Outsourced Manufacturing and Trade Secrets: Final Considerations

Transition Services

Trade secrets text concept isolated over white backgroundAfter termination or expiration, the company should require the manufacturer to provide extensive transition services to the company. In addition to customary provisions, the agreement could provide for the transfer to the company of key equipment; materials; or facilities. The agreement can further require the manufacturer to offer severance to crucial employees and encourage them to accept future employment with the company directly. 

Trademark Protection

The company should require that the products manufactured by the outsourced manufacturer prominently bear the company’s trademarks and are not offered in association with the name or mark of the manufacturer, or any other third party.

The agreement should also include appropriate quality control obligations and oversight relating to the use of the marks. This should help the company create and maintain equity in the marketplace concerning company-authorized products.

Non-Compete Covenants

Where possible under local law, the company should consider requiring certain non-compete covenants from the manufacturer so that the manufacturer has less incentive to misuse company trade secrets. These can also be included in modified employment agreements with the manufacturer’s employees. These provisions may be limited to a specific industry or sector, or in connection with specific company competitors.

Assignment and Change-of-Control Restrictions

Change-of-control and assignment restrictions are important protections in any outsourced manufacturing agreement. They can provide the company with assurances that:

  • The identity of the manufacturer will not change during the term of the agreement; and
  • A competitor will not obtain access to the company’s sensitive information through corporate affiliation with the service provider.

Applicable Law Considerations

The laws of each particular jurisdiction define what constitutes a trade secret in that country and the protective measures that owners must take to be eligible for legal remedies for misappropriation. Local counsel should, therefore, be consulted in each relevant jurisdiction to review the proposed agreement and to help determine the most effective means under local law to protect the applicable IP.

With respect to trade secrets, at least as it relates to the US, the Defendant Trade Secrets Act (DTSA), enacted in 2016, expands certain protections under US law by creating a private federal cause of action for trade secret misappropriation. Additionally, 49 states (with the notable exception of New York, which relies on common law) have adopted a version of the Uniform Trade Secrets Act (UTSA). The UTSA shares many similar provisions with the DTSA and may provide an additional or alternative cause of action if the misappropriation is within the state’s jurisdiction. 

In sum, outsourced manufacturing is a very important part of the global economy. Along with the benefits, there are significant risks. Accordingly, a thoughtful approach to choosing a manufacturing partner, and to protecting one’s intellectual crown jewels, is paramount. 

Related articles:

1. Outsourced Manufacturing and Trade Secrets: An Economic Overview

2. Outsourced Manufacturing and Trade Secrets: Outsourced Manufacturing

3. Outsourced Manufacturing and Trade Secrets: Risks & Benefits

4. Outsourced Manufacturing and Trade Secrets: Internal Controls

5. Outsourced Manufacturing and Trade Secrets: Due Diligence

6. Outsourced Manufacturing and Trade Secrets: Transaction Structure & Contract

7. Outsourced Manufacturing and Trade Secrets: Manufacturing Process & Personnel

8. Outsourced Manufacturing and Trade Secrets: Controlling the Manufacturing Process

9. Outsourced Manufacturing and Trade Secrets: Contractual Trade Secret Protection Measures 

10. Outsourced Manufacturing and Trade Secrets: The Manufacturer Relationship

11. Outsourced Manufacturing and Trade Secrets: Obligations Concerning Manufacturer’s Employees and Contractors

12. Outsourced Manufacturing and Trade Secrets: Security Procedures for Access, Storage, and Transmission

 

David L. Cohen

David L. Cohen, P.C. – Kidon IP
123 West 93rd Street
New York, NY 10025
dlc@davidlcohenpc.com 
(914) 357-5196

 

Standard Essential Patent Licensing Management

I am very pleased that Practical Law has published a piece I co-authored with Doug Clark and Eric Stasik that discusses anti-trust issues associated with Standard Essential Patents (SEPs) and considerations for counsel managing SEP licensing programs.  The purpose of the article was to provide a high-level overview of the entire life-cycle of SEP management from creation to licensing/litigation.

SEP Licensing - Dec19Jan20 PracticeNote

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Businessman hand typing on laptop with reports and graphs concept around

Licensing of Trade Secrets and IP

The licensing of the company’s trade secrets and other IP should be consistent with the company’s identification of its trade secrets and other IP and appropriately limited in scope. Among other considerations, the license should be:

  • Narrowly tailored to cover only the manufacturer’s required use of the licensed information and IP. 
  • Revocable and subject to immediate termination when appropriate.
  • Sublicensable and assignable only to the extent necessary under the arrangement.

Read more

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The IEEE?

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The announcement boasted Karachalios’ 25 years of experience with the European Patent Office (EPO). However, what it failed to mention, was his long track record of expressing anti-patent positions, which likely held up his promotion and expedited his departure from the EPO.

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Outsourced Manufacturing and Trade Secrets: Obligations Concerning Manufacturer’s Employees and Contractors (Part 11)

Printed copy of contract on the desk

Employee Termination

While not always possible given local labor laws, to the extent possible, the company should require the manufacturer to adopt protocols to govern a termination of the manufacturer’s employees in a manner that minimizes the risk of the employees taking confidential information with them when they leave the manufacturer. These may include:

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Trade Secrets

No federal or state statute expressly addresses initial ownership of a trade secret as between a company and the employee or independent contractor who develops the trade secret. All US states, but New York, have enacted a version of the Uniform Trade Secrets Act (UTSA), which includes a trade secret definition substantially consistent with the definition under the federal trade secret protection statute, the Defend Trade Secrets Act of 2016. Under both federal and state law, trade secret protection is only available for business, financial, or technical information if: Read more

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The outsourced manufacturing agreement should require procedures that limit access to the company’s confidential information to specific, identified manufacturer personnel and solely to the extent they need to know the information for performing the services.

If possible, the company should require the manufacturer to amend its employment contracts with individuals having access to the company’s confidential information to provide for confidentiality and non-compete obligations concerning this information. The outsourced manufacturing agreement should make the manufacturer directly liable to the company for any breach of these obligations. Read more

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https://academy.patsnap.com/courses/5aa90c52a8103300142e12e2/units/5d9ef963fcbf6d122d1404b1

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https://www.ipwatchdog.com/2019/10/04/standard-essential-patents-statistics-and-solutions-to-the-real-party-in-interest-problem/id=114189/