A smart manufacturing sales practice should include a private label program. A manufacturer can sell its product under its own brand and simultaneously package the same or a similar product for a customer under that customer’s own private label, getting twice the bang for the buck. [Another way a manufacturer can sell the same or similar product is by establishing a secondary brand which would be offered to a valued customer, as part of a special incentivized sales program, when the manufacturer has already contractually provided an exclusive purchasing right for its primary brand to another customer or in a certain geographical territory, and it still wishes to penetrate that same market without jeopardizing that supply relationship.]  The private label program can keep the manufacturer’s identity a secret since the product container can state “made for X” with X being the customer. This program enables a third party to resell a product it does not know how to produce or it does not have the facilities, skilled labor force, or financial resources to produce.

There are certain legal issues that are unique to the private label program.  The manufacturer should require the customer to approve the container label since it will typically contain product information created by, owned or licensed by that customer. The manufacturer should further require the customer to pay for all private label finished goods in manufacturer’s warehouse, unused containers, labels, and the cost of those raw materials that cannot be repurposed for use in another product, if the customer breaches the terms of the private label agreement. The customer should require language in the private label agreement that prevents the manufacturer (or its suppliers) from making any material modification to the product’s composition or packaging, or to the material safety data sheets, without the customer’s prior written consent. A “material modification” to a product may mean a change which affects the properties or performance of the product in the customer’s intended applications or makes the container label non-compliant with applicable laws and regulations. The customer should attempt to own the art, plates, design and other features of the container label that are not proprietary to the manufacturer. The customer should reserve the right to inspect the manufacturers’ facilities and business records, and obtain product samples for quality control purposes. The customer should further require a contractual representation and indemnification from the manufacturer that the product being made and packaged is legally compliant and will not infringe on a third party’s intellectual property rights.

I prepared numerous private label agreements during the 12 years that I served as General Counsel for a global chemical manufacturer and I can now use my extensive experience to counsel your business.

Michael Robert Flam

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