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If you have a great idea for a product but not the facilities to make it in, outsourcing production to a manufacturer can be an excellent idea. If you have a fair and beneficial manufacturing agreement, your partnership can bring value to both of your businesses. However, while developing your products, you likely will engage intellectual property (IP) concerns while doing so, as the manufacturer will have access to your IP when creating your products. Therefore, before engaging with a manufacturer, you must establish protections for your IP, which you can reflect in your manufacturing agreement. This article will go through various IP issues to consider in your manufacturing agreements.

Establishing Your Ownership and Legal Rights

Firstly, you need to clearly define the relevant IP in the manufacturing agreement and determine who owns that IP. Before engaging a manufacturer, you may have already registered IP rights, such as:

  • trade marks;
  • patents; or
  • designs.

Additionally, depending on the product, you may also have inherent copyright protection for your IP. If you can clearly prove your IP ownership with either a registered or inherent right, then this can make things easier in the negotiation process. It also helps if there are disputes in the future where ownership may be an issue.

For example, you may detail in your manufacturing agreement the registered ownership you have of your designs relating to the distinctive visual appearance of your unique mugs. 

When the ownership of certain IP is clearly defined, it makes it significantly easier to determine:

  • licence terms;
  • who owns any new IP or improvements to the existing IP; 
  • what manufacturer behaviour may qualify as IP infringement; and
  • the powers you have to deal with infringement.

IP Definitions

In your manufacturing agreement, you should clearly define what qualifies as IP within the relationship. That way, your manufacturer knows what things they need to be mindful of for IP issues and the appropriate behaviour. For instance, your specific IP may include:

  • your business logo;
  • your product design;
  • slogans or important phrases;
  • business documents and instructions; or
  • product blueprints.

Be sure to clarify what kinds of IP you may create in the future and whether the manufacturer has any hand in this.

Licencing Terms

When you establish a relationship with a manufacturer, you will likely be granting them a licence to use your IP to produce your goods. When you grant another party a licence, you can give them permission to use or commercialise your IP. In return, you may gain royalties or a regular fee. However, you still retain your ownership rights in the IP.

Following the previous example, you would grant a manufacturer a licence to produce goods using your registered design. However, if they do not distribute or sell your goods, you may not include selling goods with your design as part of their permitted acts.

You can set out your licence terms in a clause in your manufacturing agreement and what happens to that licence when the contract ends. For example, your licence terms can include:

  • exclusivity;
  • geographical application;
  • permitted or prohibited behaviour;
  • performance requirements; and
  • other specific terms that you require.

Confidentiality

When engaging with a manufacturer, you could be exchanging trade secrets or other confidential information. These may include:

  • business know-how;
  • formulas;
  • schematics;
  • secret recipes; or
  • instruction manuals.

You need to be mindful of this, especially if your project or idea is in its early stages, and disclosure could ruin your market prospects. Notably, the law does provide some protections for these cases. However, you would be in a better position if something leaks if you have appropriate contractual provisions in your manufacturing agreement. Therefore, you must include confidentiality obligations in your manufacturing contract. These create a legal obligation on all parties to keep certain confidential information private and set out the prior approved disclosure circumstances (if any).

Third-Party IP

As part of your clause covering IP issues in your manufacturing agreement, you also need to specify your expectations around third-party IP. For example, you do not want a manufacturer using another party’s IP for your products without their permission, as this could invite infringement claims for your business. Therefore, the manufacturer must give you a warranty that they will not infringe third-party IP while undertaking their obligations under the agreement between you.

Overseas Protections

It may be cheaper for your business to engage a manufacturer overseas for developing your goods. If you do so, you need to make sure you have registered relevant IP within the manufacturer’s country. New Zealand IP registration typically only applies within the country, so you will not have the same legal rights and protections as you do here. 

Registering your IP in other countries will likely benefit your business if you intend to reach a global market as well.

Key Takeaways

Engaging a manufacturer to create your products can be an excellent idea if you do not have the facilities to do it yourself. First, however, you need to be mindful of your IP and how you can protect it when you do so. A vital document for doing this is your manufacturing agreement. If you would like more information or help with IP in your manufacturing agreement, contact LegalVision’s IP lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

How can I protect my intellectual property?

How you protect your intellectual property will depend on what kind it is. For example, you can register to protect things like designs or trade marks, and in other cases (like copyright), you may have inherent intellectual property rights.

Do my intellectual property rights apply in other countries?

Typically, intellectual property registration that you apply for in New Zealand will not apply in other countries. In some cases, you may have copyright protections internationally, but this may vary.

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