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Outsourced Manufacturing and Trade Secrets: Final Considerations

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Transition Services

After 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.

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Outsourced Manufacturing and Trade Secrets: Security Procedures for Access, Storage, and Transmission (Part 12)

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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.

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

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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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Outsourced Manufacturing and Trade Secrets: The Manufacturer Relationship (Part 10)

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

What is a Trade Secret Audit and Why Get One?

What is a Trade Secret Audit and Why Get One? by David L. CohenAt first blush an audit sounds expensive, distracting and unnecessary. Let’s face it, we live in the age of the long tail. Over the past few years, things people would have previously given only a remote chance of coming to pass seem to be happening on a regular basis. What’s more, the pace of change and disruption in business and in the personal world is so great, it is almost impossible to keep up. It seems that whatever you are doing today will have to be radically altered very soon. With all this change most of us are running just to stay in place — so any distraction from the daily chores of simply keeping up needs a powerful justification. I would argue however, that the frenetic pace of business life is precisely why audits are so important. Just as mindfulness is rightly understood as being key to a centered life, trade secret audits are essential to continued success as a business. Read more

Outsourced Manufacturing and Trade Secrets: Contractual Trade Secret Protection Measures (Part 9)

 Outsourced Manufacturing and Trade Secrets: Contractual Trade Secret Protection Measures (Part 9) by David L. CohenAs we have discussed elsewhere, a trade secret audit or assessment is vital if a company is to protect itself during the outsourced manufacturing process. [See these articles: Trade Secret Audits – Why Bother? ; You’ve Decided to Conduct a Trade Secret Audit. Now What?; You’ve Decided to Conduct a Trade Secret Audit. Now What? Part 2 ] Read more

Outsourced Manufacturing and Trade Secrets: Manufacturing Process & Personnel (Part 7)

Outsourced Manufacturing and Trade Secrets: Manufacturing Process & Personnel (Part 7) by David L. Cohen

After deciding on the basic corporate or contractual structure, the company should decide how best to strategically divide the manufacturing process. In the outsourced manufacturing context, the best process involves not only efficient manufacture, but also the most effective process to mitigate potential trade secret risks. Read more

Outsourced Manufacturing and Trade Secrets: Transaction Structure & Contract (Part 6)

Outsourced Manufacturing and Trade Secrets: Transaction Structure & Contract by David L. Cohen

Transaction Structure

Once the company selects a potential outsourced manufacturing partner, it should design a transaction structure that reinforces its commercial expectations and the manufacturer’s contractual obligations. Specifically, the company should structure the outsourced manufacturing transaction in a manner best suited to protect the company’s key intellectual assets (both registered IP and unregistered IP like trade secrets and know-how). Transaction structure considerations include both the particular corporate and contractual form of the relationship, and how the company will delegate the manufacturing process to the outsourced manufacturer. Read more

Outsourced Manufacturing and Trade Secrets: Due Diligence (Part 5)

Outsourced Manufacturing and Trade Secrets: Due Diligence by David L. CohenPerhaps the single most important part of outsourced manufacturing is to select a trustworthy partner. A company should not enter into any transaction unless it has a good basis to believe that the manufacturer will be an acceptable partner. This requires rigorous due diligence, including:

  • Background checks of the manufacturer’s principal officers, directors, and key personnel.
  • Audits of the manufacturer’s financial statements.
  • Inspections of the manufacturer’s facilities.
  • Investigations of the manufacturer’s supply chain and trading partners.

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Outsourced Manufacturing and Trade Secrets: Internal Controls (Part 4)

Outsourced Manufacturing and Trade Secrets: Internal Controls by David L. CohenWhen a company, for the soundest of business reasons, is exploring placing its crown jewels, its intellectual assets, in the hands of a third party, proper internal controls are vital.

A company’s internal controls may help to ensure proper:

  • Vetting and selection of the prospective manufacturer during the due diligence process.
  • Negotiation of the outsourced manufacturing relationship.
  • Management of the outsourced manufacturing transaction and relationship with the manufacturer.

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