In the customization of hardware structural components, intellectual property (IP) ownership is the contract clause most often subject to “assumptions”: Who owns the blueprints? Who owns the mold designs? Who has the right to apply for a patent on a newly developed structure? Default legal rules often differ from industry practices;
if the contract does not specify otherwise, the commissioned party (the manufacturer) may retain the IP rights to the development results.
This article outlines methods for stipulating IP ownership in hardware customization agreements.
1.
Understand the Legal Provisions: Default Rules Apply Absent an Agreement
According to Article 8 of the *Patent Law of the People’s Republic of China*, for inventions or creations completed under a commission, the right to apply for a patent belongs to the entity that completed (or jointly completed) the work, unless otherwise agreed upon. In other words, regarding custom hardware, if a factory completes a new structural design without a separate agreement to the contrary, the right to apply for a patent defaults to the factory, while the commissioning party merely holds the right to use the design free of charge.
A guiding case published in the *Gazette of the Supreme People’s Court* confirms this logic: a technology development contract stipulated that “upon full settlement of development costs, deliverables and IP rights shall belong to the commissioning party; prior to that, they shall belong to the developer,” and the court determined the point of ownership transfer based on this clause.
The conclusion is clear: IP ownership must be stipulated in black and white within the contract; one cannot simply assume, “Since I paid for it, it belongs to me.”
II. Four Core Clauses for OEM Customization
Industry-standard intellectual property protection clauses for OEM arrangements generally fall into four categories:
- Buyer’s Assets Remain with the Buyer: It must be stipulated that product designs, drawings, specifications, trademarks, and branding materials provided by the commissioning party are its exclusive property, and the manufacturer is granted a license to produce only within the scope of the contract;
- Molds and Tooling Belong to the Buyer: All molds, jigs, and fixtures developed for the commissioning party’s products belong to the commissioning party, regardless of who paid for the materials or labor;
- Improvements Belong to the Buyer: Any improvements, modifications, or derivative works arising during the manufacturing process also belong to the commissioning party, preventing the factory from “appropriating optimization schemes for its own use”;
- Obligation to Return or Destroy: Upon contract termination, the factory must return all molds and tooling to the commissioning party or destroy them as instructed.
III. ODM Customization: Explicitly Define Ownership of Design Outcomes
In the ODM model, the factory is deeply involved in the design process, making specific agreements regarding ownership even more critical.
Common industry practices include: if the design is provided by the contract manufacturer, the contract should explicitly state that “design outcomes belong to the commissioning party” or are “jointly owned,” while prohibiting the manufacturer from using the design to produce competing products;
if the design is developed collaboratively, the contract should—in accordance with patent laws—define the nature of joint ownership, rights to apply for patents, and rules for subsequent use and transfer (e.g., requiring mutual consent for transfers and specifying revenue-sharing ratios).
According to industry contract templates, stipulating that “the commissioning party holds the intellectual property rights to development outcomes arising from this contract” offers the most comprehensive protection for the commissioning party, while simultaneously requiring the manufacturer to guarantee that its development outcomes do not infringe upon the rights of third parties.
IV. Five Key Points for Drafting Intellectual Property Clauses
- Comprehensively list the subject matter: Explicitly itemize drawings, manufacturing processes, mold designs, samples, trademarks, patents, and improvement outcomes to avoid the ambiguity inherent in a vague, catch-all reference to “intellectual property”;
- Specify the timing of ownership transfer: Clearly stipulate that intellectual property rights transfer to the commissioning party upon full payment of development fees or successful acceptance of the deliverables, aligning with the legal reasoning found in Supreme People’s Court precedents;
- Define the right to apply for patents: Explicitly state that the commissioning party holds the right to apply for patents based on the custom-developed outcomes, and require the factory to cooperate by signing relevant documents;
- Restrict the scope of use: Limit the factory’s use of the commissioning party’s intellectual property strictly to the scope of the contract, prohibiting reproduction, imitation, sub-licensing, or use for the benefit of third parties;
- Guarantee non-infringement and liability for damages: Include a warranty from the commissioned party that the development process will not infringe upon third-party rights, and stipulate that the commissioned party bears liability for any infringement, thereby preventing the commissioning party from being implicated in infringement claims arising from the provided drawings.
V.
Trends: Intellectual Property Clauses Moving Toward Standardization and Cross-Border Application
As the export of custom-made hardware structural components grows, intellectual property clauses are increasingly being bundled with confidentiality agreements, mold ownership terms, and non-compete clauses to form a comprehensive protective framework; cross-border orders also frequently incorporate provisions regarding applicable law, jurisdiction, and obligations to assist with overseas patent applications.
Industry experts recommend treating intellectual property ownership as a mandatory—rather than optional—element of custom manufacturing contracts and settling these terms before design work begins.
The earlier ownership is agreed upon, the fewer concerns arise during the partnership, and the more robust the “moat” protecting the product upon its market launch.
