One of my law firm’s international manufacturing lawyers recently completed a template Tooling [Mold] Ownership Agreement for one of our clients that is having its products manufactured in factories located in multiple countries. This Tooling Ownership Agreement is essentially a template for this one client, and it has yet to be particularized for this one client’s various tooling nor for the various countries in which its tooling will be sent. This client is in the process of diversifying its suppliers. The below is an email we sent to this client, greatly modified to hide any identifiers, and shortened for simplification purposes.
Please note that our purpose with this email was to give the client a standard framework to use when discussing tooling ownership with its various factories. This email is not intended to set forth all that should go into a tooling ownership agreement. I am running it here to give an idea of what goes into the most basic and general international tooling ownership agreement.
Please find attached a form version of the Tooling Ownership Agreement for your use. You can use this in the future with all your existing and potential factories, though we will need to modify it slightly depending on the country and we obviously will also need to modify it depending on the deal you strike with each of your factories. This agreement is intended to cover every possibility concerning the source of the tooling: factory fabrication, fabrication by a third part or tooling you provide.
This document is not customized for any particular relationship or even any particular country. This document only covers the issue of ownership after all fees are paid. It does not cover the issue of design or the issue of how payments will be structured. It is intended only to give you and your people a framework for initial discussions with your existing and potential factories. In addition to this Tooling Agreement, we also provided our client with a Tooling Description Inventory Form, for keeping track of any tooling provided.
Please advise if you have questions or comments.
Tooling Ownership Agreement
1. Product Manufacture and Tooling
CONTRACTOR and _____ will work together on preliminary tasks for the potential manufacture of certain products for ____. In connection with this preliminary cooperation, CONTRACTOR will fabricate in its own facility or obtain from third parties certain Tooling. Tooling shall include the following: jigs, fixtures, equipment that will be used in the manufacturing process. In addition, the term Tooling shall include Design for Assembly (DFA) documentation to Contractor that is related to the assembly line layout and physical assembly of ___’s product. The procedure for dealing with such Tooling shall be as provided under this Agreement.
2. Confidentiality and Exclusivity
The design and content of the Tooling shall be treated as confidential information. CONTRACTOR shall not disclose such confidential information to any third party. If the Tooling is fabricated or drafted by a third party, CONTRACTOR shall ensure that such third party treats the design and other information provided as confidential information and that the third party protects the confidential information on the same terms as the CONTRACTOR. If the third party violates these provisions, the CONTRACTOR shall be liable for all resulting damages.
CONTRACTOR shall not use the Tooling or confidential information for any purpose other than for production of product for ___. Any use of the Tooling for manufacture of products by the CONTRACTOR or for sale of products to third parties other than ___ shall be a violation of this Agreement.
____ shall own the design and content of the Tooling and all intellectual property related to the Tooling. By this Agreement, CONTRACTOR assigns all such intellectual property to ____. CONTRACTOR shall not make use of the Tooling design or any other intellectual property related to the Tooling for any purpose. CONTRACTOR shall not make any registration of any intellectual property related to the Tooling in China or any other country.
3. Ownership of Tooling
Tooling may be procured by the CONTRACTOR through in-house fabrication or through purchase from a third party. In some cases, Tooling may be provided to the CONTRACTOR directly by _____. In any case, the Tooling shall be owned by the _____ and shall be treated as provided below.
3.1 Tooling Procured by the CONTRACTOR.
Where the CONTRACTOR procures Tooling on behalf of _____, ____ shall provide to CONTRACTOR the confidential specifications required for producing such Tooling. The Parties shall agree in advance on a) which entity shall produce the design of the Tooling and b) the cost of design and fabrication of the Tooling and c) the method of payment for any such costs. Upon payment of the applicable costs, ____ shall be the owner of the Tooling. Without regard to payment of costs, ____ shall own the design of the Tooling and all related intellectual property as provided at Article 2 above.
3.2 Tooling provided directly by the ____
____ may also purchase Tooling required for production of the product and provide such items directly to the CONTRACTOR. Such purchased items shall be treated as Tooling and shall be handled as provided in this Agreement.
3.3 Maintenance of Tooling.
CONTRACTOR shall be responsible for maintenance of all Tooling and shall maintain all Tooling in good working condition. CONTRACTOR shall be liable for all damage to Tooling except for damage resulting from ordinary use.
4. Record Keeping Procedure
4.1 Tooling Record.
Each Tooling item shall be separately listed, along with the item’s agreed cost, on a Tooling Record (Exhibit 1). This Tooling record shall be applicable both to Tooling existing on the date of this Agreement and for new Tooling fabricated or procured at any date in the future. When a new Tooling item is procured or supplied, each such new Tooling item shall be entered onto the Tooling Record.
4.2 Marking of Tooling Items.
All Tooling items in the possession of CONTRACTOR shall be clearly marked as the property of ____ by a permanent method appropriate to the specific Tooling item in a form to be agreed by the parties.
5. Possession of Tooling
_____ shall have the right at any time and for any reason to demand that any Tooling item be provided to ____. Upon receipt of notice, CONTRACTOR shall at its sole expense make such Tooling items available to ____ for pickup within ten (10) working days at the premises where such Tooling item is located. ____ shall pick up the Tooling from the applicable location and shall bear all costs of such pickup and loading, but CONTRACTOR shall provide reasonable assistance to ____ as may be required. For DFA and similar documentation, a digital copy of such documentation shall be provided to ___ within one day after ____’s request for such DFA documentation.
6. Damages for Failure to Provide Tooling to ____
6.1 Contract Damages.
If CONTRACTOR fails provide Tooling items to ____ after dispatch of notice as provided at Article 5 above, CONTRACTOR shall be obligated to pay contract damages to ____. The amount of such contract damages shall be 125% times the replacement cost of each such Tooling item as listed on the Tooling Record. The damage amount shall be immediately due and payable upon CONTRACTOR’s failure to provide the requested Tooling items.
6.2 Additional Damages.
Failure to provide Tooling to ____ as provided above shall constitute a breach of this Agreement. In the event of such breach, in addition to contract damages as provided above, CONTRACTOR shall be liable to ____ for all actual damages resulting from such breach. Such damages shall include but not be limited to the following: cost of transport of replacement Tooling to new location, cost of fabrication of replacement Tooling and retraining of new CONTRACTOR, lost profits from lack of Tooling.
This Agreement shall be governed by the laws of ____________. Any dispute under this Agreement shall be resolved by litigation in the _____________ court with jurisdiction over the defendant. The prevailing party in any legal proceeding shall have the right to collect from the other party its reasonable attorney fees, costs and necessary expenditures. In addition, _______________ shall have the right to obtain pre-judgment attachment of CONTRACTORS’ assets as security for payment of judgment and costs. This Agreement is written in the English and ___________ languages. In the event of a dispute, the _____________ language original of this Agreement shall control.