Manufacturing Rights: Everything You Need to Know
Manufacturing rights, recorded in a manufacturing license agreement, exist when a company is legally allowed to produce and sell an inventor's product.3 min read
Why License a Product?
Many inventors opt to pay a third party to make and sell their creations rather than doing the manufacturing themselves. This is especially true when cash flow is limited or demand has risen faster than orders can be filled.
What Types of Product Licenses Exist?
The three common types of product licenses include the following:
- Exclusive licenses are those in which the licensee has full rights to the product and rights cannot be sold to any other manufacturer.
- Non-exclusive licenses allow the inventor to license the product to an unlimited number of manufacturers.
- Sole licenses are like exclusive licenses except that the licensee cannot sell sublicenses.
An MLA can also have additional provisions, such as:
- The ability of the inventor to approve product packaging and marketing materials to ensure that the trademark remains intact
- A guarantee that the inventor will receive a specific amount of royalty payments or the licensee will make up the difference
- Auditing rights, which allow the inventor to review the licensee's books to ensure the MLA is upheld
What Is Continuity of Supply-Manufacturing Rights?
If the supplier does not have the resources to create products in the necessary volume or lacks long-term financial stability, he or she may seek a license to manufacture. Provisions of manufacturing rights may include:
- A description of the information package the supplier will provide to the buyer
- A description of the buyer's right to use the information provided
- An indication of when rights can be exercised and under which conditions they may be terminated
- Requirements for delivery of the information package
- Whether compensation will come in the form of a lump sum payment or as royalties
- Offsets or limitations that apply to royalty payments
- An escrow agreement if applicable
What Are the Terms of an MLA?
This type of agreement typically includes the following important clauses:
- Basic terms of trade, such as payment and delivery terms, warranties and liabilities, ordering processes, risk and title, and termination rights and consequences
- Specifications such as materials selection and assembly and packaging requirements
- Quality control requirements such as the provision of regular samples, the right of the inventor to inspect the manufacturing facility, and the process for returning products that do not meet specifications and/or are defective
- Provisions for the handling of product recalls
- Ownership of intellectual property (IP) rights
- Provisions protecting the inventor's trademark
- Provisions about who owns the manufacturing equipment
- Confidentiality requirements
What Is the Difference Between Invention Licensing and Manufacturing?
Invention licensing is when an inventor decides to lease the rights to manufacture and sell the invention to another business in exchange for royalty payments. Licensing agreements are popular because of their lack of risk for the inventor since the licensee absorbs the cost of commercializing the invention. You can also permanently assign the rights to your invention to a third party.
Finding a licensee for your invention can be challenging. Start by promoting your creation at events and conventions for your target industry. You should try to raise enough money to build at least one prototype of your innovation while protecting your ideas with a non-disclosure agreement.
It's important to explore the pros and cons of licensing your invention vs. manufacturing it yourself.
What Are Manufacturing Laws?
Regulations and statutes that govern the manufacturing industry are referred to as manufacturing laws. This industry creates almost $2 trillion in profit annually to the U.S. gross domestic product. This means that lawsuits related to manufacturing are often quite costly. A major area of concern for manufacturers is product defects, particularly in the auto industry. These cases can be quite lucrative for plaintiffs, so many attorneys specialize in auto accidents and personal injury. Other manufacturing laws govern areas such as mergers and acquisitions, governance, and corporate formation as well as other areas of liability.
If you need help with manufacturing rights for your invention, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.