There are several ways an outsourced electronic design services (EDS) partner can contribute intellectual property (IP) to your project. How they handle ownership of that IP depends in part on their business model, including whether they make all of their money in design services or in a combination of design and electronic manufacturing services.
1. Design advice
Your product idea usually includes a concept for the user interface (UI) – indicator lights, switches, displays, touch screens and mechanical features. While designing the circuits to realize your vision, your EDS partner may come up with ideas to improve the UI or other aspects of your design.
Does the IP from these ideas belong to you or the designer? If your EDS partner’s larger goal is to eventually win your manufacturing business, they are more likely to agree that it belongs to you. The priority is ensuring your product’s success in the market. Maximizing the potential opportunity for follow-on EMS business dwarfs any benefit of claiming ownership of the IP in the design.
This is a common scenario at Z-AXIS. In addition, we have EMS customers who bring designs to us for turn-key contract manufacturing. Because we are not involved in the initial design, you would think that we would not contribute any IP. But our design engineers spend a lot of time in manufacturing, and often point out design modifications to improve the product or remove potential failure points. We don’t claim any ownership of the IP if our customers incorporate these ideas in the product.
2. Trade secrets
Experienced design engineers deploy their own unique “bag of tricks” to solve common problems. In addition, they may discover novel ways to implement a circuit or PCB assembly feature for a specific customer project. Many OEM clients prefer to treat these innovations as trade secrets rather than pursue patents.
The EDS partner agrees not to disclose the secret or use it in competing products. This is a pretty easy agreement for us to make, since having the trade secret in our own bag of tricks gives us an advantage over other design firms, and we don’t work on competing products for different clients in any case.
3. License agreements
Many design firms own libraries of IP that they incorporate into product designs for their customers. The customers must sign and pay for a license agreement to use the IP. The license may be for a limited time or perpetual, exclusive or non-exclusive, revocable or not, involve royalties or geographical limitations… it’s complicated!
For the design firm, IP licensing can be a significant source of revenue to supplement their project design fees. For the customer, it means you don’t fully own your product design.
For this reason many OEMs try to outsource only “simple” designs and keep their new product innovation in-house. This is not an option for smaller OEMs that don’t have electronic engineers on staff. And sometimes even the simplest design projects lend themselves to unexpected innovations.
When given the option to license IP from your EDS provider, make sure you understand the terms and especially the limitations. It can be worth the effort to make sure that you own the IP in your product – no matter who designs and builds it for you.
Under patent and copyright laws, paying a designer to create a work does not mean that you own the resulting work. The inventor or designer maintains ownership of the IP until they officially assign it to another party, but they have no obligation to do so.
Know how your EDS partner will handle this situation should they invent patentable IP while developing your product. At Z-AXIS we fully support our clients’ efforts to pursue patents, including working with the clients’ engineers as co-inventors, cooperating with their patent attorney, providing all needed documentation, and freely assigning ownership of the patent to the client company once awarded.
Ultimately, you need to add IP to your vendor checklist. Whether your company strategy includes patenting your products or simply protecting your trade secrets, it’s important to discuss IP ownership with any potential EDS partners before you start.