Contracts: Distribution & Partnerships
In my prior post, I discussed technology integration agreements, often entered into when one company wants to incorporate another company’s product into their feature set. Today, I discuss another arrangement we commonly see in consumer electronics, automotive, and the B2B world – OEM agreements. In addition to defining what they are, I draw distinctions between OEMs, technology integrations, and private labels, and describe key common issues in OEM agreements.
In an OEM relationship, a company that produces hardware or software, known as the supplier, licenses its technology to a company, known as the OEM, who then incorporates those components into their own product offering and sells it to customers. The OEM often provides the supplier specifications so that the components are compatible and in-line with the OEM’s own product offering. The OEM may sell the combined product under its own branding or disclose to the end customer that some components are provided by the supplier (think “Powered By” logos). The OEM usually has significant control over the final product, branding, and sales.
Examples of OEM products include personal computers and cars. Many components from these products are produced by supplier third parties and may be labeled as such to the end customer. Note that in the B2B SaaS context, technology partnerships often play a larger role in platform offerings than OEM relationships.
OEM relationships can be confusing when looking at other distribution and partnership arrangements out there. Here, I draw distinctions between OEMs, technology integrations, and private labeling. In my next post, I’ll dive deeper into private labeling.
Technology integration relationships create a combined solution or joint offering using both companies’ products that retains the companies’ branding and identity. This relationship is more collaborative and visible, with the objective to create interoperability and compatibility between the technologies.
Private labeling involves taking a finished product produced by a 3rd party supplier and applying a different company’s branding to it, and then selling it under that company’s brand. There is no customization on the supply production side, only on branding and packaging, and generally there is less control over quality. The focus is also only promoting the private label brand and hiding the original manufacturer. The re-branded product is sold as-is to the end customer.
Here are several key common issues to keep in mind when discussing OEM relationships with your team and potential partners:
Remember that OEM relationships tend to be heavily negotiated and custom to each context, factoring in product integration, manufacturing, and custom specifications, as well as updates, maintenance and support, all of which are product- and business-specific. A commercial attorney can work with you to iron out details on the above issues as well as add any other concepts that should be covered by this relationship.
