2 of 2: IP and contractors

This is the second of today’s two posts on intellectual property and sewing contractors. On this one, I need a reality check so I’d really appreciate your feedback. Forgive the lengthy preamble, I need to establish context.

This issue has to do with having a contractor or product development person sign instruments or contracts regarding the protection of your ideas and concepts. As I have said many times, many contractors or service providers are going to be ticked off if you ask them to sign a non-disclosure agreement. To reiterate, it’s because they don’t want to be held liable for the actions of outside parties once your product hits the market because most contractors are scrupulously honest. When I wrote this interview with an inventor, the inventor concurred and said she did not have a confidentiality agreement with a company with whom she was in discussions. However, she added the caveat that the only thing she would have done differently (reminder: she’s an engineer with extensive IP experience) would have been to have had the manufacturer sign a contract saying they agreed they would not be manufacturing her product. After all, in discussions they declined to take on the manufacture and licensing of her idea so having them sign a statement to that effect would have made their position official. I mean, if they said they didn’t want her product, what harm is there in signing a paper to that effect?

As it happens, the dirty dogs did go behind her back and manufacture the product but never fear, the story had a satisfactory ending. All of those emails going back and forth constituted sufficient evidence so it never went to litigation. Now, at the time we were discussing this, I commented that although I’d be offended if someone wanted me to sign a confidentiality agreement, I wouldn’t have a problem signing an agreement that stated I agreed I would not be manufacturing an item. I mean, I laughed. If a client wanted that, no problem. Maybe you all think it is a very fine line but I don’t find this the slightest bit offensive and I also realized that was all most clients really want. I think most clients are concerned the contractor will produce the items for themselves; it’s not the issue that the contractor will blab it all over creation which is all a non-disclosure agreement covers. Is my perception accurate? Anyway, it was after this that I started suggesting that DEs concerned about IP should have their contractors sign an agreement to this effect if this was a concern for them. My feeling is that a reputable party won’t have a problem with this but maybe I was wrong? You tell me.


[edited: many people’s comments show they didn’t read the issues carefully or they don’t know the difference between a contractor and a manufacturer. Or, didn’t understand that while this manufacturer in question is a contractor if they agree to provide that function, their operational and strategic interests remain as that of a manufacturer. Please read carefully, then comment. thanks]

After this lengthy preamble, we get to the question at hand. One of our regulars went to a manufacturer who already manufactures a line of similar products. In other words, the DE went to her competitor, got it? Contrary to what many think, this can be an ideal situation for a DE because the manufacturer often knows more about the minutia of construction and production demands of the product than a client does, providing an unparalleled level of insight and targeted advice. However, because the DE was using a manufacturer who competes in the same market with her, she had some IP concerns. My recommendation was that she could get the manufacturer to sign an agreement saying they wouldn’t be manufacturing these specific goods for themselves or anyone else because you can’t have them sign a “non-compete” since they already are. However, much to my surprise, the manufacturer became very angry with the suggestion. The DE says:

Just wanted to run something by you~ I went ahead, pursuant to our conversations and asked the [manufacturer cum contractor] for a “non-compete” clause. My request was as non-confrontational and gentle as could possibly be done [it was]. Needless to say, she has terminated work with my company. Did I make a horrible error, or is this a sign? I am really beating myself up, but at the same time I am surprised.

Technically, a non-compete isn’t appropriate since she already does compete with you but I think everyone concerned understands you mean to say that the manufacturer cum contractor agrees she will not be producing your styles to sell for herself. Regarding the manufacturer’s response, I was more than surprised, I am shocked. Am I all wet here? To those of you who work with DEs, do you find a non-compete offensive? To the DEs, do you take the manufacturer’s response as a sign? I am certainly rethinking this issue. At the same time, I’m wondering if this is a sign and thinking that the DE has sidestepped a potential problem in the making. What say all of you?

Reminders before you comment.
* Contractor does not mean manufacturer (read the book).
* Both parties are manufacturers who compete with each other in the same market.

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25 comments

  1. Miracle says:

    Kathleen, would signing that DE’s noncompete prohibit the contractor from making a similar product from other clients? I suppose you’d have to read it to know.

