OEM Agreements: Key Terms US Businesses Should Check

Maya runs a growing smart kitchen brand. She designs a countertop appliance, finds a manufacturer that can build it, and plans to sell it under her own logo through online retailers.

Everything feels exciting until the draft OEM agreement arrives. It says the manufacturer owns all tooling, can use substitute parts, limits its liability to the price of one purchase order, and keeps the firmware rights. Suddenly, a supply deal has turned into a much bigger business risk.

If you're asking another business to make, brand, assemble or integrate products for you, an OEM agreement is where you set the rules. A good one doesn't just cover price and delivery. It protects your intellectual property, quality standards, customer promises, supply chain and ability to keep selling if something goes wrong.

What Is An OEM Agreement?

An OEM agreement is a contract that sets out how one business will manufacture, supply, brand or integrate products or components for another business.

OEM stands for original equipment manufacturer. In practice, the term is used in a few different ways. Your agreement might cover:

A manufacturer making products that you sell under your own brand under a manufacturing agreement
A supplier making components that you build into your finished product
A software or hardware provider allowing you to integrate its technology into your product under hardware supply terms
A private label arrangement where an existing product is customized with your branding
A reseller-style arrangement or reseller agreement where you package, market or bundle another company's product with your own offering

The label matters less than the actual deal. If another business is making something your customers will associate with your brand, you need clear supply agreement terms about ownership, quality, responsibility and control.

OEM agreements often sit alongside purchase orders, specifications, statements of work, supplier agreement terms, quality manuals, confidentiality agreements and support terms. Make sure these documents fit together. If the purchase order says one thing and the master agreement says another, you'll want the contract to say which document wins.

Do You Need A Written OEM Agreement?

Yes, you should have a written OEM agreement if another business is making, branding or integrating a product for your business.

A handshake or email chain may feel simpler, especially when you're testing a new supplier. The problem is that OEM deals usually involve issues that don't show up until later, such as defects, missed delivery dates, ownership of improvements, warranty claims or a supplier selling a similar product to someone else.

Without a written agreement, you may struggle to prove:

Who owns the product design, source files, drawings, molds, tooling, firmware or packaging artwork
Whether the supplier can sell similar products to your competitors
What quality standards the supplier must meet
Who pays for rejected stock, recalls or customer complaints
Whether you can switch manufacturers and take your tooling or materials with you
What happens if the supplier stops production or raises prices suddenly

For goods, Article 2 of the Uniform Commercial Code is often the baseline contract framework in the US. It deals with sales of goods, warranties, acceptance, rejection and remedies. State law can affect how the UCC applies, so your contract should be drafted with the governing law and your commercial setup in mind.

A tailored agreement is especially helpful because template OEM contracts often miss the details that make your product valuable. For example, a generic supply clause might not deal with who owns a custom circuit board design, whether source code escrow is needed, or how replacement parts will be supplied after launch.

Who Owns The Intellectual Property In An OEM Deal?

It depends on what the agreement says, so your OEM contract should clearly separate your pre-existing IP, the supplier's pre-existing IP and any new IP created during the project.

This is one of the biggest areas where businesses get caught out. You might assume that because you paid for development, you own everything. That isn't always how US IP law works.

Your Brand And Trademarks

If the product will carry your brand, your agreement should say the supplier can use your trademarks only to make and supply products for you.

Under the Lanham Act, trademarks help protect brand names, logos and other source identifiers used in commerce. If you're building a serious product line, you may also want to check whether your brand is registrable with the US Patent and Trademark Office and whether the supplier's use is properly controlled.

Your OEM agreement should cover:

Which trademarks the supplier can use
How the supplier must follow your brand guidelines
That the supplier can't register confusingly similar marks
That the supplier can't sell rejected or excess stock under your brand
What happens to branded packaging, labels and materials when the agreement ends

Copyright, Designs And Software

Copyright can protect things like packaging artwork, manuals, photographs, website copy, product graphics and software code. The Copyright Act has specific rules about ownership and transfers, and written assignments are usually needed to transfer copyright ownership.

If firmware, software, CAD files, product drawings or instruction manuals are being created, your contract should spell out who owns them and what each party can do with them. If the supplier keeps ownership of background software, you may still need a license broad enough to sell, support, repair and update your products.

Trade Secrets And Confidential Information

If you're sharing formulas, manufacturing methods, customer data, source files, pricing, prototypes or business plans, treat them as confidential information from day one.

