How Should Corporates Manage the Legal Side of Open Innovation?

Why is the legal dimension of open innovation different from intrapreneurship?

Intrapreneurship programmes are usually governed by employment law and internal policies: the employee is already on the payroll, and IP rules are often defined in standard contracts. Open innovation, by contrast, sits in a much broader field of contractual freedom. Corporates work with external entrepreneurs, startups, universities, and suppliers, each with different legal statuses, jurisdictions, and expectations. This flexibility is powerful, because parties can design tailor-made structures – but it also means that legal risk is more varied and less predictable than in purely internal projects.

Corporate teams are typically used to dealing with traditional commercial actors: established suppliers, long-term partners, and regulated customers. Startups and individual entrepreneurs do not fit these templates. Their legal relationships require more nuance and often more flexibility around IP, confidentiality, exclusivity, and liability. At the same time, not every company will engage with entrepreneurs in the same way. Some will invest; others will co-develop products; others will focus purely on PoCs and pilots. That is why open innovation cannot rely on a single “master contract”; instead, it needs a toolkit of legal models and employees who understand the basic risk profile, even if they are not lawyers.

What legal issues arise at the idea collection stage?

The idea stage is where corporates publicly invite entrepreneurs or startups to submit concepts, often through online platforms, open calls, hackathons, or crowdsourcing campaigns. These initiatives can take several forms: always-open idea platforms covering all business domains, challenge-based calls focused on specific problems, or special calls limited to solutions already protected by IP rights. At this point, the main legal risk is not who owns the ideas in a positive sense, but potential claims that the corporate has misused or “stolen” a concept. 

For example, a company might already be working internally on a project when a similar idea is submitted through the platform. If the relationship is not framed correctly, the entrepreneur could later allege that the corporate used their idea without consent or compensation. To reduce this risk, companies typically require participants to accept clear terms and conditions beforesubmitting anything. These terms often state that the submitted information is not confidential, that the company has no obligation to respond, that it may freely disclose information to third parties, and that the submitter will not claim compensation simply because the company develops similar solutions.

In practice, some corporates go further and try to include broad clauses stating that all IP in the idea is automatically assigned to them. However, in many jurisdictions IP statutes require specific, written “assignment of rights” agreements tailored to the concrete IP to be valid. Relying on general submission terms as if they were full assignment agreements is risky. The safer approach is to treat these terms as a basic risk shield, and address any real transfer of IP later through dedicated contracts if the project progresses.

How should companies manage legal risk at the development stage?

The development stage starts when the corporate and the entrepreneur or startup meet and begin exploring collaboration in more detail. This can happen in demo days, incubator or accelerator programmes, scouting meetings, direct procurement discussions, or investment talks initiated by the startup. Here, the first key legal question is confidentiality: at what point will the parties start sharing information that might constitute trade secrets, sensitive commercial data, or protectable IP?

Regardless of whether the entrepreneur is still a natural person (no company formed yet) or already operates through a legal entity, good practice is to sign a confidentiality agreement before exchanging sensitive information. The agreement should clearly define what is considered confidential, how it may be used, and for how long. At this stage, the corporate has no obligation to commit to a project or investment; the NDA simply creates a safe zone for discussion. Other clauses sometimes included – such as non-compete obligations, non-solicitation of employees, or contractual penalties – should be evaluated case by case, because they may be disproportionate or unenforceable in some legal systems if drafted too broadly.

It is also important to remember that not all development-stage discussions lead to deals. Corporates should avoid creating implied commitments (for example, by promising pilots or investments before internal approval) and should ensure consistency between what is said by innovation staff and what is legally feasible. A misalignment between “business talk” and legal reality is a frequent source of frustration and disputes in open innovation.

What legal structures matter at the decision stage?

Once the corporate decides to move forward with an opportunity, the decision stage begins. At this point, the relationship shifts from exploratory to contractual. Several scenarios are common, each with its own legal structures and risk profile. How should a new joint company be structured?

In a new company formation scenario, the corporate and entrepreneur create a separate legal entity. They must first agree which founders will become shareholders and on what terms. Some or all members of the startup team may receive equity, but not necessarily in equal proportions. Shares can be allocated upfront at incorporation, or gradually over time based on continued involvement or performance (often through vesting mechanisms). In some arrangements, the entrepreneur’s equity increases as the company reaches revenue or milestone targets.

The shareholders’ agreement becomes central: it should define governance (board composition, voting rights, reserved matters), capital contributions, special rights attached to certain shares (such as preferred returns or veto rights), and the roles, remuneration, and responsibilities of the entrepreneurial team. Clarity here prevents misunderstandings later when expectations about control, profit distribution, or exit diverge.

What should corporates consider in equity partnership and acquisition?

In an equity partnership scenario, the corporate buys shares in the existing startup. Before any share purchase, a thorough due diligence process is essential: assessing financial statements, assets, liabilities, contracts, regulatory permits, IP ownership, litigation risk, and overall legal status. Based on this analysis, a Share Purchase Agreement (SPA) sets out the number of shares, price, representations and warranties, and post-closing obligations. Often, a separate Shareholders’ Agreement is needed to govern ongoing relations between the corporate and other investors, including the entrepreneur’s role, lock-up or vesting obligations, and exit mechanisms.