  2. Darby says:

    Maybe this comes down to a difference between “old school” and “new school,” specifically, “old school” feeling as though their business ethics and integrity are being questioned by having to sign such a document.

  3. Lisa B. says:

    Hello! I’m new to this.
    First of all, what’s a DE?
    Secondly, I don’t know if I’m a regular contractor since I work from home, but I have done sewing for people. One lady making handbags wanted me to sign a non-disclosure agreement. I was OK with it, was not offended. I guess it’s because I’m a designer, too, and I understand she didn’t want me to copy her stuff.
    I guess one could ask the contractor’s opinion about signing a non-disclosure or non-compete first then go from what their reaction is. Also, if they’re a contractor of repute, you would think they would be cool enough to work with you on it and not refuse to manufacture anything from you, whether or not they would sign any kind of agreement.

  4. Kathleen says:

    First of all, what’s a DE?
    Designer Entrepreneur

    I’m guessing you’re browser isn’t Firefox :). If you let your cursor rest over “DE”, a little box pops up giving the definition. I try to define ambiguous acronyms as much as possible. In Firefox, defined acronyms have a spotted underline.

  5. j. says:

    Based on that description, I’d wonder if the contractor wouldn’t have behaved the same way if she had been presented with a request to sign a NDA. So perhaps there isn’t a lot to be surprised about in this case.

    But it is also possible that the contractor might have misunderstood the purpose of the non-compete. Some fledgling entrepreneurs sometimes start out with non-compete demands that could operate to prohibit the contractor from making similar items for a different client, and the contractor might have thought that was the intention here. When the DE said “non-compete”, the contractor might have heard “you can’t make products like this for yourself *or* anybody else”.

    Also, another point to distinguish this incident from your previous interview with an inventor: that other inventor, remember, had filed (both utility and design) patent applications. So, she probably had patent applications pending while she was negotiating with the company that then proceeded to make the product without her permission. The pending applications are not a substitute for a NDA, but if she was likely to get a patent and the company knew about it, then that might have been one of the points that persuaded that company to back down.

  6. J C Sprowls says:

    I’m specifically interested to hear from the contract manufacturer community on this.

    Is it old school v. new school, an affront to personal excellence, an affront to one’s ego, etc?

    My estimation of past experiences indicate that when the lady doth protest, it’s prudent to assume one of the parties is reserving their right to do ill will at some time in the future.

  7. J C Sprowls says:

    This may be elementary for some of us; but, I just wanted to clarify that:

    An NDA (non-disclosure agreement) only prevents either party from discussing the product or processes in question – in other words, keeping your client’s secrets.

    An NCA (non-compete agreement) prevents one party from competing with the other – in other words, dividing up territory or resources.

    Some jobs that trade on information, like management consultants, work in saturated markets where competition for resources is fierce. NDA/NCA are often a combined boilerplate condition of employment. The agreements I’ve signed in the past contained some geographical radius as a condition (e.g. can’t do the same type of job w/in n miles, can’t trade on clients of CompanyA for X yrs, etc).

  8. Karen C says:

    OK, I’m coming at this from a litigation background, and I think it’s foolish to do business without anything in writing. That’s how most litigation starts–by a misunderstanding of what you’re contracting for. And I would think that both a NDA and a NCA would be boilerplate language. I think if a sewing contractor gets ticked off by this, then that isn’t the person you want to do business with in the first place. This is just to protect both parties and establish the ground rules of the contract. Most other businesses do this as a matter of course. It’s just business–nothing personal.

  9. Big Irv says:

    We have no problems signing NDA’s.I think it is not what is asked, but how it is asked and presented to the contractor.

    Much can be interpreted into asking a contractor to sign one (NDA) .As for NCA’s, I think most contractors don’t have the skills to successfully compete with designers they produce for. Most have their hands full trying to run the place let alone do all the marketing, sales, etc….. And most contractors don’t have the same passion designers have for their creations. Building a brand is hard dedicated work too. We have too much going on to worry about ripping off someone’s idea or styles.

