Tooling Ownership and Confidentiality

💡 Plain English Explanation

Tooling encompasses the specialized equipment used to manufacture products: molds for plastic injection, dies for metal stamping, fixtures for assembly, and jigs for machining. These tools often represent significant investment (sometimes hundreds of thousands of dollars) and embody proprietary design knowledge. The designs themselves can reveal product specifications, manufacturing methods, and engineering solutions.

In contract manufacturing relationships, tooling ownership and confidentiality become critical issues. The party who pays for tooling typically expects to own it, but the tooling may be physically located at a supplier's facility. Tooling designs reveal how products are made and can enable competitors to replicate production.

Key tooling considerations:

• 1
  Design confidentiality: Tooling drawings, CAD files, and specifications that reveal product geometry, tolerances, and manufacturing approach.
• 2
  Ownership rights: Who owns the tooling, who has rights to use it, and what happens to tooling at the end of the relationship.
• 3
  Access and control: Where tooling is located, who can access it, and restrictions on using tooling to produce for competitors.

⚠ Why This Clause Matters

For the Disclosing Party (Typically the Customer): Your tooling designs reveal exactly how your products are made. If a competitor obtains your tooling drawings, they can replicate your manufacturing approach or even use the same toolmaker to create identical tooling. Protecting tooling confidentiality prevents competitors from shortcutting the design and engineering process.

For the Receiving Party (Typically the Manufacturer): You may invest significant know-how in making tooling work effectively, developing setup procedures, maintenance protocols, and process parameters. You need clarity on what rights you retain in tooling-related knowledge you develop, and what happens if the relationship ends.

Financial Stakes: Tooling can cost from thousands to millions of dollars. Clear ownership and confidentiality provisions prevent disputes over who controls valuable manufacturing assets and the designs that make them possible.

📄 Clause Versions

"Tooling Information" means confidential information relating to tooling, molds, dies, fixtures, jigs, and related manufacturing equipment, including but not limited to:

(a) Tooling Designs: All drawings, CAD files, specifications, and technical data relating to the design of molds, dies, fixtures, jigs, and other production tooling;

(b) Tooling Specifications: Dimensional specifications, material specifications, tolerance requirements, and performance criteria for tooling;

(c) Setup and Operation: Setup procedures, operating parameters, maintenance schedules, and troubleshooting guides specific to particular tooling; and

(d) Tooling Performance: Tooling life data, maintenance records, and performance history.

OWNERSHIP: All tooling paid for by the Disclosing Party, and all designs, drawings, and specifications for such tooling, shall be and remain the exclusive property of the Disclosing Party. The Receiving Party agrees to:
(i) Mark such tooling with the Disclosing Party's name or other designation indicating ownership;
(ii) Use such tooling exclusively for production of the Disclosing Party's products;
(iii) Not modify, duplicate, or reverse engineer such tooling without written consent; and
(iv) Return or make available for pickup all such tooling upon request or termination of the business relationship.

CONFIDENTIALITY: The Receiving Party agrees to maintain Tooling Information in confidence and to protect tooling designs from unauthorized access. The Receiving Party shall not provide Tooling Information to any third party, including other customers, toolmakers, or competitors of the Disclosing Party.

The Receiving Party retains the right to use general knowledge of tooling design principles, standard manufacturing practices, and skills developed by its personnel, provided such use does not involve the specific Tooling Information provided by the Disclosing Party.

"Tooling Information" means all information, in any form, relating to tooling, molds, dies, fixtures, jigs, patterns, templates, gauges, and any other production equipment or aids, including without limitation:

(a) All tooling designs, including drawings, CAD files, 3D models, specifications, bills of materials, and any other documentation describing tooling geometry, construction, or function;

(b) All tooling engineering information, including design calculations, material selections, heat treatment specifications, surface finish requirements, and tolerance analyses;

(c) All tooling manufacturing information, including how tooling was made, who made it, toolmaker identities, and tooling costs;

(d) All tooling setup and operation information, including setup sheets, operating parameters, cycle times, and production rates achievable with the tooling;

(e) All tooling maintenance information, including maintenance schedules, repair records, refurbishment history, and tooling life data; and

(f) All tooling-related know-how, including techniques for optimizing tooling performance, reducing cycle time, improving quality, or extending tooling life.

