of the foregoing provisions, or if you would like more ideas on ways that you can structure commercial agreements, please contact us.

OEMs Look to Strategic Alliances to Acquire EV Assets and Technologies

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On May 8, 2019, Akio Toyoda, President of Toyota Motor Corporation (TMC), announced that TMC would seek strategic alliances to obtain technology for electric vehicles, “develop[ing] together with those who share the same aspirations.”[i]

Toyoda’s promise reflects a recent trend for automotive original equipment manufacturers (OEM).  Increasingly, OEMs are eschewing traditional mergers in favor of joint ventures and co-development alliances with other industry players to obtain necessary technology and infrastructure to support the development of electric vehicles.

For example, in July of 2019, Volkswagen AG and Argo AI agreed to establish a $2.6 billion venture to create electric vehicles for the European market by 2023.[ii]  Similarly, in July of 2019, Toyota established a $600 million venture with a Chinese ride-sharing service to develop battery operated vehicles for the Chinese market.[iii]

Not surprisingly, the trend toward strategic alliances for electric vehicle development has contributed to a near-term decline in traditional merger and acquisition activity for OEMs.  According to the Q1 2019 edition of Deloitte’s Automotive M&A review, total M&A deal value in the first quarter of 2019 for the global automotive sector was $12.4 billion, down from $29.4 billion for the previous quarter.[iv]  Deloitte reported that the majority of OEM acquisitive activity in the quarter related to strategic arrangements to access technology.

If strategic alliances remain in vogue, OEMs seeking to acquire technologies and capabilities through such alliances should bear the following principles in mind: (1) clear delineation of management roles between partners of such alliances is critical, (2) global protection for contributed and co-developed intellectual property is paramount, and (3) exclusivity, termination and exit provisions in alliance documents must be tailored to permit flexibility and optionality.

One thing is clear, strategic alliances are the near future for the development of electric vehicles.

[i] Toyoda, Akio. “Financial Results Press Conference” Toyota Motor Corporation. 18 May 2019 https://global.toyota/en/newsroom/corporate/27803157.html

[ii] Colias, Mike; Germano, Sara. “VW Ups Its Investment in Ford’s Self-Driving Car Unit.” Wall Street Journal, 12 July 2019, https://www.wsj.com/articles/volkswagen-to-invest-in-fords-self-driving-car-unit-11562890815?mod=searchresults&page=2&pos=8.

[iii] Aquino, Alyssa. “Toyota Racing Ahead With $600M Hail-Service Co. Venture” Law 360, 25 July 2019, https://www.law360.com/articles/1181952/print?section=energy.

[iv] Deloitte Financial Advisory. “Automotive M&A Review Q1 2019.” Deloitte LLP, March 2019. https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/manufacturing/deloitte-uk-automotive-ma-review-q1-2019.pdf.