Consider this case for a foreign buyer who has spent considerable time and effort developing a product design only to learn after a year that it's overseas factory has decided to terminate the manufacturing agreement. In this setting, the factory will often state that the buyer can go anywhere it wants to manufacture the buyer’s own portion of the product design, but no third party factory can make use of the factory’s proprietary technology in the manufacturing process. These issues can get even more complex when the product incorporates or is based on technology clearly owned by the overseas factory. This position can come as a bad surprise to the foreign buyer, particularly when its overseas factory suddenly announces it will be doubling the price for manufacturing the product. The overseas factory will agree to make the product on an exclusive basis for the foreign buyer, but the foreign buyer does not have the right to have the product made by a third-party factory. Under this sort of arrangement, the obvious question is who owns the design of the product? Both the foreign buyer and its overseas factory will claim ownership of the design using conflicting arguments. In its most fundamental form, the foreign buyer provides drawings and a specification sheet and the overseas factory does the rest of the work in consultation with the buyer. There are many variations on this ODM approach. ODM Stands for Original Design ManufacturingĪs outsourced factories are becoming more technically competent, foreign buyers have started entering into arrangements in which their overseas factory does some or all the design work for the product. Difficulties exist in every contract manufacturing project and they can be resolved with a clear, written agreement. For example, your factory may change your product’s design and use those design changes to modify its own products it sells in direct competition with your products. In practice, however, the division is not always so clear. In a CM arrangement, ownership may seem simple: the foreign buyer owns all the IP, both in design and branding, and the factory owns nothing. More recently, the product is a new design being manufactured for the first time overseas. Traditionally, this design was of a product that had been manufactured by the buyer in its home country. In this arrangement, the foreign buyer has a fully developed product design. Start Sourcing Journey Now What is CM Manufacturing? You will find tens of thousands of OEM manufacturers on the Global Sources B2B website. Tips: Finding Reliable Verified OEM Suppliers on Global SourcesĪs one of the world's largest facilitators of Business to Business (B2B) trade for over 50 years, Global Sources has provided buyers from all over the world access to hot new products as well as qualified B2B lead generation to China manufacturers. Usually, the buyer seeks to restrict the factory from using customization in selling the base product to third parties. Who owns the IP once the buyer has made changes to the product? An OEM agreement can provide clarity here. The difficulty arises once the product is customized. In this sort of OEM arrangement, intellectual property (IP) is usually clear: the buyer owns its branding (trademarks, logos, and packaging) and the factory owns the product. The buyer and the factory may agree to certain cosmetic changes (color, shape, minor added features) that further customize the product for the buyer. The product buyer then “packages” this product with its own trademark and logo. In this arrangement, the foreign buyer purchases a product from a foreign country factory that is already being manufactured by that factory.

OEM Stands for Original Equipment Manufacturing Start Sourcing Journey Now What is OEM Manufacturing? This post examines how these three different arrangements influence various legal issues inherent to overseas manufacturing. Most manufacturing contracts we draft involve one of three different types of manufacturing arrangements: Original Equipment Manufacturing (OEM), Contract Manufacturing (CM), and Original Design Manufacturing (ODM). Before we discuss the key terms for your manufacturing contract, we will briefly address why it is so important to have such a contract at all, even in countries with weak legal systems. This post outlines how creating a clear manufacturing agreement can alleviate the various legal issues inherent in manufacturing overseas.

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