    As a contractor , you need to be careful who knows which brand you produce for as paranoia does run rampant amongst large and small brands as well. Most companies will say it doesn’t matter who else you produce for but they really do keep an eye on things. They are afraid other brands will see their products in production and if the style isn’t released they imagine all types of nefarious things can happen. Big companies claim they could care less, but this simply is not true. They do care. And they keep tabs.

    We try to follow strict sample policies here . Our production department sample room is off limits to casual visits and we excercise caution with sewby samples. We need to coddle clients and assure them that discretion is being used, at every stage of development and production.

    So to finish this, in my opinion, most contractors would not try to copy or compete with the people they produce for . If you think it might happen, discuss it with them. Talk about it. If then you still feel an need for a NDA, ask nicely.
    Like asking for someone’s DNA, much of the time it is to exclude suspects.

  10. Andrea says:

    The only thing I can think of is that sometimes DE’s (and I am not accusing this one) try to own a certain construction method (which is mostly work standard stuff) and claim it as proprietary and get very offended if they find another DE with the same contractor using the same technique on a competing product. My assumption is that the contractor assumed this is what our dear DE meant…other than that, I would say that a company who will not supply a non-compete is probably not the best fit or if they don’t accept a non-compete that they explain why in a reasonable way.

  11. Kathleen says:

    The “contractor” in question isn’t really a contractor per se, but a manufacturer of competing products. I guess that wasn’t clear. This party isn’t set up to manage client relationships like this, it was an unusual situation.

    When the DE said “non-compete”, the contractor might have heard “you can’t make products like this for yourself *or* anybody else”

    I’d say it was very clear that the message was, “you can’t make my products for yourself or anyone else” (the latter is unlikely, the manufacturer is not a contractor).

    And I would think that both a NDA and a NCA would be boilerplate language. I think if a sewing contractor gets ticked off by this, then that isn’t the person you want to do business with in the first place.

    Then you and I would never do business together :). An NDA isn’t worth the paper it’s written on. I refuse to be held liable in the event somebody gets knocked off after the fact and the DE feels like suing somebody.

    The only thing I can think of is that sometimes DE’s (and I am not accusing this one) try to own a certain construction method (which is mostly work standard stuff) and claim it as proprietary and get very offended if they find another DE with the same contractor using the same technique on a competing product. My assumption is that the contractor assumed this is what our dear DE meant..

    I think the manufacturer cum contractor understood *exactly* what the DE wanted. The DE wasn’t likely to have proprietary methods (just as the manufacturer is not producing for anyone else).

  12. Miracle says:

    Kathleen, in light of your recent comments, I feel like siding with the manufacturer. The reason is, a manufacturer has no need to sign a NCA that could restrict their product development for a couple years. A contractor would, because they are in the business of making products for others (primarily), but a manufacturer is not. There are some products that a company would have likely developed anyway because of creative synchronicity (as you wrote about before) and since they are in the product business, why unnecessarily restrict their options?

    They very well could be questionable, however, as a business there’s no reason to lock your company into contractual situations unnecessarily. It just would not be worth it, UNLESS we’re talking a client that is doing so much production that the volume justifies the hassle.

  13. J C Sprowls says:

    An NDA isn’t worth the paper it’s written on. I refuse to be held liable in the event somebody gets knocked off after the fact and the DE feels like suing somebody.

    NDAs are very difficult to enforce for this very reason. Fortunately, the burden of proof is on the accuser.

    I side with Kathleen that it’s wise to recognize that either side can breach an NDA. And, I can see how, in their zeal, the DE is probably the first to slip up (i.e. breach). But, the paper trail holds the contractor accountable, so it’s prudent to mitigate that risk, upfront.

    The “contractor” in question isn’t really a contractor per se, but a manufacturer of competing products.

    Hindsight is 20/20. A manufacturer might take ‘fill’ work to keep their needles running (i.e. pay the staff). But, it may not be a practical choice for a DE to use that ‘fill’ time. I think the mfg has some accountability here, too. Taking ‘fill’ isn’t a problem, per se; but, *what* you take on might be.

    I apologize if I am re-stating the obvious. But, what I’m gleaning from this is:
    *The DE is making ProductA which will compete w/ MFG in the same marketplace.
    *Yet, DE wants MFG to manufacture ProductA in addition to the MFG’s existing ProductX, Y, & Z.

