Various legal issues can arise in contract manufacturing relationships. Taking the right approaches to prevent and resolve these issues is essential.
Common Legal Issues
1. Intellectual Property Disputes
Unauthorized use of product designs, formulas, or production techniques shared with the manufacturer is one of the most common issues.
2. Quality Standard Disputes
When established quality standards are not met, product rejection and compensation claims arise.
3. Delivery Delays
Failure to meet delivery dates specified in the contract can cause serious commercial losses, especially for seasonal products.
4. Payment Disputes
Non-payment or late payment of manufacturing fees triggers legal proceedings for both parties.
Preventing Legal Issues
Detailed Contract Preparation
Preparing a clear and comprehensive contract that covers all possible scenarios prevents most problems.
Non-Disclosure Agreement (NDA)
Signing a separate NDA in addition to the main contract reduces intellectual property risks.
Arbitration Clause
Including an arbitration clause in the contract enables faster and more cost-effective dispute resolution.
Dispute Resolution Methods
- Negotiation: Direct discussion between parties to find a solution
- Mediation: Resolution with the help of a neutral mediator
- Arbitration: Resolution through an arbitration panel's decision
- Litigation: Court proceedings as a last resort
For prevention, see How to Prepare a Contract and The Importance of Contracts.