The Defend Trade Secrets Act can protect trade secrets at the federal level, but you still need to take reasonable steps to keep the information secret. Your agreement should include practical confidentiality controls, such as limiting access, banning reverse engineering, restricting subcontractors and requiring secure handling of files and samples.

What Quality And Testing Terms Should You Check?

You should check that the agreement gives you clear specifications, inspection rights, testing obligations and remedies if the products don't meet the agreed standard.

Quality clauses aren't just legal padding. They directly affect your reviews, refund rates, retailer relationships and insurance risk.

Your OEM agreement should usually include:

Detailed specifications: Materials, dimensions, performance requirements, approved components, packaging, labeling and tolerances.
Sample approval: A process for approving prototypes, pre-production samples and final production samples.
Testing requirements: Who tests the product, which standards apply, when tests occur and who pays.
Inspection rights: Whether you can inspect facilities, review quality records or appoint a third-party inspector.
Change controls: A rule that the supplier can't change materials, components, processes, factories or subcontractors without your written approval.
Defect remedies: Repair, replacement, refund, credit, rework, destruction of defective stock and reimbursement of reasonable costs.

Say you sell branded fitness equipment and your OEM supplier changes a metal component to reduce costs. If that change makes the product fail under normal use, your customers won't blame the factory. They'll blame your brand. That's why you want approval rights before any material change is made.

If your product is regulated, industry rules may also require specific testing, labeling or certifications. Depending on the product, this could involve agencies or rules connected with consumer product safety, electronics, food, cosmetics, medical devices or environmental claims. The contract should make responsibility for compliance clear, but you'll still want to confirm the requirements for your product category.

How Should Warranties And Liability Work?

Your OEM agreement should make the supplier stand behind the products it makes, while matching your liability exposure to the real risks of the deal.

There are two types of warranties to think about. First, there are the warranties your supplier gives you. Second, there are the promises you make to your customers, distributors or retailers.

Supplier Warranties

Your supplier warranties might cover that the products:

Match the agreed specifications and approved samples
Are free from defects in materials, workmanship and design, where the supplier is responsible for design
Comply with applicable laws, safety standards and labeling requirements
Don't infringe third-party IP rights, at least for supplier-provided materials or technology
Are new, genuine and not made with unauthorized substitute parts
Will be supported with spare parts or replacement components for a set period

For goods, the UCC may imply warranties such as merchantability or fitness for a particular purpose in some situations. Contracts often try to disclaim or limit these warranties, but the wording and enforceability can depend on state law and the facts. Don't assume a broad disclaimer is valid just because it's written in capital letters.

Your Customer Promises

If you offer written warranties to consumers, federal rules may apply, including the Magnuson-Moss Warranty Act. If you advertise performance claims, sustainability claims or compatibility claims, the Federal Trade Commission Act and FTC guidance can also matter because marketing statements must not be deceptive or misleading.

Your OEM agreement should support the promises you're making in the market. For example, if your website says a battery lasts 10 hours, your supplier should have tested and warranted that performance under the agreed conditions.

Limits On Liability

Most OEM agreements include limits on liability. These clauses can be reasonable, but you need to check what is excluded from the cap.

You may want higher or uncapped responsibility for certain issues, such as:

IP infringement claims caused by supplier technology or materials
Confidentiality breaches
Product defects that cause recalls or safety issues
Fraud, willful misconduct or gross negligence
Unpaid amounts or misuse of your trademarks

State law can affect how liability limits are interpreted. The right position also depends on bargaining power, insurance and product risk.

What Supply And Delivery Terms Reduce Business Risk?

The best supply terms give you enough certainty to meet customer demand without locking you into stock, pricing or exclusivity that doesn't work for your business.

OEM supply risk can show up in practical ways: late shipments, minimum order quantities that eat cash flow, sudden price increases, component shortages or a manufacturer prioritizing a bigger customer.

Check these terms carefully:

Forecasts: Are your forecasts binding, partly binding or non-binding?
Minimum order quantities: Can you meet them without overstocking?
Lead times: When does the delivery clock start, and what happens if the supplier misses it?
Pricing: Can prices change, how much notice is required, and what inputs can trigger a change?
Payment terms: Are deposits, milestones, credits and set-off rights clear?
Shipping and risk: When does title and risk of loss pass, and who handles freight, insurance, customs and damage claims?
Capacity commitments: Does the supplier reserve production capacity for you?
End-of-life notices: How much warning must the supplier give before discontinuing a component or product?