    IMO, an NCA is not appropriate in this case. In fact, I think both the MFG and the DE should have recognized the potential for collusion and should have avoided this relationship.

  14. Kathleen says:

    *Yet, DE wants MFG to manufacture ProductA in addition to the MFG’s existing ProductX, Y, & Z.

    It is highly unlikely that through the normal course of affairs that the MFG would synchroniciticely come to manufacture products similar to our DE. Besides, the MFG says she is insulted that her integrity was questioned. She did not bring up the issue of the future likelihood of doing designs similar to hers. I think Miracle’s earlier comment is splitting hairs when the head is bare; it didn’t apply to this altho it definitely could in other cases. The comment has muddled this discussion and taken the thread far off track. I *know* both parties in question!

    This is a specialty market and highly stylized. I of course, can’t tell you what is going on but personally, I think our DE sidestepped a landmine. I could not be more disappointed in the MFG. Maybe I shouldn’t have brought it up, there are too many variables with a lot of bearing on this issue that I can’t disclose. And btw, I am not bound by an NDA, just integrity (thought I’d throw that in there).

    I will rephrase or reiterate: are people offended by a non compete? I didn’t say, do they object to it for justifiable reasons?,no, I said do people get offended and pissed off. I didn’t say, did this MFG have solid business reasons for not signing?, no, I said their reaction was over the top. If it’s a business thing, why get emotional about it? I mean, if a designer wants me to sign a nda, I don’t get upset, I just tell them I can’t help them and move on. No emotion. This lady got pissed, big difference. and btw, this MFG is *not* old school. She’s only been manufacturing herself for three or four years max.

  15. Miracle says:

    If it’s a business thing, why get emotional about it? I mean, if a designer wants me to sign a nda, I don’t get upset, I just tell them I can’t help them and move on. No emotion.

    I don’t think that’s fair because there are things that ruffle your feathers, they just aren’t the same things that offended this manufacturer. I think everybody has their buttons, but it’s unfair to call her over the top because you don’t share the same opinion on this topic and it wouldn’t have made you emotional/offended.

  16. Dobizo says:

    The answer could be very simple…maybe the contractor has had similar problems with ip and a DE before…so decided it would be in their best mind too not deal with anyone who has problems or questions about the matter. This could be a one of a kind situation and the likes of it happening again with a different manufacturer could be slim to none.

    I don’t understand why anyone would get mad at the fact of a non-compete contract…just sign the darn thing and keep it moving nothing to it. It seems to me its either the prior (what I mentioned above) or something fishy…maybe their intent was too rip her/him off.

  17. Allison says:

    I am so glad that you are touching upon this subject.
    I am a start up denim manufacturer and I have been dealing with this issue for days. I have been working with contractor’s around Los Angeles and attempting to hide my niche concept from everyone. I asked the first contractor that I was working with, if he would sign a NDA. He refused. He told me that there is no way to protect my designs from getting knocked off once my product hits market. It was only then, that I had to re-think working with this guy. The main problem for me right now, is not what people are going to do when this gets to market. But what people are going to do, before!!!!! this product gets to market!!! Anybody who has worked in the industry know’s that one of the first things that contractors do when you walk in the door, is show other potential manufacturers what they have been and what they are working on!!! And we also know that contractors might have a tendency to show or even tell their other larger manufacturing customers what new things have just come across their paths!
    China does this all night and day too. Anyhow…Today, I have been working with a new contractor. I asked him, “So, do you have a problem signing a NDA, so I can get an accurate quote on all proccess with assembily, finishing etc. for my final costs?”
    He said “No.” I said, ” Why is that?” He said, “Because I can not guarantee that when your product is being produced, that someone might happen to walk in the back and see your product. I just can’t guarantee that.”

    All I can say is this. If you don’t have pull as an established manufacturer (decent volume orders) and you don’t have inhouse sewing, let alone the ability to produce samples in house!!!!
    GOOD LUCK! Becuase it is hard enough to find a contractor to do your job, let alone, get them to sign an agreement.

