Who Owns the Tooling and Product Design After an OEM Relationship Ends? IP and Unfair-Competition Risk in Dongguan Manufacturing

A foreign consumer-products company has used the same Dongguan OEM factory for eight years. The brand supplied initial product concepts and paid tooling fees. The factory’s engineers then improved mold structure and production tolerances. The commercial relationship ends, and the OEM begins selling a similar product through another customer using molds that appear to be based on the old tooling. The brand says it owns the product. The factory says it owns the molds and the engineering improvements. China law does not answer that dispute through one concept called “OEM ownership.” The Patent Law protects qualifying patented inventions, utility models and designs.^[1] The 2025 Anti-Unfair Competition Law protects trade secrets and other legally defined competitive interests.^[2] Copyright and contract law may also apply depending on the drawings and agreements.^[3] The case turns on a rights inventory: who created each asset, what the contract says, what was registered, what remained confidential and what the supplier was permitted to do after termination.

The specific problem#

Tooling ownership, background IP and registered rights#

Separate physical tooling from intellectual property. A mold is a physical asset. The design embodied in it can involve separate intellectual-property rights. The customer may have paid the tooling invoice, but payment alone does not automatically answer every ownership question if the contract is unclear. The parties need to identify: physical mold, CAD files, product drawings, mold drawings, process parameters, patents or design patents, and customer trademarks. Ownership of each may differ. The contract needs to state who owns the mold, where it is stored, who bears maintenance and whether the supplier has any lien or retention rights. IP provisions need to separately address the right to use the technical design. A brand can own the physical mold while the supplier retains background technology used to manufacture it. Conversely, the supplier can hold the mold physically while having no right to manufacture competing units from customer-confidential drawings. Conflating those interests makes termination disputes harder. Background IP and project-created IP need different treatment. Long OEM relationships involve both sides’ pre-existing knowledge.

The customer may contribute product concept, industrial design and brand requirements. The factory may contribute molding techniques, automation and standard manufacturing know-how. The agreement needs to define background IP before the project starts. Then it should allocate project-created developments. Possible rules include: customer owns product-specific improvements, supplier owns generic process improvements, joint developments are jointly owned or cross-licensed, and defined improvements are assigned on payment. The law does not replace careful drafting where both parties contribute. Engineering-change records need to identify major new features and who proposed them. If the parties wait until termination, each side may sincerely believe it created the valuable part. The evidence needs to therefore be generated during development. Patent and design rights depend on registration and scope. Where the brand owns Chinese patents or design patents, counsel should identify whether the supplier’s new product falls within those rights.^[1] A product can be commercially similar without infringing a patent. For utility models or inventions, the analysis is claim-based. For designs, the protected visual design and overall effect matter.

The claimant can obtain an accused sample and prepare technical comparison before sending broad accusations. Patent ownership also needs confirmation. If the overseas parent owns the Chinese right but the China sourcing entity signed the OEM contract, enforcement authority and license arrangements should be checked. The supplier may challenge validity, so the claimant needs to review prior art and prosecution history. Registered rights are powerful because they can bind third parties beyond the contract, but only within their legal scope. Trade-secret protection depends on what remained confidential. The 2025 Anti-Unfair Competition Law protects technical and business information that is non-public, commercially valuable and subject to corresponding confidentiality measures.^[2] A brand claiming that its product design is secret should identify the non-public elements. Information already visible from the finished product may be difficult to protect as a trade secret if it can be obtained through lawful observation or reverse engineering. By contrast, internal tolerances, material formulas, unreleased drawings, cost data and testing methods may remain confidential. The brand needs to show: NDA or OEM confidentiality terms, access controls, file markings, restricted sample use, and return/destruction requirements. The supplier’s access is usually easy to prove because the collaboration required it. The harder issues are secrecy and unauthorized use after termination. A narrowly defined secret is more credible than a claim that the entire product is confidential.

