Manufacturing Agreements Explained

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Table of Contents

• What Is a Manufacturing Agreement?
• Confidentiality Agreement
• The Manufacturer’s Rights 
• Other Options at This Stage
• Key Takeaways 
• Frequently Asked Questions

You have been working on a unique idea for a business for a while now. You may want to engage a manufacturer to start to produce some test products. However, you are concerned about providing details of your idea to another person. How can you be sure they will not take your idea and start producing it themselves? To keep your products and business ideas confidential, you will want to make sure you are engaging with a manufacturer under the appropriate agreements. This article will explain how to protect your intellectual property through manufacturing agreements.

What Is a Manufacturing Agreement?

During the manufacturing process, you will most likely provide your manufacturer with detailed specifications, trade secrets, intellectual property and other information that you would not want on-sold or used inappropriately. 

In most cases, it is best practice to enter into a manufacturing agreement, which should comprehensively outline any issues relating to intellectual property and confidential information. A manufacturing agreement will set out the terms on which the manufacturer will manufacture your goods, and will include: 

• the manufacturer’s rights and obligations;
• your rights and obligations as the consumer; and
• details and specifications of the goods to be manufactured. 

If you have been presented with a manufacturing agreement, it is a good idea to have it reviewed by a commercial lawyer. This will ensure it includes some essential clauses for protecting your confidential information. Here are some key things to look out for:

Mutual Confidentiality Clause

Typically, manufacturing agreements will include a mutual confidentiality clause that sets out that neither party will use each other’s confidential information except as required under the agreement. It also provides that each party will not disclose confidential information to external parties. In essence, this clause prevents both you and your manufacturer from using any confidential information you discuss or provide in documents or other correspondence in a way that you have not agreed upon. 

Licensing Your Information for Agreed Use

Usually, you will want the agreement to set out that you are providing your information or material to the manufacturer for a limited purpose and time. You should confirm the agreement says that you are only licensing and not assigning your material to the manufacturer, and that it is for the purpose of creating the product only.

Other Obligations

You are also able to include more specific obligations in the agreement. For example the manufacturer must:

1. return the materials when the relationship ends; or
2. not use sub-contractors to complete the work. 

Confidentiality Agreement

Before signing a manufacturing agreement, you should strongly consider entering into a confidentiality agreement (often referred to as a non-disclosure agreement or NDA). This is particularly important during preliminary discussions, and before you have formally entered into a contract with a manufacturer. 

A confidentiality agreement protects any information you share with your potential manufacturer. If you work closely with a manufacturer to develop your idea further, it can sometimes be difficult to work out who owns the intellectual property in your final product. Make sure your agreement addresses this to avoid any potential disputes later down the track.

The Manufacturer’s Rights 

Of course, your manufacturer will need to use your confidential information and materials in an agreed way in order to create your desired product. Under either a manufacturing agreement or a confidentiality agreement, the terms should set out the extent to which the manufacturer can use your intellectual property. 

The agreement will limit the rights of the manufacturer, by including terms setting out that they must, for example: 

1. comply with reasonable requests from you as to how they can use the material; and
2. take reasonable steps to prevent the infringement of your intellectual property rights.

Other Options at This Stage

You may also consider applying for a patent or design registration, to give you maximum protection. This best places you to protect your intellectual property before disclosing or licensing it to the manufacturer. 

It is important to keep in mind that strict disclosure limitations apply to design and patent applications. Once you publicly disclose or commercialise your product, you: 

• cannot apply for a design registration; and
• will only have 12 months to apply for a patent. 

You may want to discuss your options for applying for a design registration or patent. It can be a valuable investment to speak with an intellectual property lawyer to work out whether you are eligible and the best time to apply. 

Key Takeaways 

Both you and your manufacturer will be interested in protecting your individual intellectual property. It is commercially sensible to discuss this at the outset of your discussions. You should ensure that your relationship with your manufacturer is adequately reflected in a manufacturing agreement. Make sure that any preliminary discussions are held under a confidentiality agreement. 

LegalVision’s lawyers have extensive experience drafting these agreements and will include all necessary terms to protect your intellectual property. If you need legal advice or have any questions about manufacturing agreements, our experienced contract lawyers can assist you 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