  18. Miracle says:

    Allison, while I understand your concern, I’m not so sure that other denim manufacturers (in LA) are your problem. I have a couple friends who buy from many of these denim manufacturers and part of your concern is based on the assumption that if they saw your concept, they could drop or change production to steal your idea. The reality is that most of these companies have a pipeline of products a year (if not two or more) out.

    Also if everybody was under NDA, DEs would not benefit. I have gotten referrals to trim companies and suggestions on construction, dyeing and finishing, from my contractor, from being able to discuss the products of others. Under an NDA, the contractor couldn’t even give you a source for (say) antique finish rivets if a client using them had them under NDA.

    And I still don’t understand why people expect contractors (or manufacturers of any sorts) to voluntarily enter into these agreements for start up, small DEs. Considering most DEs don’t have actual attorneys on retainer and cobble legal documents together from bits and pieces they can get ahold of, it would require a contractor to have someone on staff, or retainer, for legal document review if this became a common practice.

  19. Kathleen says:

    I can see this has sparked a lot of debate and I’ve been getting email about it, most of it asking for more information on IP in general. First, read the articles on F-I that I linked to in this entry or select the IP category in the right sidebar (if you don’t understand why contractors take issue with this).

    Miracle linked to an article she found, I don’t know in which entry (I thought it was in this one but it’s not), backing off that url, I found a whole slew of articles on the topic:
    http://www.tenonline.org/art-inv.html

    Also, I’d saved an article from Harvard Business School here:
    http://hbswk.hbs.edu/item/5628.html about the power of non-competes in general that you might want to read. Lastly, there’s more than you could ever hope to read if you go to my IP del.icio.us links:
    http://del.icio.us/kathleen_fasanella/Intellectual_property

    Actually, you can check my del.icio.us bookmarks on any given topic. If you want to know what I’m reading, finding and saving on the web, my bookmarks are freely available to anyone (look under “Admin”). In fact, if you’re writing me because you’re looking for something, I will probably just dig through my bookmarks to find the resource so you can save yourself some time by not having to wait on my response by going there first yourself.

  20. Suzanne says:

    You know, I have seen some of the other things my sewing contractor is making for other people, and even if I thought something was super-neato, I have my own products I’m making. I have my own business I believe in and am growing, I don’t need to snoop around my sewing contractor of all places to get ideas for things to make.

    Every DE has their own slightly different market they are selling to, everyone has their own personal style, and beyond that, it is folly to think that all you need is “a good idea” to be a successful manufacturer. It’s so much more than that.

    And the contractors are right, if your idea is fantastic, you might get knocked off. That’s why you gotta keep moving, keep developing your customer base, keep designing. If you only have one trick, you won’t get far.

    That’s my barely-into-this-business opinion, but I think I’m right. ;-)

  21. Suzanne says:

    You know, I have seen some of the other things my sewing contractor is making for other people, and even if I thought something was super-neato, I have my own products I’m making. I have my own business I believe in and am growing, I don’t need to snoop around my sewing contractor of all places to get ideas for things to make.

    Every DE has their own slightly different market they are selling to, everyone has their own personal style, and beyond that, it is folly to think that all you need is “a good idea” to be a successful manufacturer. It’s so much more than that.

    And the contractors are right, if your idea is fantastic, you might get knocked off. That’s why you gotta keep moving, keep developing your customer base, keep designing. If you only have one trick, you won’t get far.

    That’s my barely-into-this-business opinion, but I think I’m right. ;-)

  22. J C Sprowls says:

    It is so very dangerous to cobble an agreement together without the assistance of legal counsel. Go ahead and browse sample agreements. Write down your requirements. But, let counsel draft the template you use for your business. Before you approve the draft, make sure the arrangement is equitable to both sides – you don’t want to alienate yourself from potential contractors. If it’s too difficult for the layman to read and comprehend, have them re-write it.

    Employee shall not own, manage, operate, consult or to be employed in a business substantially similar to, or competitive with, the present business of Company or such other business activity in which Company may substantially engage during the term of employment.

    I’d never sign an NCA with this clause in it, either. This clause is deleterious to any industry. It prevents mobility and gainful employment, which is why courts frequently dissolve agreements of this nature. In my opinion, this only serves to waste the DEs and the Contractor’s time and money. There are better uses for those resources.