Trade secrets, termination rights and unfair competition#

Customer-specific tooling restrictions should survive termination clearly. The agreement needs to address what happens when the relationship ends. Questions include: must the supplier return the mold, can it hold the mold for unpaid invoices, can it retain copies of CAD files, may it use generic engineering concepts, must subcontractors delete files, and what happens to spare parts and samples. The termination clause needs to also set a verification process. If the customer owns the tooling, an inventory and handover protocol can reduce disputes. If the supplier has a legitimate payment dispute, the parties should determine whether physical retention is legally available rather than assuming contract ownership automatically forces immediate delivery. The customer needs to avoid leaving valuable tooling at a former supplier for years after termination. Operational cleanup is part of IP protection. Unfair-competition claims need to identify conduct beyond ordinary competition. A former supplier is generally free to compete unless restricted by law or contract. The brand therefore needs to identify what makes the conduct unlawful. Possible facts include: use of trade secrets, misleading association with the brand, unauthorized use of protected product presentation, and false claims about origin or customer relationship. The Anti-Unfair Competition Law should not be used to create a perpetual monopoly over a product idea that is not otherwise protected.^[2] A focused unfair-competition claim explains the competitive harm and the statutory basis. Where the supplier lawfully uses its own background know-how to produce a redesigned competing product, competition may be legitimate. The legal strategy needs to distinguish aggressive competition from misuse of customer assets. Subcontractors and downstream buyers can complicate recovery. The OEM may have outsourced mold making or component production. When the relationship ends, customer files may remain with several subcontractors. The master OEM contract needs to require confidentiality and downstream control. The brand needs to identify where physical molds and digital files actually reside. If a subcontractor independently sells the product, direct IP claims may be possible depending on the rights and facts, but contractual claims may exist only against the OEM.

The supplier can also maintain records showing which technology came from subcontractors versus the customer. A termination audit can map every third party with customer-specific assets. Without that map, an agreement to “delete all files” may be impossible to verify. The evidence needs to be preserved before the tooling is moved or modified. Tooling disputes are physical and technical. Counsel needs to preserve: mold identification numbers, photographs, invoices, CAD versions, maintenance records, sample products, accused products, and engineering emails. If the mold is altered after the dispute begins, comparison can become difficult. Independent inspection may be appropriate where ownership or design is contested. The brand needs to also preserve payment records proving which tooling charges it funded. The supplier needs to preserve evidence of its own pre-existing mold technology and development contribution. Both sides benefit from a documented technical baseline. A court cannot reconstruct an eight-year manufacturing relationship from the final purchase order alone.

Subcontractors, evidence and technical settlement#

Case study: luggage product after OEM termination. Assume a foreign luggage brand paid a Dongguan OEM RMB 2 million for molds and supplied product appearance drawings. The OEM developed an internal latch improvement that was never separately assigned. After termination, a new customer sells a similar suitcase using the same external design and a modified latch. The brand may have several different claims. If it owns a Chinese design patent covering the appearance, that right should be compared with the accused product. If confidential internal drawings were reused, trade-secret or contract claims may arise. Physical mold ownership depends on the tooling agreement and payment evidence. The supplier’s latch improvement needs separate analysis. If it was independently developed from supplier background know-how and not assigned, the brand should not assume ownership merely because the project was customer-funded. The dispute becomes manageable only when each asset is separated. Settlement can divide tooling, product rights and future engineering work. A practical settlement may require the OEM to return customer-owned molds and delete customer drawings while allowing it to retain defined generic process know-how.

The parties can identify a permitted redesign. An independent engineer may certify that new tooling no longer uses restricted customer features. Existing inventory needs to be addressed. The supplier may be allowed a limited run-off only if the brand accepts it and consumer confusion is controlled. The drafting can also govern subcontractors and digital backups. A broad promise not to make “similar products” may be too vague. Technical boundaries are easier to enforce than emotional concepts of loyalty. Future OEM contracts need to create an asset register from day one. The sourcing team needs to maintain a schedule listing: tooling, owner, location, purchase cost, CAD owner, patents/designs, confidential files, and subcontractors. Changes should be updated as development proceeds. The contract can require periodic certification that customer assets remain segregated. When a supplier relationship ends, the register becomes the termination checklist. This approach also helps during acquisitions because the buyer of a brand or factory can identify which molds and designs actually belong to it. Good manufacturing IP governance is therefore operational asset management, not only litigation preparation.

