Contents - AL-Tax

172 12 Decentralized Ownership of Intellectual Propertyperformance of ongoing software development and site operations services. Moreparticularly, we summarize and compare the key terms of USP’s intercompany andthird party JV agreements, respectively, and adjust the share of free cash flows thataccrues to USP under the arm’s length JV agreements to reflect differences in theintercompany JV agreement’s key terms. The adjusted share of profits constitutesthe proportion of free cash flows that should accrue to USP under its JV arrangementwith FS.12.4.1 Key Terms of JV AgreementsThe key terms of USP’s arm’s length and intercompany JV agreements are summarizedbelow.12.4.1.1 Allocation of Costs and RisksUSP’s JV agreement with FS provides that the latter has sole responsibility fordeveloping international markets (with the exception of Germany and Japan) at itsown cost and risk. More particularly, FS is obligated to establish, finance and managethe subsidiaries and call centers that USP and FS jointly agree to establish in themajor international markets. In contrast, USP’s arm’s length JV agreements providethat a separate JV company will be established, and USP and its JV partner willeach purchase and hold 50% of the JV company’s shares. Moreover, each partner isresponsible for contributing equal amounts of working capital to the JV company,up to a specified maximum. Hence, USP bears substantially higher costs and greaterrisks vis-a-vis its arm’s length JV agreements, as compared with its intercompanyJV agreement with FS.12.4.1.2 Use of USP’s IT Platform and Performance of SiteOperations ServicesUnder the terms of USP’s intercompany JV agreement, it contributes its existing ITplatform and has sole responsibility for maintaining and upgrading the platform atits own cost and risk. USP also maintains FS’ sites on its servers and allows FS toimplement improvements in features and functions that USP develops, if desired.Under the terms of USP’s arm’s length JV agreements, it agrees to (a) design,develop, deploy, operate and maintain the JV company’s site; (b) ensure that usersof the JV company’s site benefit from the same level of service that USP providesto its users; and, (c) allow the JV company to implement any feature or functionmade commercially available on USP’s site. In sum, USP permits both its affiliatedand independent JV partners to use its IT platform and provides the same range ofongoing software development and site operations support thereto.