    Employee acknowledges that Company may, in reliance of this agreement, provide Employee access to trade secrets, customers and other confidential data and good will. Employee agrees to retain said information as confidential and not to use said information on his or her own behalf or disclose same to any third party.

    This clause is also inappropriate for the Contractor/DE relationship. It shuts down the collaboration and exchange of information you want to elicit. A contractor will develop methods and skills in the due course of producing your product. In fact, they probably drew upon previous experience with other clients in order to make recommendations for your product. Since theirs is the skill set, experience and braintrust you depend on, it is unrealistic to expect that they would not make recommendations to others based on what they learn.

    I doubt either of these clauses are the end result most DEs are seeking – I know I’m not. The only thing I want to manage is to make sure the contractor isn’t copying my patterns into their library, selling my patterns to their clients, or making my product for themselves. I’m fine with the fact that, if my design is worthwhile, someone will buy it at retail, rip it down and copy it. That I will pursue as is appropriate. I only care that the contractor of my choosing didn’t aid in the process.

    The main problem for me right now, is not what people are going to do when this gets to market. But what people are going to do, before!!!!! this product gets to market!!!

    Alison, my only question here is: how long is your R&D cycle? If you’re talking to contractors too early, then you may be opening yourself up to risk. If your product needs to release during a season, then it’s a race to the finish line. Your best strategy is to enter the race as close to the finish line as possible.

    And, as Miracle points out: your concern is based on the assumption that if they saw your concept, they could drop or change production to steal your idea. The reality is that most of these companies have a pipeline of products a year (if not two or more) out.

  23. diane in Michigan says:

    I definately apply what I have learned sewing for others in the last ten years to more recent projects, it only makes sense. Why would I want to do something the hard way when I know of a way to make my life easier?

    I have been given several non competes in the last several years. I refused them all because they were several pages long and read more like a non disclosure. At least one would have prohibited me from taking in the same sort of garment for another client. Only one still had me do sewing for them.

    One designer in particular had the nerve to hand me a contract and immediately ask if I knew where he could get a certain size snap because the regular place he ordered had them on back order!

    As a work at home production seamstress, I am not offended by the asking, but exhausted by the content.

  24. Andy Chang says:

    I’m surprised to see so much fuss about NDAs. The whole fashion industry is a big copy cat. It copies from trends in the past and re-interpret in the present and etc.

    I make samples, patterns and source fabrics for many large customers. And many of my customers use me because I develop for other similar large customers and they feel that it would be easier to communicate with me since I’m use to develop for similar customers.

    My customers often buy samples from market and tell me to do the exact same thing but place their labels on it. This happens every day. While I think it is not ethical to show some one what your other customers are working on currently. But once it is in the market, there is no need to keeping it a secret anymore. Anyone could walk into a store a buy your design and copy it.

    It is likely that AAA brand is copying BBB brand, but BBB brand got the idea from CCC brand. That is what fashion industry is all about. You get inspiration from others to inspire your own creativity.

    Seriously, take a look at the market, there is a reason why every one has a military jacket in their collection, a skull design on their t-shirt, a huge applique or embroidery on their swim trunk. It’s all inspirations from other artist and people adding on their own spin.

    I think it’s healthy and it promotes creativity. Like Kathleen’s post some time ago, asking someone to sign an NDA is along the same line of putting a patent on your fashion design…. It’s not worth the time and effort unless you are in the high tech industry. If you are a fashion designer, focus on being the first to market because the only advantage you will have is the first season. After that, it’s free for all…….

  25. Vesta says:

    At the very least, this manufacturer is unable to deal professionally with her colleagues. I think your DE definitely dodged a bullet. You have to be able to react appropriately to the interactions you have with people every day in your business dealings.

    And in my experience, my contractors are the most scrupulous people in my business world. It’s employees who need to sign agreements (NCA, NDA, NSBA . . . that last one is non-shitty-behavior-agreement . . . can I say that here?).

    Vesta
    Who last year had to let an employee go for setting up in competition to us, while working for us, and using our products as reasearch, then approached our contractors, who said “I’m sorry, no. Conflict of interest.” Be paranoid where it counts.

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