You may also want a business continuity clause. This can require the supplier to maintain backup plans, keep critical materials available, notify you about shortages early and cooperate if you need to move production to another supplier.

If the supplier is overseas or relies on overseas components, add extra detail around import compliance, sanctions screening, customs documentation and delivery terms. Your broker or logistics adviser can help with the operational side, but the contract should say who is responsible for delays, paperwork and additional costs.

Can Your OEM Supplier Sell Similar Products To Other Businesses?

Yes, unless your agreement restricts it, your OEM supplier may be able to sell similar products to other customers.

This doesn't always mean you need full exclusivity. In many cases, full exclusivity is expensive or unrealistic. But you should be clear about what would harm your business.

Options include:

No exclusivity: The supplier can sell similar products, but can't use your IP, confidential information or branding.
Customer exclusivity: The supplier can't supply named competitors or certain channels.
Product exclusivity: The supplier can't make or sell a specific product or custom design for others.
Territory exclusivity: The supplier can't supply the covered product in certain markets.
Time-limited exclusivity: You get exclusivity for a launch period or while you meet minimum purchase targets.

Be realistic about what you're paying for. If the supplier is giving up other sales opportunities, it may ask for volume commitments, higher pricing or minimum annual purchases.

Also check non-circumvention language. If you introduce the supplier to your retailers, distributors or major customers, you may want the contract to stop the supplier from bypassing you and selling directly to them.

What Happens When The OEM Agreement Ends?

Your agreement should explain exactly what happens when the relationship ends, because exit rights are often where leverage sits.

End-of-contract terms can feel far away when you're focused on launch. But if the relationship breaks down, you need a practical path to keep serving customers.

Key exit terms include:

How either party can terminate, including for breach, insolvency, repeated quality failures or long delays
Whether you can terminate for convenience, and what fees apply
What happens to open purchase orders
Whether the supplier must deliver finished goods, work in progress, raw materials and spare parts
Who owns tooling, molds, dies, test fixtures, samples and production files
How quickly the supplier must return or destroy confidential information
Whether you get transition support to move production
How long warranties, indemnities, confidentiality and IP licenses survive

Tooling deserves special attention. If you paid for molds or production equipment, the agreement should say whether you own them, where they're stored, how they're maintained, whether they can be used for other customers and how you can recover them.

If your product includes software or critical technical documentation, you may also need source code access, escrow or a transition license. Otherwise, you might own the brand but not have what you need to maintain or update the product.

Frequently Asked Questions

Is An OEM Agreement The Same As A Manufacturing Agreement?

Not always. A manufacturing agreement usually focuses on making goods, while an OEM agreement may also cover branding, integration, technology licenses, private label rights and resale restrictions.

Can I Use A Purchase Order Instead Of An OEM Agreement?

Usually, no. A purchase order can handle quantities, price and delivery for a specific order, but it usually won't cover IP ownership, quality systems, warranties, confidentiality, tooling and exit rights in enough detail.

Should My OEM Agreement Include An Indemnity?

Often, yes. An indemnity can require the supplier to cover certain losses, such as IP infringement caused by its materials, defective products, confidentiality breaches or violations of law. The wording should match the real risks of your product.

Who Handles Product Recalls?

Your agreement should say who decides, manages and pays for recalls. The right answer depends on the product, the cause of the issue, regulator expectations and who controls customer communications.

Key Takeaways

An OEM agreement should cover more than price. It should deal with IP, quality, warranties, supply risk, confidentiality and exit rights.
Be clear about who owns your brand, designs, software, tooling, improvements and technical files.
Quality controls should include specifications, testing, inspections, change approvals and practical remedies for defects.
Warranty, liability and indemnity clauses should match your customer promises and the real risks of your product.
Supply terms should protect you against late deliveries, sudden price changes, shortages and difficult transitions.
State law, industry rules and your product category can change the right approach, so tailored drafting matters.

If you'd like help with your OEM agreement, supplier terms, IP ownership clauses or product warranty position, you can reach our team at (888) 449-8437 or team@sprintlaw.com. Where legal services are required, they're provided by licensed US lawyers at ElevateNext US, LLC, a trusted US law firm, through the Sprintlaw platform.