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Contract Issues
This is a question for Formulators, Laboratories, and Manufacturers. I spoke this morning with a Contract Manufacturer who is re-evaluating his contracts. He has always had a poorly defined standard and his Attorney is revising these documents.He asked me if there were any contract issues that I have seen come-up that should be addressed. With the companies I am working with the biggest issue we have to define is the ownership of the IP (Formula). It seems that even with the increase in emerging lines that this is still missed.From your experiences, was there ever a time a contract saved you? Or when you wish you had addressed an issue in your contracts?I understand that due to NDA considerations we need to discuss broad subjects. -
7 Replies
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In my experience, no. If someone is going to screw you, they will no matter what. I had bad checks, fake deposits, ghost companies… when they target you, they will most likely screw you.
On the other hand, it’s also relative to your specific niche, the relationship with the customer and the kind of job you are making. Since you sell a service, a contract is a must. But I wouldn’t move a finger without a down payment.
I had a request today for an insane quantity, I rejected inmediatly. Contract or not, I know I will loose money. A company that handles very large numbers and doesn’t have it’s own infrastructure will most likely play with yours, and even worse if they request more that you can handle. 10 years ago I would be exited, now I know its a waste of time.
Also, even if you have the most solid contract, do you have the infrastructure and the money to afford a legal fight?. Is it worth it?. Are you sure you will win?.
Anyway, as a golden rule, money first and reject what’s too good to be true. Experience will sharpen the nose to make you decide what’s what, but nothing will give you 100% certainty.
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IP will often be sticking point - what DAS refers to is accounts payable, an entirely different matter, and one which DAS is correct: you will get screwed at some point, count on it. Back to the topic: spell out the route to ownership clearly and you cannot go wrong. There are many means of doing so of course, and you, Mark, no doubt have used them all. My own favorite is the sales threshold: hit $$XXX in annual sales and we GIVE you the formula. Everybody wins there.
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The transfer of IP is actually part of my base fee. It is stipulated as the ownership of the final approved Formula. I work with clients who need to own their Formulas.
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If I hire an outside chemist to develop a formula for me I would assume that I own the formula. Based on the thread, maybe I shouldn’t.I am a little different though. Most work whether it be someone doing “contract work” for me or me manufacturing for a customer is done on “handshake” deals. I can count on one hand the number of legal written documents I have signed in either case.
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@DavidW In a perfect World, this is the case. However, the resistance to transferring the IP comes from the Contract Manufacturers. They will either want to own the Formula or will make minor changes and declare that the new “IP” is their property.For Formulators, the contracts are more to define the scope of the work as well as to define payment terms. Without certain terms (such as defining that the “job” does not include unlimited emails) you also can keep from working off the contract. I have had clients who pay for a finite amount of time (say 3 hours perhaps) and then send me 28 emails (I answered as well as possible) as well as calling anytime an unlimited number of times (16 times in a 2 week period). In the end, I did over 4 hours of extra correspondence. Also, it helps to establish payment terms.I too have accounts I don’t need contracts with. However, working with emerging lines, you do need to be more formal.
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Agreed. I guess it’s because when I do need outside help I work with people I already have a relationship with and there is trust on both sides.
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DavidW said:Agreed. I guess it’s because when I do need outside help I work with people I already have a relationship with and there is trust on both sides.I work with emerging lines and start-ups. The challenge here is in determining which lines are ready to go to manufacturing. Unfortunately, we do establish new clients and have to build those relationships. It comes down to comfort with risk. For the most part, I have had great luck. My only real issue was a line that paid 50% down, begged for the Formulas to “price them out” and never paid the remaining 50%. I see my formulations, without changes, on their website for sale.
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