New Product Contracts2018-09-13T18:20:13+00:00


4.  Importance Of Contracts


Good Agreements Are
Critical To Success


A contract is a legally enforceable agreement. In other words, it creates a legal obligation on the parties to the contract to do, or not do, something. Contracts are a very important part of doing business, developing a product, and owning and controlling intellectual property rights. So having a basic understanding of contracts can be helpful.


Successful product development almost always involves working with numerous individuals and organizations. To ensure that there are no misunderstandings so that everyone’s expectations in a working relationship are met, and their interests are protected, it is prudent and common to enter into contractual arrangements with those involved in developing and bringing a product to market. Some common types of contracts used when bringing a product to market are:


  • Non-Disclosure Agreements

  • Co-Inventor Agreements

  • Invention Assignments

  • Partnership Agreements

  • Attorney-Client Fee Agreements

  • Development Services Agreements

  • Manufacturing Agreements

  • Order Fulfilling & Shipping Agreements

  • Distribution Agreements

  • Sales Agreements

  • Warehouse & Storage Agreements

  • Lease Agreements


You will most likely be asked to enter into contracts, and/or you will ask others to enter into contracts when developing your product.


The first thing to know is that the laws governing contracts vary from state to state. Because of this it is common to specify in a written contract the law of the state that governs the contract (e.g. California law). For example, if you are entering into a business transaction with someone in Alaska, but you live in California, you may want to specify that California law applies to avoid unknown surprises that may exist in the laws of Alaska (or vice versa).


You should also be familiar with the basic requirements for creating a contract under the applicable law. For example, in California the basic requirements for creating a contract are:


  • Parties capable of creating a contract (everyone except minors, persons of unsound mind, and persons deprived of civil rights.)

  • Terms that are clear enough that the parties can understand what each is required to do.

  • That the parties agreed to give each other something of value. This may be money, but a promise to do something or not to do something may have value; and

  • That the parties agreed to the terms of the contract.

You should also know that in many cases a contract need not be in writing to be enforceable. For example, in California there is no requirement that a contract be in writing except as specifically required by statute (which means many contracts that are not in writing are enforceable). However, to avoid misunderstandings, protect your interests, and facilitate the enforcement of a contract it is a good practice to always reduce any contract to writing.


While it can be uncomfortable asking others who you want to establish a working relationship with to enter into a written agreement, that is generally considered to be part of conducting business on a professional level. Failure to have a written agreement can lead to misunderstandings and disputes, and ultimately compromise the ability of your business venture to succeed.


It should be a cause for concern if someone doesn’t want to enter into a written agreement with you concerning a significant transaction, or doesn’t want to give you a fair opportunity to walk away, read, consider, and get advice on an agreement they are asking you to sign.


ANY AGREEMENT THAT YOU ENTER INTO MAY HAVE A SERIOUS IMPACT ON YOUR LEGAL RIGHTS AND OBLIGATIONS, INCLUDING BUT NOT LIMITED TO OWNERSHIP AND CONTROL OF RIGHTS ASSOCIATED WITH YOUR PRODUCT. SO ALWAYS READ and UNDERSTAND anything you are going to sign, BEFORE you sign it. Also, because contracts need not necessarily be in writing, be careful of any communications you have with others (e.g. conversations) that could be misconstrued as giving rise to a contract.


If you are presented with a contract, don’t be afraid to ask questions, or negotiate the terms. The whole point of a contract is to arrive at an agreement that the parties understand and agree to, and which can be enforced against them if need be. So before agreeing to something which can be enforced against you in a court of law, make sure that you really do understand it and agree to it.


If a party to a contract breaches the contract (fails to satisfy their obligations under the agreement), the other party can sue them in court and seek remedies for the breach. Such remedies may include an award of money or a court order to do something, or stop doing something. Bringing, or defending against, a law suit for breach of contract can be very expensive and burdensome. This is especially true if the law suit must be brought somewhere far from where you reside. So be aware of any dispute resolution provisions of a contract concerning the forum and venue for any action to be brought concering a contract.


Because the agreements you enter into (or don’t enter into) can have a profound impact on your ability to succeed with the development of your product, and the law can be complicated, it is highly recommended that one of the first persons you should add to your product development team is a qualified lawyer who you can consult with on such matters.


Always remember that while good written contracts are important, much more important is selecting others to work with who are capable, reliable, trustworthy and honorable people.