Group companies should align ownership and contracting entities. Multinational brands often have one entity owning IP, another buying goods and a third paying tooling. The OEM may not understand the group structure. Contracts need to identify which entity owns background IP, which owns tooling and which can enforce confidentiality. Intercompany licenses or authorizations should support that arrangement. If the sourcing company sues in China but the patent belongs to an overseas parent, standing should be addressed before filing. Payment by one affiliate should not create accidental ambiguity about asset ownership. Clear group documentation reduces a defendant’s ability to turn an infringement case into a corporate-title dispute.

OEM contracts, group ownership and joint development#

Tooling invoices should identify what the customer is actually buying. OEM relationships often use one line item called “tooling fee.” That can hide several different things: design work, mold fabrication, testing fixtures, maintenance or amortized development cost. The invoice and contract should specify whether payment transfers ownership of the physical mold, reimburses development or merely reserves production capacity. If the customer pays 100% of a mold cost but the supplier retains ownership under the contract, that should be explicit. Likewise, a supplier that agrees the mold belongs to the customer should not later argue that continued possession creates unrestricted use rights. Accounting labels should match the legal allocation. This simple drafting discipline can eliminate a large part of the dispute before it begins. Joint development agreements should allocate patent-filing authority. Where engineers from both sides create an improvement, the parties should decide who may file patents and in whose name. A supplier may file first on a project improvement and later argue ownership from registration. The agreement can require invention disclosure, joint review and consent before filing.

It should also address foreign patent applications if the product will be sold internationally. Inventor designation should reflect actual contribution, while ownership follows the agreed and statutory framework. The customer needs to monitor patent databases for unexpected filings by key suppliers during major development projects. Early detection allows the parties to resolve ownership before a commercial launch makes the dispute more valuable. Employee departures can turn an OEM dispute into a trade-secret case. A supplier engineer may leave and join the customer or vice versa. The parties need to avoid treating normal employee mobility as proof of misconduct. The legal team can examine what information the employee accessed, what confidentiality obligations apply and whether files moved with the employee. Exit procedures should preserve devices, revoke access and remind staff of confidentiality without making unsupported accusations. If the former employee later participates in a competing product, a development timeline can help determine whether confidential information was used. The 2025 Anti-Unfair Competition Law’s trade-secret framework makes precise evidence especially important.^[2] Employment and IP teams should therefore coordinate rather than run separate investigations.

Product photographs and online listings should be captured systematically. When the OEM begins selling a competing product, public evidence can change quickly. The brand needs to preserve marketplace listings, website pages, exhibition materials, pricing and product images with dates and source information. Where possible, purchase a sample through an ordinary commercial channel. A technical expert should inspect the actual product rather than rely only on online photographs. The evidence file should also identify who is selling: the former OEM, an affiliate, a distributor or a new company. That corporate identity can affect both contract and IP claims. Public evidence is easy to collect but easy to collect badly. A repeatable protocol improves authenticity and usefulness.

Employees, online evidence, damages and termination audits#

Damages and business continuity should be considered together. A brand may want a sweeping injunction, but it should understand how much legitimate production still depends on the same supplier. If the supplier remains critical, the enforcement plan can separate unauthorized sales from ongoing contracted manufacturing. An interim supply agreement, escrow or monitored production arrangement may preserve customer deliveries while the IP dispute proceeds. Damages analysis should identify lost sales, price erosion, royalty value or defendant profit depending on the claim and evidence. The company can also quantify the cost of moving tooling to a new factory. A litigation victory that causes a six-month supply disruption can be commercially poor. The best strategy protects both the right and the supply chain. Termination audits should be standard for high-value OEM relationships. At the end of a major relationship, procurement, legal and engineering teams should conduct a structured audit. The audit should confirm: all customer molds, digital files, samples, subcontractors, open purchase orders, inventory, access credentials, and IP filings. The parties can sign a termination certificate identifying assets returned and obligations continuing.

