Rights to custom configuration ideas

A caller last evening wanted to know if they approached a manufacturer with an idea for a customization, would the manufacturer be precluded from mass producing the customization? Terrific question!

My answer (as in many matters) is “it depends.” I also pointed out that this is as much a question of the agreement between the parties as it is a mass customization question. Here’s my response.

If a company produces products under an “engineer-to-order” business model and there is nothing in a purchase agreement about who owns the customization or who retains the rights to the customization, the manufacturer would be able to take the customization and offer it to other customers.

For example, custom fire/rescue vehicles are generally produced according to specifications created by or on behalf of a specific fire department. The specifications go into great detail about each aspect of the fire truck.

Are there innovations that occur as a result of departments requesting specific customizations? Certainly. And, just as commonly, when other departments see what other departments are requesting, it is common practice that other departments may want to apply these new customizations to their specifications.

I can’t recall any department believing that the customization they requested was proprietary to them. As a result, it is customary and normal that the manufacturer would not be precluded for offering such customizations to other customers.

Another critical factor can be who is paying for the engineering work? In some industries, the engineering effort for customization is carried fully by the manufacturer as a “cost of doing business.” In this instance, it would be customary for the manufacturer to try to leverage this customization with other customers.

Are there “engineer-to-order” situations where customizations are limited by agreement to a specific customer or require the customer’s prior permission before any other customer can acquire a specific configuration or customization? Certainly.

Companies who are outsourcing proprietary designs to contract manufacturers certainly want to protect their rights and insist that the contract manufacturer not produce the product for any other customer without the prior permission of the owner of the design.

In the event there is a dispute, it is the agreement between the parties, e.g., the purchase agreement, that will determine who owns the rights to customizations. It seems reasonable that, unless otherwise specified, the rights to customizations reside with the manufacturer.

Does anyone have a different view? I’d love to hear from you.

Note: I am not a lawyer and the information provided above should not be construed as legal advice. I encourage clients with legal questions to seek the advice of competent legal counsel.

David J. Gardner, Mass Customization Expert

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