Previous Guide Section
Next Guide Section



4.  Importance Of Contracts


Good Agreements Are
Critical To Success


A contract is a legally enforceable agreement. In other words, it creates a legal obligation on the parties to the contract to do, or not do, something. Contracts are a very important part of doing business, developing a product, and owning and controlling intellectual property rights. So having a basic understanding of contracts can be helpful.


Successful product development almost always involves working with numerous individuals and organizations. To ensure that there are no misunderstandings so that everyone’s expectations in a working relationship are met, and their interests are protected, it is prudent and common to enter into contractual arrangements with those involved in developing and bringing a product to market. Some common types of contracts used when bringing a product to market are:


  • Non-Disclosure Agreements

  • Co-Inventor Agreements

  • Invention Assignments

  • Partnership Agreements

  • Attorney-Client Fee Agreements

  • Development Services Agreements

  • Manufacturing Agreements

  • Order Fulfilling & Shipping Agreements

  • Distribution Agreements

  • Sales Agreements

  • Warehouse & Storage Agreements

  • Lease Agreements


You will most likely be asked to enter into contracts, and/or you will ask others to enter into contracts when developing your product.


The first thing to know is that the laws governing contracts vary from state to state. Because of this it is common to specify in a written contract the law of the state that governs the contract (e.g. California law). For example, if you are entering into a business transaction with someone in Alaska, but you live in California, you may want to specify that California law applies to avoid unknown surprises that may exist in the laws of Alaska (or vice versa).


You should also be familiar with the basic requirements for creating a contract under the applicable law. For example, in California the basic requirements for creating a contract are:


  • Parties capable of creating a contract (everyone except minors, persons of unsound mind, and persons deprived of civil rights.)

  • Terms that are clear enough that the parties can understand what each is required to do.

  • That the parties agreed to give each other something of value. This may be money, but a promise to do something or not to do something may have value; and

  • That the parties agreed to the terms of the contract.

You should also know that in many cases a contract need not be in writing to be enforceable. For example, in California there is no requirement that a contract be in writing except as specifically required by statute (which means many contracts that are not in writing are enforceable). However, to avoid misunderstandings, protect your interests, and facilitate the enforcement of a contract it is a good practice to always reduce any contract to writing.


While it can be uncomfortable asking others who you want to establish a working relationship with to enter into a written agreement, that is generally considered to be part of conducting business on a professional level. Failure to have a written agreement can lead to misunderstandings and disputes, and ultimately compromise the ability of your business venture to succeed.


It should be a cause for concern if someone doesn’t want to enter into a written agreement with you concerning a significant transaction, or doesn’t want to give you a fair opportunity to walk away, read, consider, and get advice on an agreement they are asking you to sign.


ANY AGREEMENT THAT YOU ENTER INTO MAY HAVE A SERIOUS IMPACT ON YOUR LEGAL RIGHTS AND OBLIGATIONS, INCLUDING BUT NOT LIMITED TO OWNERSHIP AND CONTROL OF RIGHTS ASSOCIATED WITH YOUR PRODUCT. SO ALWAYS READ and UNDERSTAND anything you are going to sign, BEFORE you sign it. Also, because contracts need not necessarily be in writing, be careful of any communications you have with others (e.g. conversations) that could be misconstrued as giving rise to a contract.


If you are presented with a contract, don’t be afraid to ask questions, or negotiate the terms. The whole point of a contract is to arrive at an agreement that the parties understand and agree to, and which can be enforced against them if need be. So before agreeing to something which can be enforced against you in a court of law, make sure that you really do understand it and agree to it.


If a party to a contract breaches the contract (fails to satisfy their obligations under the agreement), the other party can sue them in court and seek remedies for the breach. Such remedies may include an award of money or a court order to do something, or stop doing something. Bringing, or defending against, a law suit for breach of contract can be very expensive and burdensome. This is especially true if the law suit must be brought somewhere far from where you reside. So be aware of any dispute resolution provisions of a contract concerning the forum and venue for any action to be brought concering a contract.


Because the agreements you enter into (or don’t enter into) can have a profound impact on your ability to succeed with the development of your product, and the law can be complicated, it is highly recommended that one of the first persons you should add to your product development team is a qualified lawyer who you can consult with on such matters.


Always remember that while good written contracts are important, much more important is selecting others to work with who are capable, reliable, trustworthy and honorable people.


Previous Guide Section
Next Guide Section