OWNERSHIP AND EXCLUSIVITY: All tooling paid for in whole or in part by the Disclosing Party, together with all designs, drawings, specifications, and other intellectual property relating to such tooling, shall be the sole and exclusive property of the Disclosing Party. The Receiving Party:

(i) Acknowledges that the Disclosing Party owns all right, title, and interest in such tooling and Tooling Information;
(ii) Shall use such tooling exclusively for production of the Disclosing Party's products and for no other purpose;
(iii) Shall not use such tooling, or tooling substantially similar thereto, to produce products for any competitor of the Disclosing Party;
(iv) Shall not duplicate, reverse engineer, or create derivative works from such tooling;
(v) Shall not provide such tooling or Tooling Information to any toolmaker, supplier, or other third party without prior written consent;
(vi) Shall store such tooling in a secure location, segregated from tooling used for other customers;
(vii) Shall permit the Disclosing Party to inspect such tooling and audit compliance with this clause upon reasonable notice; and
(viii) Shall return such tooling and all Tooling Information upon termination of the business relationship or upon request.

NON-COMPETE: For a period of [three (3)] years following termination of the business relationship, the Receiving Party shall not manufacture products using tooling designs substantially similar to the Disclosing Party's Tooling Information for any competitor of the Disclosing Party.

The Receiving Party acknowledges that Tooling Information constitutes valuable trade secrets and agrees that monetary damages may be inadequate to compensate for breach. The Disclosing Party shall be entitled to injunctive relief to prevent unauthorized use or disclosure of Tooling Information.

"Tooling Information" means only the following information, when provided in writing or documented form:

(a) Specific tooling designs (drawings and CAD files) provided by the Disclosing Party for tooling paid for by the Disclosing Party;

(b) Product-specific tooling specifications that reveal the Disclosing Party's proprietary product dimensions or features; and

(c) Tooling performance data specifically designated as confidential at the time of disclosure.

OWNERSHIP: Tooling ownership shall be determined as follows:

(i) Tooling paid for entirely by the Disclosing Party shall be owned by the Disclosing Party;
(ii) Tooling paid for entirely by the Receiving Party shall be owned by the Receiving Party;
(iii) Tooling costs shared between the parties shall result in shared ownership proportional to contribution, unless otherwise agreed in writing.

LIMITATIONS: The following shall NOT constitute Tooling Information:

(a) General tooling design principles, standard practices, and industry-standard approaches to mold, die, fixture, or jig design;
(b) Standard tooling components available from commercial suppliers;
(c) Setup procedures and operating parameters developed by the Receiving Party through its own engineering efforts;
(d) Maintenance procedures and techniques developed by the Receiving Party;
(e) Tooling knowledge and skills possessed by the Receiving Party's employees; and
(f) Improvements to tooling efficiency or performance developed by the Receiving Party.

USE RIGHTS: The Receiving Party may:
(a) Use general tooling knowledge and skills for any lawful purpose;
(b) Develop tooling for other customers using general design approaches, provided such tooling does not copy the specific designs provided by the Disclosing Party;
(c) Work with any toolmaker, including toolmakers who have worked on the Disclosing Party's tooling, for other customer projects; and
(d) Develop and use improvements to tooling operation and maintenance for any customer.

RETURN: Upon termination and at the Disclosing Party's request and expense, the Receiving Party shall return or make available for pickup tooling owned by the Disclosing Party. The Disclosing Party shall provide not less than sixty (60) days' notice and shall pay all outstanding invoices before tooling is released. The Receiving Party may retain copies of Tooling Information necessary for its records and legal compliance.

💬 Key Considerations

• ✓
  Clarify who paid for what. Tooling ownership disputes often arise when payment responsibilities were unclear. Document who paid for initial tooling, modifications, refurbishment, and spare parts.
• ✓
  Address tooling location and access. Tooling is often at the manufacturer's facility. Define who controls physical access, what security measures apply, and how the owner can inspect their tooling.
• ✓
  Plan for relationship termination. What happens to tooling when the relationship ends? Address logistics, timing, condition, and costs of tooling transfer.
• ✓
  Consider tooling insurance. Valuable tooling at a third party's facility creates insurance questions. Clarify who insures tooling against damage, loss, or destruction.
• ✓
  Distinguish designs from know-how. Tooling designs (drawings, CAD files) are different from operational know-how (how to run the tool effectively). Address both, but recognize they may warrant different treatment.