While engaging a manufacturer to produce your business’s products or goods, you will most likely disclose various designs, trade secrets, intellectual property and other sensitive information. Accordingly, it is highly likely you wish to protect against improper use of such information. This article will explore several key steps you can take to ensure you protect your intellectual property.
1. Use a Confidentiality Agreement
Typically, both parties to a manufacturing arrangement would like to protect their intellectual property. Sensitive information may arise during negotiations. Therefore, before providing confidential information to the manufacturer, both parties should consider entering a confidentiality agreement. It ensures that confidential information either party provides during discussions cannot be disclosed or used without permission.
You may draft this as a mutual agreement, which dictates the disclosure of confidential information between the parties. Alternatively, it may be a one-way deed, which only dictates the disclosure of confidential information from one party. For example, from your business to the manufacturer. If applicable, you may also wish to consider registering your design or patent rights with IP Australia before disclosing them to the manufacturer.
Once you agree to all the commercial details regarding the manufacture of the goods, it is time to formalise these details in a manufacturing agreement between the parties.
2. Intellectual Property and Confidentiality in Manufacturing Agreement
Your Manufacturing Agreement should have clauses setting out the agreement between the parties regarding the factors below.
Ownership of Pre-Existing Intellectual Property
Typically, a manufacturing agreement states that each party retains ownership rights over any intellectual property they already own or develop independently. This includes proprietary designs and other intellectual property the manufacturing party receives to enable goods production.
Intellectual Property Pursuant to Manufacturing
There are two types of intellectual property likely to be created. Intellectual property may be created by the manufacturer during the process of manufacture. Typically, the manufacturer will wish to retain ownership of this, although this is often a point of negotiation. Intellectual property may also be created in the end goods. Generally, the party owning the original intellectual property will want to retain intellectual property in the end goods created.
Licences to Use Intellectual Property
Any party owning intellectual property that allows another party to use it should do so under a formal licence. The licence must outline how and when the other party may use the property. For example, a licence you grant a manufacturer should limit the use of the intellectual property to provide the manufacturing services during a specific term.
Confidential Information Disclosure and Use
Typically, a manufacturing agreement will include restrictions on the use of confidential information. Often, the confidentiality clauses in the formal manufacturing agreement will override the previous confidentiality agreement. Therefore, it is important to restate how you wish parties to handle and use confidential information.
Restraints on the Manufacturer
Although sometimes difficult to enforce in court, you may choose to include a restraint clause. This may prevent the manufacturer from:
- using the information you disclose to them to compete with you;
- supplying manufacturing services to your clients or competitors; or
- soliciting your employees.
Key Takeaways
Protection of your intellectual property and confidential information in a commercial arrangement is of paramount importance, especially when you are disclosing this information in detail to a manufacturer. Following the steps above will provide you with more peace of mind when engaging a manufacturer. Additionally, it will prevent ambiguity regarding the ownership, and use of intellectual property parties create before or after signing the agreement.
If you need help with your manufacturing agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Typically, a manufacturing agreement will state that it forms the ‘entire agreement’ between the parties and that it overrides any prior discussions or agreements in relation to the arrangement. This means that the previously signed confidentiality agreement or deed will no longer be valid once this manufacturing agreement is signed.
In some cases, the manufacturing agreement may expressly exclude from this provision the confidentiality agreement or deed signed by the parties before the manufacturing agreement. The manufacturing agreement would not override the previously signed confidentiality agreement or deed in this case.
Yes, however, be aware that, even if the manufacturing agreement’s confidentiality provisions can apply to confidential information disclosed in retrospect, the actual restrictions on confidential information disclosure and use would only apply to the parties from the date the manufacturing agreement commences. Accordingly, nothing is stopping either party from disclosing or using the other party’s confidential information during the initial discussion phase before the manufacturing agreement’s start date.
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