Key Takeaways

  • Licensing a product allows inventors to scale production without absorbing the risks and costs of manufacturing.
  • Product licenses can be exclusive, non-exclusive, or sole, each with different levels of control and flexibility.
  • Manufacturing rights in contracts ensure continuity of supply, covering compensation, delivery, and termination conditions.
  • Manufacturing law covers product liability, labor standards, environmental compliance, intellectual property, and trade regulations.
  • Compliance with manufacturing law reduces legal risks, improves workplace safety, and helps companies compete globally.
  • International agreements and evolving sustainability standards increasingly shape how manufacturers operate.

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

Common Pitfalls in Product Licensing

While licensing offers inventors a way to scale, it also presents risks. Licensees may fail to meet quality standards, underreport sales, or misuse intellectual property. To prevent disputes, license agreements should:

  • Require detailed reporting and allow auditing rights.
  • Establish minimum royalty guarantees.
  • Clarify quality assurance obligations and approval rights over marketing.
  • Include termination clauses if the licensee breaches conditions.

Well-structured agreements reduce the likelihood of costly litigation and protect inventors from exploitation.

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

Role of Intellectual Property in Manufacturing Law

Intellectual property is central to manufacturing law. Patents, trademarks, and trade secrets protect innovations from unauthorized use. Without proper protections, competitors could copy designs, eroding market advantage.

Manufacturers should consider:

  • Patent protection: Secures exclusive rights to new inventions.
  • Trademark enforcement: Prevents dilution of brand identity.
  • Trade secret safeguards: Requires strong confidentiality agreements.

Failure to address IP ownership in Manufacturing License Agreements (MLAs) can create disputes over who controls the product and its future uses.

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.

Global Dimensions of Manufacturing Law

Manufacturing law does not stop at national borders. International treaties and trade agreements influence how goods are produced and sold. Companies engaged in global supply chains must account for:

  • Import and export regulations that restrict certain products or materials.
  • International labor standards under agreements like the International Labour Organization (ILO).
  • Environmental treaties that impact production, such as emissions or hazardous materials restrictions.
  • Tariffs and trade agreements that affect pricing and competitiveness.

Non-compliance can result in fines, trade sanctions, or blocked shipments.

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.

Key Areas Covered by Manufacturing Law

Manufacturing law, sometimes called industrial law, spans multiple areas that shape day-to-day operations. These include:

  1. Product Liability – Manufacturers can be held responsible for defective or unsafe products.
  2. Labor and Employment Law – Covers worker safety (OSHA), wage compliance, and workplace rights.
  3. Environmental Law – Governs waste disposal, emissions, and sustainability obligations.
  4. Corporate Law – Addresses governance, mergers, acquisitions, and supply chain agreements.
  5. International Trade – Regulates cross-border sales, tariffs, and compliance with global standards.

These overlapping areas demonstrate why compliance requires coordination across legal, financial, and operational teams.

Frequently Asked Questions

  1. What is manufacturing law?
    Manufacturing law is the body of regulations governing product creation, labor standards, environmental practices, intellectual property, and trade.
  2. Why is manufacturing law important?
    It protects consumers, ensures fair labor practices, and reduces risks for businesses by setting clear compliance standards.
  3. What industries are most impacted by manufacturing law?
    Automotive, pharmaceuticals, consumer goods, and technology sectors are highly regulated due to product liability and safety concerns.
  4. How does international manufacturing law affect U.S. companies?
    Global supply chains require compliance with foreign labor, safety, and environmental standards, plus international trade agreements.
  5. What are common legal risks in manufacturing?
    Defective products, workplace safety violations, intellectual property disputes, and environmental non-compliance are among the most frequent.

If you need help with manufacturing law, 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, Menlo Ventures, and Airbnb.