Exclusive Manufacturing Agreements

Exclusive Manufacturing Agreements

Our clients often ask our international manufacturing lawyers to put a provision into their manufacturing agreements that prohibits their manufacturer from making the same product for anyone else. This naturally leads to a long discussion, which often goes somewhat like the following, using laptop computer bags made in Thailand and China as the example:

International Manufacturing Lawyer:  What do you mean by a product like yours?  A laptop bag?

Client: That would be great. Is that possible?

International Manufacturing Lawyer:  Not unless you are planning to commit to buying $800 million worth of bags a year. Your Chinese manufacturer is huge and I’m guessing it makes laptop bags for 40-50 other companies and unless you commit to massive yearly volumes, there is no way it will agree to just make bags for you. What we need to do is figure out what makes your laptop bags different from everyone else’s laptop bags and see if we can get your manufacturer to agree not to make laptop bags for others that contain your unique features.

Client:  That makes sense. Well, first off, our name is unique and I certainly don’t want our manufacturer making bags with our name on it for anyone but us.

International Manufacturing Lawyer: Absolutely. We will put that in there, but also, we are going to need to register your brand name as a trademark in Thailand and China so nobody in either country (not just your manufacturer) can make bags with your name on it. We also need to register your trademark in both countries to prevent anyone from registering your name and then using its trademark to stop you from using your own name  at all in China or Thailand. What else distinguishes your bags from others?

Client: We use orange stitching and I don’t think anyone else does that.

International Manufacturing Lawyer:  Great, so we ask these manufacturers not to make bags with orange stitching. What else?

Client:  We have a side pocket that perfectly holds a passport. What about something like that? Oh, and we have an orange rubber tab on all of our zippers.

International Manufacturing Lawyer:  Perfect. We will put a provision into your Manufacturing Agreements that prohibits your manufacturers from making laptop bags with any of this attributes.

Client: Are these provisions enforced?

International Manufacturing Lawyer:  Yes, in both China/Thailand and the United States and Canada too.

Client:  The United States?

International Manufacturing Lawyers. Yes, the United States. If one of your US or Canadian competitors were to go to your Chinese or Thai factories and start purchasing laptop bags with stitching or zippers or a side pocket like yours, we would immediately send them a letter, attaching your manufacturing contracts with your Chinese and Thai manufacturer. That letter would point out the provision saying your manufacturers are not allowed to make laptop bags with your specific attributes and then it would say that your competitor’s getting such laptop bags from your Chinese/Thai manufacturers constitutes tortious interference with your contractual relations. We would then say that if they do not immediately cease buying such bags, we will have no choice but to sue. These letters generally work because the US/Canadian company either did not know it was infringing on your contract rights or else because it simply does not want to be sued in a US or a Canadian court, even if it may think it will eventually prevail. These provisions tend to be very effective.

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