Manufacturing continues to grow in the United States, fueled primarily by innovations in technology, human capital and advances in the manufacturing process itself. With the advent of new technologies, particularly technologies that provide an advantage over the competition, next-generation manufacturers must zealously protect its intellectual property and assets associated with such manufacturing technologies.
Next-generation manufacturers are particularly vulnerable when supplying other manufacturers who purchase their goods. If the buyer has the right to inspect the seller’s manufacturing technologies or otherwise has access to the seller’s manufacturing processes, innovative technologies and proprietary advancements, the rights to protect such intellectual assets may be compromised.
Manufacturing processes, although patentable, should also, or may better, be protected as trade secrets. This is because the process of filing a patent requires disclosing to the world the very secret that necessitates protection. The ephemeral protections of patents (generally 20 years of protection) have led to the protection of manufacturing processes as trade secrets, which ultimately last as long as the confidentiality of such processes can be maintained.
Many manufacturers selling goods may not be aware that their manufacturing processes are being copied. For example, a widget manufacturer, who produces widgets that look identical to a competitor’s, is unlikely to discern whether a competitor has utilized the manufacturer’s proprietary techniques by simply looking at the finished product. Thus, the importance of protecting manufacturing secrets cannot be overemphasized.
Next-generation manufacturers should reassess whether their agreements adequately protect information and observations that become available to its customers or suppliers. One effective tool to protect technological innovations and manufacturing investments is to enter into nondisclosure agreements.
Parties may also protect their intellectual assets and trade secrets through sale or purchasing terms. Many purchase order terms and conditions contain confidentiality clauses. These types of clauses obligate the contracting parties to maintain the secrecy and confidentiality of all information disclosed during the course of work.
Key inclusions in confidentiality and restrictive use clauses include provisions that require parties to adopt measures to protect the secrecy of confidential or proprietary information and observations that are adequate under the circumstances and that provide for remedies necessary to enforce such terms. In the case of a manufacturer-seller, this may include such things as requiring a camera phone restriction in certain areas of the plant for any employees or agents of a buyer, prohibiting reproduction, copying or disseminating information or observations other than for intended purposes, and an agreement to such terms by individuals granted access to such information and inspection. In addition, the buyer may be granted access only to certain information or facilities.
A common pitfall of many nondisclosure and confidentiality agreements is that they only last as long as the term of the underlying contract, which is commonly three years. Because the intellectual property and assets associated with such manufacturing technologies must be protected after the contractual relationship has concluded, it is vital that the parties carve out a time limitation extending their nondisclosure and confidentiality agreement for the useful life of the protected information. This ensures that the parties are obligated to confidentiality even after the expiration of their supply relationship.
In addition to restricting the use of information, nondisclosure agreements may also provide for a remedy for enforcement. Such inclusions can be in the form of a clause stipulating that any breach of the nondisclosure or confidentiality shall cause irreparable damages impossible of calculation, and stipulates that an injunction may be obtained by the non-breaching party. The remedy may also include a liquidated damages provision.
Indeed, as manufacturing processes evolve, the measures used to protect these processes must evolve too. A carefully drafted nondisclosure agreement is key, but should be used in tandem with other measures to protect next-generation manufacturers. A manufacturer should also consider requiring its employees who have access to confidential information to enter into noncompete or confidentiality agreements, as well. The bottom line is that next-generation manufacturers must actively protect their intellectual property and assets associated with such manufacturing technologies lest they lose such assets to a competitor.
Mark Aiello is a partner in the Detroit office of international law firm Foley & Lardner LLP and co-chairs the firm’s Automotive Industry Team. Nicholas Kyriakopoulos is an associate in Detroit and a member of the firm’s Business Litigation & Dispute Resolution Practice. The authors can be reached at firstname.lastname@example.org and email@example.com.