Managing Key Supplier Responsibilities Part IV

Editor’s Note: This is the final part of a four-part series written by Thomas Keenan and Geofrey L. Master

It is extremely important to operate on the assumption that all work done in collaboration with a supplier is valuable—not only product designs and patents, but concepts and all supporting work. The customer should use the sourcing contract to carefully detail ownership of the actual work done and all derivative works in the future.

Many (if not most) manufacturers service multiple product markets and customers. The customer’s prospects in a future market may often be hurt from potential competitor’s unauthorized use of the collaborative work. Further, many Chinese manufacturers aspire to sell products at home and in overseas markets. In some cases, work for a particular project may stop because the economics of the project failed for the intended market, yet there is potential for the work to have “second life” later for another market or customer.

Development provisions in sourcing agreements should work to align the manufacturer’s activities with the customer’s own internal development process. There should be regular reviews within the project to assess all protectable work. Sourcing agreements should carefully describe rights (if any) to derivative works that result from collaboration.

Finally, if a manufacturer will retain title to manufacturing tooling (or other assets) that incorporate any customer or jointly owned intellectual property, the customer should be sure to license that intellectual property to the manufacturer for use during the period of their cooperation only. Customers should be able to maintain control of their intellectual property through a revocation of that license at the end of the product’s life cycle to prevent use of the tooling for other customers.

The new manufacturing and development sourcing model brings with it a variety of competitive advantages for the customer as well as a host of challenges that arise during and after the product production cycle has concluded. Companies that hope to effectively address the challenges need to proactively arrange for and manage these issues through their sourcing framework. Companies should be mindful of the shifts that have taken place in their value chains and stay alert to accommodate further advances in their sourcing relationships.

Geof Master
As a partner in Mayer Brown JSM’s Business & Technology Sourcing practice, Geof Master has broad experience in sourcing transactions, including the outsourcing and offshoring of information technology and services as well as of business processes. He can be reached at [email protected].

Tom Keenan
Tom Keenan is a Registered Foreign Lawyer (Victoria, Australia) of Mayer Brown JSM. He can be reached at [email protected].

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