Contract Remedies for New-Economy Collaborations

Abstract

Productive activity that once look place within a single firm now occurs when two or more firms collaborate to form an "alliance." The agreements that govern alliances are not typical contracts containing prices and quantities. Rather, they are "framework agreements" that regulate process and specify the parties' tasks-e.g., conduct R&D: explore marketing opportunities: exchange proprietary knowledge: create a dispute-resolution structure: and develop a plan for a successful result. The COVID-19 vaccines provide an example: alliance partners reciprocally exploited their, flexibility and comparative advantages to create the vaccines. The COVID-19 collaborations, however, were unusual because there was both an assured demand for-and great reputational gains from-delivering the product, and public pressure to finish promptly deterred strategic behavior. In the usual case, it is difficult to induce potential parties to commit to a collaboration, to stay with it when doubts about success arise, and to exploit a successful result efficiently. Collaboration breakups at the startup and implementation stages are common. Yet, disappointed parties seldom sue. This Article makes two principal contributions. Our first contribution is to show that lawsuits do not occur for new collaboration breakups because current contract law provides no remedies for a party disappointed by a counterparty's defection. Our second contribution is to develop remedies that would encourage private parties to enter into and to stay with potentially productive collaborations. Thus, our goal is to extend contract law to a significant part of the economy whose deals today the law does not support.