In a full acquisition scenario, the corporate purchases 100% of the startup’s shares and the founding team may or may not remain involved. Similar due diligence and SPA structures apply, but the agreement may include additional clauses on earn-outs, non-compete obligations, and post-acquisition employment terms for founders. These clauses must balance the corporate’s need to protect its investment with founders’ incentives to stay and contribute rather than leave as soon as possible.

How should joint product or service development be framed legally?

The most common decision-stage scenario is joint product or service development without creating a new company or acquiring equity. The corporate and startup agree to co-develop or commercialise a solution, which may be framed as a PoC, pilot, joint R&D project, or commercial collaboration. Here, IP and contractual scope are crucial.

A robust agreement should first distinguish between Background IPand Foreground IP. Background IP refers to all IP that each party already owns before the joint work begins – such as existing software, patents, trade secrets, or trademarks. Foreground IP covers IP created during the collaboration. The contract must clarify who will own which Foreground IP, whether any of it will be jointly owned, and under what conditions each party may use it. Joint ownership requires particular care, as national laws differ significantly on how co-owned IP can be licensed or enforced.

The agreement should also describe the nature of the collaboration (e.g. PoC with specified duration and scope, full commercial roll-out, or R&D only), define performance obligations, set payment terms, and address liability, termination rights, and dispute-resolution mechanisms. If the joint work involves access to facilities, prototypes, testbeds, or customer data, those operational aspects should be explicitly covered as well.

What should corporates know about stock option structures and incentives?

Stock options are another frequent feature of open innovation. They appear in two main contexts: options granted to corporates and options granted to startup employees. In options granted to corporates, the company receives the right – but not the obligation – to acquire a defined percentage of startup equity under certain conditions. These arrangements are often seen in accelerator or incubation programmes, or where the corporate provides significant non-cash support: access to facilities, engineering support, test environments, or long-term purchase commitments. The option agreement should clearly specify the duration of the option (typically bounded, e.g. two to three years), the conditions for exercise (for example, reaching a revenue threshold or user base), the valuation mechanism or price formula, and whether the option can be exercised in tranches or only once. Unlimited, vaguely drafted corporate options can seriously harm the startup’s future fund-raising prospects.

In employee stock option plans (ESOPs), startups grant options to their own staff to align incentives and reduce turnover. Here, vesting conditions (such as length of employment, performance goals, revenue milestones, or funding events) must be explicitly stated. Contracts should address who provides the underlying shares (founders or the company itself), whether shares are issued at a discount or for free, and what tax consequences arise. Because tax rules and employment law differ widely across jurisdictions, companies should always consult tax and legal experts when designing ESOPs or other equity-linked incentive schemes.

Why should corporates build a dedicated open innovation–legal collaboration model?

Given the variety of scenarios and the pace of innovation projects, corporates benefit from creating a flexible collaboration mechanism between innovation and legal teams. Instead of treating each project as a one-off emergency, a cross-functional working group can systematically map risks at the idea, development, and decision stages and maintain a toolbox of standard documents.

This working group typically:

• Develops standard agreements such as NDAs, IP protection protocols, PoC templates, and basic collaboration contracts that can be reused and adapted.

• Supports project-specific negotiations when standard texts are insufficient, ensuring that speed does not come at the expense of enforceability or compliance.

• Provides fast-track legal training to innovation staff on core topics – IP, confidentiality, equity structures, competition law, and data protection – so they can spot risks early.

• Engages external legal and investment experts with deep startup-ecosystem experience when specialised advice is required.

• Organises experience-sharing sessions to stay updated on new collaboration models, investment practices, and regulatory changes in the entrepreneurship ecosystem.

Such a structure preserves agility while maintaining legal discipline. Innovation teams gain response speed and practical tools; legal teams gain visibility and influence earlier in the process, reducing the number of last-minute crises.

Key Takeaways

• Open innovation operates in a broader, more flexible legal space than intrapreneurship and therefore requires deliberate risk management.

• Idea platforms and crowdsourcing campaigns must be backed by clear terms to avoid IP and “idea theft” disputes.

• Development-stage discussions should be protected by NDAs, but without creating implied commitments or disproportionate restrictions.

• At the decision stage, corporates must choose the right structure: new company, equity partnership, acquisition, joint development, or options – each with distinct legal implications.

• Distinguishing Background IP from Foreground IP is essential in joint projects; ownership and usage rights must be explicitly defined.

• Stock-option arrangements for corporates and employees can be powerful incentives, but they require careful drafting and tax/legal analysis.

• A dedicated innovation–legal working group with standard templates and training significantly increases both speed and legal robustness.

FAQ

Do we really need separate contracts for each open innovation scenario?
Yes. While standard templates are useful, new company formation, equity investments, acquisitions, and joint development each involve different rights and risks and therefore need tailored contractual structures.

Is it enough to rely on platform terms to acquire IP in submitted ideas?
Usually not. In many jurisdictions, full IP assignments require specific, written agreements. Platform terms mainly help manage risk; they are not a substitute for dedicated IP-transfer contracts when a project advances.

When should legal teams be involved in open innovation projects?
As early as possible – ideally at the design of idea platforms and again before detailed technical or commercial information is exchanged, and certainly before any commitments on investment, PoC, or joint development are made.

References

• OECD, reports on open innovation, IP, and contractual practices in business R&D.

• European Commission, guidelines on university–industry and corporate–startup collaboration.

• WIPO (World Intellectual Property Organization), resources on IP management, licensing, and technology transfer.

• Harvard Business School case studies on corporate venturing, acquisitions, and startup partnerships.