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Arrangements in China : Manufacturing agreements or Original Equipment Manufacturer (OEM) agreements are contracts providing for the terms and conditions of the relationship between one company, and a manufacturer which manufactures products to be distributed under the previous company’s name and branding. Such relationship needs to be carefully managed with special consideration given to intellectual property issues.  

Intellectual property (Arrangements in China)

Why should special attention to intellectual property be given in OEM agreements?  

Patents, trademarks, copyrights, know-how and trade secrets will be used by the manufacturing company to manufacture your products. Those intellectual property rights shall be carefully granted through license agreements. Indeed, you want to ensure that the manufacturer does not sell your products behind your back under your trademarks, nor do they copy or steal your tooling.  

Product quality control 

Why should the OEM agreement stipulate for an inspection clause and what shall this clause stipulate? 

Attention should be paid to quality control to avoid defective products and quality issues upon delivery. Therefore, the inspection clause is essential, and the inspection process shall be carried out both before and after delivery. Also, the content of the inspection shall be clearly defined. 

Other issues 

What is the normal period of a warranty clause? 

The normal period for a warranty clause is two years from the date of shipment except otherwise stipulated under laws and regulations of the PRC, because the assumption is that the product will be sold sometime in the first year after shipment from China. The warranty clause shall stipulate its implementation, and also which party shall pay for returns.  

Why should the OEM contract stipulate for liquidated damages?  

Liquidated damages are damages whose amount is decided between the parties during the formation of the contract. Those liquidated damages will encourage the parties to comply with terms and conditions in the contract. Especially shipping terms and dates and quality requirements.

-> This article may also be of interest to you : Holding Company in China – Investment Options

To know more, download our legal handbook related to foreign investment in China…

 

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