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Supplier Agreements

Popular culture has it, that great inventions are created in an instantaneous flash of inspiration. The analogy is to a flash bulb or light switching on with the power of the idea illuminating what was once dark. In my experience, working with many inventors over the years, this flash of inspiration is more correctly analogized to a light on a dimmer switch. Initially, there is realization that there is some potential for a new product or service. Then, as further work is done, and research and prototypes are developed, the dimmer switch is turned up and up and the idea becomes brighter and the exact form of the invention is clearer. However, this is a long-term process which is far from instantaneous.

Product Development

Inventors often rely on other people to provide them with assistance and special skills they may be lacking in order to develop the idea from its initial conception to its final marketable form. These other resources for the inventor may include engineers, manufacturing experts, industrial designers, material scientists, and a whole range of others. What is necessary is for the inventor to maintain control over the development of the idea during this consultation process. Ideally, this control is reduced to writing in the form of a supplier agreement.

Timing of Agreements

Perhaps the most important aspect of a supplier agreement is actually getting one. All too often I am consulted by clients who are having a dispute with a supplier and who have no formal agreement. In the absence of an agreement, the supplier may own any improvements. This can halt product development, in the event of a dispute with the supplier. Precious resources and time are lost in correcting this problem and resolving any disputes. If a signed agreement is made a prerequisite to the supplier beginning work, all these problems can be avoided. If the supplier refuses, it is time to find a more willing supplier.

Nature of a Supplier Agreement

Essentially, a supplier agreement is an agreement between the supplier of goods or services to the inventor in which certain fundamental principles are agreed to. The first element is that the information disclosed by the inventor is confidential information belonging to the inventor. Next, the agreement should articulate that the supplier has been retained to perform work in association with a particular project. The project should be identified by name and if appropriate, identified in greater detail in an attached schedule or appendix.

Next, the supplier will agree that in exchange for being retained to work on the project, the supplier will assign to the inventor any and all improvements the supplier may develop in and to the product or process during the course of supplying its services. This is very important, especially where the supplier may bring skills to the project that are different from the inventor's skills, such as manufacturing expertise, which can lead to changes in design for greater manufacturing efficiencies.

The next term is that the supplier agrees that it will only incorporate original work into the project. This is important, because the last thing that any product launch needs is a claim from someone else that the product infringes a third party's rights. Therefore, it is important that the supplier agree to provide only original work created by the supplier.

There should be an additional clause in which the supplier agrees to sign whatever documents are necessary in order for the title to any improvements to be registered in the name of the owner. This is important, in order that any necessary formalities with respect to any new applications including supplier improvements which are filed at the Patent Office or other offices can completed without any problem.

Termination Provisions

There should also be a termination provision, whereby the owner can terminate the agreement if for any reason the supplier becomes unsatisfactory. Such a termination provision should stipulate that upon termination all of the drawings, plans and other material that the supplier was working on should be turned over to the owner and that the supplier should not be permitted to keep any copies. Additionally, the termination provision should ensure that the confidentiality obligations which may have existed under the agreement will survive any termination of the agreement so that the supplier is still bound.

Lastly, it is also important to ensure that the owner's right to claim ownership in any improvements extends beyond those improvements which the supplier immediately develops. Therefore, in many circumstances, the supplier agreement might claim ownership for the inventor to improvements that the supplier creates during the course of the agreement, or even up to six months or a year after the agreement is terminated. This is justified on the basis that, but for the inventor's original disclosure of the information to the supplier, the supplier would not have been in a position to develop any improvement. To allow a supplier to immediately pursue variations on the same product after termination would permit the supplier to unfairly springboard from the inventor's original concept.

Supplier agreements are an important resource for inventors to protect ownership and maintain control of product ideas during the prototype development and testing stage. If you have a situation which requires a supplier agreement, your intellectual property lawyer should be consulted.

James Nenniger is a founding partner of the firm of Piasetzki Nenniger Kvas LLP, Barristers & Solicitors, Patent and Trademark Agents, a firm that restricts its practice to patents, copyrights, trademarks, industrial designs and related causes. Piasetzki Nenniger Kvas LLP is located in Toronto, Canada.