This creates a clean boundary. Without it, disputes often arise years later over whether a mold was abandoned, whether old files could still be used or whether a supplier remained authorized to make spare parts. Termination governance is therefore part of IP compliance, not merely procurement administration. Supplier confidentiality obligations should cover technical collaboration platforms. Modern OEM projects use shared cloud folders, PLM systems, messaging applications and supplier portals. The contract needs to identify approved channels and prohibit unauthorized copying to personal devices or uncontrolled storage. When the project ends, access should be revoked systematically. System logs can later provide strong evidence of what the supplier downloaded and when. The customer needs to also separate supplier-accessible project data from unrelated confidential material. Good access design strengthens trade-secret protection by showing that the company used corresponding confidentiality measures under the Anti-Unfair Competition Law.^[2] Quality disputes should not be allowed to obscure IP ownership. A supplier may argue that it changed a design to fix manufacturability or quality problems.

That factual contribution can be relevant to ownership of improvements, but it does not automatically transfer rights in the customer’s background IP. The engineering record should show which changes solved production issues and which features came from the customer. If the contract allocates supplier-created improvements, counsel can apply that clause to the actual development history. The parties need to avoid using unresolved quality invoices as leverage over unrelated IP rights unless the contract lawfully connects them. Separating quality, payment and IP claims makes negotiation more productive.

Case analysis and long-term IP controls#

A customer’s own compliance failures can weaken enforcement credibility. A brand that demands strict confidentiality from suppliers should apply similar controls internally. If customer engineers send unmarked drawings through personal accounts or allow unrestricted access, the supplier may challenge the claimed secrecy. The company needs to audit how project data actually moved. Remediation before litigation cannot rewrite history, but it can prevent future leakage. The analysis should present the historical controls accurately rather than overstate them. Courts are more likely to understand a narrowly defined, genuinely protected secret than an assertion that every engineering file was confidential. Counterfeit and unauthorized overrun production should be distinguished. An OEM may produce units beyond the authorized quantity using genuine tooling. That conduct can involve contract, trademark, copyright, patent or unfair-competition issues depending on the product and sales method. The brand needs to identify whether the extra goods carry its trademarks or are sold unbranded. Unauthorized branded overruns raise different enforcement concerns from a redesigned generic product. Inventory and production records can help prove quantity.

The OEM contract should state authorized production and treatment of scrap, seconds and excess units. This is especially important in consumer-goods supply chains where overrun products can enter online marketplaces quickly. Dispute resolution clauses should anticipate technical evidence. OEM agreements should select a forum capable of handling complex technical disputes and should coordinate governing law. If arbitration is chosen, the parties can still consider preservation and court-supported measures where available. The contract can require retention of engineering and tooling records for a defined period. Expert access to molds or accused products may need procedural planning. A dispute clause drafted only around payment claims may be inadequate when the most valuable future dispute concerns IP and confidential technology.

Conclusion#

OEM termination disputes become difficult when physical tooling, registered IP, confidential engineering and supplier know-how are treated as one asset. The Patent Law protects qualifying registered technical and design rights,^[1] while the 2025 Anti-Unfair Competition Law protects trade secrets and other defined competitive interests.^[2] Copyright can also be relevant to qualifying drawings and works.^[3] The safest working principle is to allocate each asset during the relationship and preserve the development record. At termination, enforcement should focus on the rights actually owned and the conduct actually prohibited, not on a generalized claim that the customer “owns the product.”

Legal and regulatory sources#

^[1] Patent Law of the People’s Republic of China: [official source](https://www.npc.gov.cn/npc/c2/c30834/202011/t20201119_308800.html) ^[2] Anti-Unfair Competition Law of the People’s Republic of China (2025 Revision): [official source](https://www.npc.gov.cn/npc/c2/c30834/202506/t20250627_446247.html) ^[3] Copyright Law of the People’s Republic of China: [official source](https://www.npc.gov.cn/c2/c30834/202011/t20201119_308796.html)

General legal information only; not legal advice for a specific OEM dispute.