Prudent Attention to Outsource Manufacturing Contracts - Part 2

Prologue

The simple OEM “contract” signed by the parties is sometimes silent about IP ownership or the ownership of model product. 

Here is our tip of the week about IPRs for doing business in China.

As pointed out in our previous Legal Tips of the Week – “The nature and scope of cooperation", when it comes to outsourcing manufacturing to China (such as OEM or ODM), international businesses from time to time face legal risks. Such risk is avoidable with extra attention to contract terms. 

An important but often missing clause in loosely signed outsourced manufacturing contracts is related to the protection of intellectual property rights. The simple “contract” signed by the parties is sometimes silent about IP ownership or the ownership of model product. 

Here are a few major things you should have covered on your contract with the partner: 

• The contract is clear about intellectual property rights. This can be the ownership of the product drawings, design plans, etc. that are provided by the business.

• The contract must also clearly define the newly created IPRs (Intellectual Property Rights) for future cooperation between the two parties.

• In addition, the parties should have a clear understanding of confidential information: the proper use of confidential information, the return or destruction of confidential information (e.g. drawings and design plans) at the end of the cooperation, and the liabilities for breach of contract.

This should have covered major areas related to IPRs faced by businesses.

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"China Legal Tip" is a weekly post from Trustiics. The content provides practical tips from leading business lawyers. We aim to help international SMBs navigate China's complex legal and regulatory framework. Follow us on LinkedIn share your comments with us.