Practical Insights

Five Points to Negotiate in a 'Black Box' Product Development Agreement

• What is a “black box” product development agreement?
• How do you protect your product idea?
• What intellectual property can a Manufacturer expect to own?
• Can a Manufacturer limit a Processor’s right to work for others?
• What about co-manufacturing agreements?

What is a “black box” product development agreement?

A food manufacturer (Manufacturer) looking to innovate new products may engage a process specialist (Processor) to prepare product prototypes for assessment. The simplest of these arrangements are so-called “black box” agreements in which the Manufacturer supplies the product idea, ingredients, and specifications to a Processor with unique processing capability.  The Processor, in turn, delivers a product prototype manufactured with their proprietary process.

How do you protect your product idea?

The best way for the Manufacturer to protect its idea is to treat it as a trade secret. Prior to sharing an idea with a Processor, the Manufacturer should enter into a confidentiality or nondisclosure agreement that treats its product idea, specifications, and proposed formulas as confidential information. The black box agreement should include a provision to incorporate this confidentiality agreement.

What intellectual property can a Manufacturer expect to own?

The actual manufacturing process, in addition to any improvements to that process created during the product development trial, would be owned by the Processor. However, a Manufacturer can negotiate to receive and own the unique formulations, recipes, and specifications created during the trial.

Can a Manufacturer limit a Processor’s right to work for others?

A Manufacturer may want to limit the Processor’s ability to perform similar development services for the Manufacturer’s competitors. This is probably an unreasonable request. However, a Manufacturer may seek this protection in any co-manufacturing arrangement that might follow.

What about co-manufacturing agreements?

The Processor may seek to obtain a right to co-pack the product that it has developed under the black box agreement. Agreeing to this proposal, or even granting the Processor a right of first consideration, is likely to be premature unless the Processor is a sole source manufacturer.