Here is a basic list of contractual issues to consider when concluding OEM agreements: Type 2: Contract Manufacturing (CM). In this arrangement, the foreign buyer has a fully developed product design. Traditionally, it was a product manufactured by the buyer in his country of origin. More recently, the product is a new design manufactured for the first time abroad. In a CM agreement, the property may seem simple: the foreign buyer owns all the IPs, both in design and branding, and the factory owns nothing. However, in practice, the distribution is not always so clear. For example, your factory may change the design of your product and use these design changes to modify its own products, which it sells in direct competition with your products. Each contract manufacturing project presents difficulties and can be resolved by a clear and written agreement. In this type of OEM arrangement, intellectual property (IP) is generally clear: the buyer owns his brand (brands, logos and packaging) and the factory owns the product. Difficulties arise as soon as the product is adapted. Who owns the IP once the buyer has made changes to the product? An OEM agreement can shed light on this. As a general rule, the buyer tries to prevent the plant from using the adjustment when selling the commodity to third parties.
The first OEM, also known as the OEM agreement, is a company whose products are used as components in another company`s products, which then sells the finished item to users. An OEM product can be designed and manufactured to specifications other than the suppliers` primary product specifications. From the outset, they must have a clear picture of these design and manufacturing rights, prices and production rights, and intellectual property rights. This means that you need an ODM agreement that determines how they are resolved. Once again, the only way to resolve these problems is to confront them in advance with a detailed MDG agreement containing a solution to these issues that is fair to both parties. There is no simple and legal answer to any of these difficult questions. Or rather, the legal default in most countries will favor the position of the overseas plant. In the absence of a clear agreement on how to proceed, the foreign buyer will lose roughly every time. Foreign companies must decide whether the agreement with your Chinese manufacturer is exclusive or not. According to well-established Chinese law firms, if you wish to grant an exclusive right to manufacture either complete or partial of your products, you must say the agreement accordingly and take care of these different scenarios. The products to be manufactured should be clearly defined in the agreement, as well as the specifications of the products that should be described in detail. The creation of a clear manufacturing agreement can alleviate the various legal problems associated with production abroad.
Before discussing the most important terms of your manufacturing contract, we will briefly explain why it is so important to have such a contract, even in countries where legal systems are weak. There are three reasons why it makes sense to have a contract with your manufacturer, and only one of these reasons is applicability in court: 3. Delivery specifications. As a general rule, OEM agreements provide for a specific delivery port. However, if you have multiple ports and delivery points, or if you are likely to do so, the agreement should provide that the port or place of delivery is indicated in the orders. Given that China has become the world`s leading production base, it is clear that companies around the world want to make the most of it. An OEM agreement could prove to be the most effective instrument for conducting smooth trade in China.