By Dan Harris
This is the first part of what will eventually be a four part series on protecting your molds and/or your tooling from your overseas manufacturer. With so many companies moving their manufacturing from China, this has become a very important topic, for two reasons. First, we are seeing many companies losing their molds and/or their tooling in their exodus from China. These are the companies that failed to protect their molds/tooling when they first went into China. On the flip side, with so many companies establishing new manufacturing relationships outside China, it becomes critical they understand the need and the methods for protecting their molds/tooling going forward.
In seeking to protect our clients’ molds/tooling, both in and outside China, one of the primary goals of our international manufacturing lawyers is to draft a contract between our client and the overseas manufacturer that makes clear our client (the foreign buyer) owns the physical molds/tooling. To accomplish this, we focus on two issues when drafting mold/tooling provisions that are part of a larger contract (such as a manufacturing agreement or a product development agreement) or that essentially stand alone as part of a mold/tooling ownership contract.
First, we want to make clear that the overseas factory can use our client’s molds/tooling only for producing our client’s product and not for producing for any other party. Second, we want to make clear that when our client chooses to move its production to a different factory anywhere in the world it has the contractual and legal right to take possession of the molds/tolling and transport them to the new manufacturing location. Negotiation of these terms is sometimes quite difficult, since overseas manufacturers have an incentive to hold molds/tooling “hostage” to prevent their foreign buyers from moving manufacturing to another factory. For why it is so important to be clear regarding molds/tooling ownership and some additional specifics on what you should do to prevent your overseas factory from walking away with your molds, check out Product Molds And Tooling: Three Things You Must Do to Hang on to Yours.
As outsourced manufacturing has become more complex, molds/tooling for products have become correspondingly more complex as well.
In many cases, our clients’ molds and/or tooling embodies most or all of their product’s intellectual property. In some products, the interior mechanism is based entirely on open source hardware. The external enclosure surrounding the mechanism is therefore the primary protectable IP for the product. Their IP resides entirely in the molds used to manufacture the product case. The”look and feel” of the enclosure becomes the identity of the product, and if that “look and feel” is not protected (via the molds/tooling), their overseas factories can freely copy the product.
With some of our clients, the form embodied in the mold essentially constitutes the entire value of their product. Take for example a complex part used to manufacture a turbine or jet engine. After all the engineering and testing all that remains is a single part produced by casting into a mold that embodies the entire intellectual property in that part. In this sort of situation, whoever controls the intellectual property in the molds controls the product. If — as our international IP lawyers so often see — no party owns any IP in the molds, the molds are effectively open source.
This means that in figuring out what to put into contractual mold/tooling provisions, you need to focus on two things: (1) ownership of the physical molds/tooling and (2) ownership of the intellectual property in the molds as well.
Mold IP issues frequently arise in when dealing with third party mold fabrication shops and when dealing with the outsource factories themselves. Further complicating things is that these two facilities are these days just as likely to be in two different countries, necessitating two oftentimes quite different mold ownership/mold IP protection agreements.
In the next part of this series, we will address mold IP issues when dealing with third party mold fabricators.