How to Negotiate LED Therapy Device OEM Agreements That Protect Your Brand
We signed an OEM agreement to manufacture LED masks for a European brand. Six months later, we found our exact design — our mold, our PCB, our firmware — being sold under three other brand names. Our OEM partner had shared our IP. We had no protection in the contract. Here’s how to negotiate OEM agreements that actually protect you.
OEM Agreement Essential Clauses
1. Exclusivity
Exclusive manufacturing: Only you make this product for them
Territorial exclusivity: Only they sell in specified regions
Product exclusivity: Only they sell this specific design
Define exactly what’s exclusive and what’s not
2. Intellectual property ownership
Who owns the mold? (You paid for it, or they did?)
Who owns the PCB design?
Who owns the firmware?
Who owns the product design?
Get it in writing — “we own what we design”
3. Non-compete and non-circumvention
OEM cannot sell your design to others
OEM cannot manufacture similar products for competitors
OEM cannot bypass you to source directly
Define duration (typically 2-5 years after agreement ends)
4. Confidentiality
Technical specifications are confidential
Pricing is confidential
Customer lists are confidential
Define duration (typically 5 years)
5. Quality standards
Manufacturing specifications
Incoming QC requirements
Outgoing QC requirements
Right to inspect at any time
Rejection criteria and process
6. Pricing and payment
Fixed pricing period (6-12 months)
Price adjustment mechanism (material cost indexing)
Payment terms (30% deposit, 70% before shipment)
Currency and exchange rate risk
7. Minimum order commitments
Annual minimum purchase quantity
Failure to meet minimums = loss of exclusivity
Forecast requirements (90-day rolling)
Cancellation penalties
Common OEM Pitfalls
Pitfall 1: Mold ownership ambiguity
You pay for the mold ($5,000-15,000)
OEM claims ownership because it’s in their facility
OEM uses your mold for other customers
Fix: Contract clearly states mold ownership and usage rights
Pitfall 2: No design protection
You share PCB files, firmware, and mechanical design
OEM copies and sells to others
Hard to prove without contractual protection
Fix: Mark all files as confidential, register IP where possible
Pitfall 3: Weak confidentiality terms
NDA covers “business information” but not technical details
OEM claims technical knowledge is theirs
Fix: Enumerate specifically what’s confidential (PCB files, firmware, BOM, tooling designs)
Pitfall 4: No exit strategy
Agreement ends, but OEM keeps making your product
No provision for mold return or destruction
Fix: Define exactly what happens at agreement termination
Pitfall 5: One-sided quality liability
You’re responsible for all defects, even if OEM changed the process
No right to audit or inspect
Fix: Shared responsibility based on root cause
Negotiation Strategy
From the buyer’s perspective (hiring an OEM):
Insist on exclusive use of your design
Own all tooling and molds you pay for
Require strict confidentiality with penalties
Maintain right to audit manufacturing
Include termination and transition provisions
From the manufacturer’s perspective (being the OEM):
Get paid for all tooling and development costs
Retain rights to generic manufacturing knowledge
Set reasonable exclusivity scope and duration
Include minimum order commitments
Protect your existing IP from customer claims
Fair middle ground:
Customer owns tooling they pay for
Manufacturer owns general process knowledge
Exclusivity limited to specific product and territory
Minimum orders required to maintain exclusivity
Both sides share quality responsibility
Our Contract Template
Section 1: Parties and definitions
Section 2: Scope of agreement
Section 3: Product specifications
Section 4: Intellectual property rights
Section 5: Exclusivity and territorial rights
Section 6: Quality standards and inspection
Section 7: Pricing and payment terms
Section 8: Minimum order commitments
Section 9: Confidentiality
Section 10: Warranty and liability
Section 11: Term and termination
Section 12: Dispute resolution
Section 13: General provisions
What We Learned
1. The handshake meant nothing. Without written exclusivity, our OEM partner sold our design to anyone who asked.
2. The mold ownership saved us (eventually). We’d paid for the mold and the contract said we owned it. We retrieved it and terminated the agreement.
3. The NDA was too vague. “Confidential information” didn’t specifically cover PCB files and firmware. We now enumerate every category.
4. The minimum order commitment was essential. Without it, the OEM had no incentive to maintain exclusivity. Now, failure to meet minimums voids exclusivity.
5. The exit clause protected our business. We could terminate with 90 days notice and retrieve all tooling. Without it, we’d have been locked in.
For B2B LED device buyers working with OEMs, the contract is everything. Invest in proper legal review. Specify IP ownership, exclusivity, confidentiality, and exit provisions. The $5,000 you spend on legal fees saves $100,000+ in IP disputes.
