A major concern for OEM manufacturing executives when working with EMS and ODM providers is management and protection of intellectual property (IP). In general, most EMS and ODM providers understand the legal ramifications of protecting the OEM customer’s IP and have sound processes in place. But it still makes sense for OEMs to have a working IP playbook strategy.
While IP violations cannot be completely eliminated, steps can be taken to ensure EMS / ODM providers have the proper processes in place to protect its OEM customer’s IP.
Additional steps and ownership definitions of shared IP are especially needed in the case of OEMs working with EMS / ODM providers in joint development manufacturing (JDM) models. (Read: Differences between EMS, CEM, ODM, JDM providers)
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What follows are some tips for OEMs when working with EMS / ODM providers to help OEM executives protect their IP.
OEM prep before starting EMS / ODM programs
In my previous article focused on the EMS / ODM site visit when evaluating EMS / ODM providers, I mention OEMs can observe and verify an EMS / ODM provider’s internal processes for protecting IP during such site visits.
Do you notice any documents marked ‘confidential’ left in open areas like meeting rooms, test labs, on the production floor… Do you notice any customer-specific proprietary information left on whiteboards in the meeting rooms…
Ensure all patents (to be filed, pending, awarded) and their applicable countries are clearly written into the design and manufacturing agreements.
In the case of arbitration, make sure an appropriate organization and location (e.g., International Chamber of Commerce) are specified in your service agreements. Other points of interest include:
- Detailed descriptions for IP that needs to be protected such as trade secrets; trademarks, industrial designs, patents, copyrights, production methods, product release schedules to name a few.
- In a JDM model, ownership, licensing and usage of IP resulting from joint development needs to be clearly defined between the OEM and its EMS or ODM provider. Furthermore, both OEM and EMS / ODM providers must define how the jointly developed IP are to be defended should issues arise.
- Verify that the EMS/ODM provider’s factory floor can be configured for secured access to the manufacturing an OEM’s products from other OEMs.
Additionally, for electronics contract manufacturing with reference design or ODM model where much of the IP is provided from the EMS or ODM provider, OEM executives should include appropriate indemnification in any agreement.
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Design-to-manufacturing
During the phases involved with actually bringing your OEM product into design-to-manufacturing, demand the EMS / ODM provider assign a codename for the OEM project and that the EMS / ODM only references this codename whenever any reference or mention of the OEM’s program / name is required internal the EMS / ODM provider. You may also consider demanding the EMS / ODM provider assign a specific codename for each OEM project / product. Additionally,
- Assign specific document numbers for tracking and track key confidential documents shared with the EMS / ODM provider team.
- Conduct roll calls at the start of meetings or conference calls to make sure only pre-approved people from the EMS / ODM provider are in attendance.
- Assign unique ID or serial numbers to track engineering prototypes.
Other considerations
In addition to standard non-disclosure agreements (NDA), consider establishing personal NDAs with specific EMS / ODM provider team members. Additionally:
- Consider separating product final designs into different segments and outsourcing them to various EMS / ODM providers so no one EMS / ODM provider has all of the design details. Perhaps even have one EMS / ODM provider focus on manufacturing while another focuses on final product assembly.
- You may also consider paying close attention not to place large orders with publicly-traded smaller suppliers as financial regulations in the US, and some overseas countries, often require public companies to disclose customer information where the customer represents a large percentage of sales for that company.
Most EMS and ODM providers understand that in order for them to keep their current business and to gain new customers, they have to ensure protection of their customer’s IP.
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As EMS and ODM providers add more value to their design offerings more opportunity for IP-related issues will surface.
While any violations are mostly going to be unintentional, OEM executives following the tips provided in this article should help their companies to mitigate any frequent risks of occurrence.
See also: Foreign IP strategy for manufacturing executives
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