Intellectual Property Clauses

Intellectual property clauses in a manufacturing agreement go beyond simple confidentiality - they establish who owns the formulation, who can use process knowledge and under what conditions, and what happens if a manufacturer's technical input contributes to the final product. This guide sets out what these clauses should cover.

Pre-Existing Intellectual Property

State clearly that each party retains ownership of intellectual property it brings into the relationship - the buyer's formulation, the manufacturer's proprietary process technology - so there's no ambiguity about background rights before any collaborative work begins.

Jointly Developed Intellectual Property

Where a manufacturer contributes meaningfully to formulation development or process optimisation, ownership of the resulting intellectual property should be agreed before the work begins, not after - see new product development with a contract manufacturer. Options include sole ownership by the buyer, sole ownership by the manufacturer with a licence back to the buyer, or joint ownership, and each carries different implications if the buyer later wants to move production elsewhere.

Use Restrictions and Non-Use Clauses

A licence, use restriction or non-use clause defines what the manufacturer can and cannot do with intellectual property it's exposed to, separate from confidentiality obligations. This matters because a manufacturer could technically comply with confidentiality while still applying learnings from your process to another client's work, if a non-use clause isn't in place - see protecting intellectual property and formulations.

Patents Arising From the Relationship

If patentable inventions might arise from collaborative development work, agree upfront who has the right to file, who bears the cost, and how any resulting rights are shared or licensed. Leaving this until an invention actually occurs often leads to disputes precisely when the parties should be capitalising on the result.

What Happens When the Relationship Ends

Cover what happens to intellectual property rights, licences and any manufacturer-held documentation if the contract ends - see switching from one chemical manufacturer to another. This should include return or destruction of documents and confirmation of any surviving use restrictions.

Three Separate Questions

IP in a manufacturing relationship divides into three questions that are frequently conflated. What did you bring - your existing formulation and know-how? What did they bring - their process expertise and platform technology? And what was created during the work?

The first two are usually uncontroversial: each side keeps what it arrived with. The third causes most disputes, because process improvements developed while making your product sit in genuinely ambiguous territory - developed by them, on your product, at your expense.

Settling the Third Question

There is no universally correct answer, and the workable positions vary. Improvements specific to your product belong to you; improvements to the manufacturer's general capability belong to them; or a licence arrangement where each can use what was developed. What matters is choosing deliberately rather than leaving it unaddressed.

Also consider exclusivity and non-compete provisions - whether the manufacturer may make a similar product for a competitor, and whether they may use knowledge gained from your work elsewhere. Where a formulation was developed for you, state explicitly whether they may sell it to others, for how long and in which markets. Verbal assurances on this are common and hard to enforce. See protecting intellectual property and formulations.

Questions to Ask a Manufacturer

• Who owns intellectual property created jointly during a development project?
• Will you agree to a non-use clause covering process knowledge you gain from working with us?
• How do you handle a patentable discovery arising from collaborative work?
• What happens to any licensed intellectual property if we end the relationship?

Frequently Asked Questions

Related Guides

• Protecting intellectual property and formulations
• Confidentiality agreements
• New product development with a contract manufacturer