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Structuring your Manufacturing Agreements

Manufacturers and consumer products companies constitute an ecosystem.  As such, their relationships are key.  In this week’s newsletter, we give some legal tips to consider when structuring your manufacturing agreement.  As always, every commercial agreement is customizable to the business relationship, but these are important points of consideration.  Bottom line: there are 2 take aways 1. Always get the agreement in writing; 2. Always negotiate the terms.  

1. Protecting your Techpack
A techpack is essentially the designer’s blueprint as to all the elements and design features that comprise the finished product.  It provides the guidelines for the manufacturer.  The designer would be wise to register for copyright protection for the techpack and to also require that the manufacturer treat the techpack as proprietary confidential information.  This can be accomplished through a non-disclosure agreement if the parties are considering to work together and should be confirmed in the manufacturing agreement if the parties agree to work together. 

2. Negotiating the Manufacturing Agreement

There are a lot of important issues that need to be flushed out to ensure that the business relationship between the parties remains mutually advantageous.  Below are only some of those issues:

a) Intellectual Property
Who owns the rights to the intellectual property?  What about derivative intellectual property that may be created as the designs evolve and are improved?

b) Determining the Parties 
Who is manufacturing the goods?  Is it the manufacturer that is a party to the contract?  Are they sourcing out part of the manufacturing to sub-manufacturers?  Should those entities be bound by the terms as well?

c) Quality Control and Inspection 
Is the manufacturer required to produce the goods to a certain quality level?  What is the quality?  Are there inspection rights?  What happens if the products are not up to specification?

d) Purchase Orders and Deliverables
If a purchase order is issued?  Is it deemed to be accepted by the manufacturer?  What is the process for acceptance?  What is the turn around deliverable time? What happens if the products are not delivered in time? 

e) Shipment
Who is responsible for the products during shipment?  What happens if the products are damaged during shipment? 

f) Prices and Invoicing
Have the prices been set?  How is invoicing dealt with?  What are the payment terms?  What happens if there is a dispute with regards to payment of the invoice because of non-confirming products?

g) Reporting Requirements
How much changes can be made in the manufacturing process?  At what point is the manufacturer required to update/report to the designer?

h) Product Warranty 
Who is responsible for product warranties?  What is the length of time that the warranty is effective?  What is the scope of the product warranty?

i) Confidentiality
What are the trade secrets that must be kept confidential?  Should the confidential information be destroyed/returned after the relationship terminates? 

j) Term and Termination
How long is the agreement for?  Who can terminate and why?  What happens if the agreement terminates?  

i) Morality 
Are there morality provisions in the agreement?  If you’re manufacturing overseas, are there human rights compliance obligations?

The manufacturing agreement is a key commercial agreement and it is hefty in its scope.