Mar 03 2007

What Belongs To You?

Published by at 5:42 pm under Uncategorized

When you get the Dear John memo or fax telling you to pack up the tool and ship it somewhere else, the buyer always asks for the ‘accompanying documentation’.  Should you give it to him?

Company Property, Trade Secret, Confidential, or Proprietary; what belongs to you?

It’s becoming a common occurrence from your customers.  The business equivalent of a Dear John Letter: “Please send all tools, jigs fixtures and documentation to part number XXXXXXX.  Please also forward at your earliest convenience a closing invoice so that we can settle accounts on any open invoices, all finished goods, work in progress, and raw materials.”

Actually these sentences are backwards.  You should never let the tooling out of your possession until you’ve collected all your outstanding invoices.  Further it would be hoped you’d long since negotiated a “PreNup Agreement” where if they leave you’re not stuck with the unpaid for finished goods, work in progress, and raw materials.  If you didn’t negotiate something like that, you should do so quickly.  While it is Good Form and perhaps even the industry practice, if it isn’t in writing your customer is not responsible for it.

I have even had buyer ask that all the QA and process information be sent along with the tooling and even ask that the old molder help the new one start up the tool.  This is the quintessential height of “Asking isn’t Stealing, Stealing is Steal” philosophy. If you and your Significant Other would like an all expense first class vacation to Hong Kong, there’s no sin in estimating the costs plus $1,000/day consulting and Assist.  When this happens to my clients I give them the speech about the “PreNup Agreement” and then we examination the definition of documentation.

Let’s look at the reality of the Dear John Memo.

1.  You’re losing business and therefore profit.  You’ll need to replace it with new business.
2.  Molders don’t sell parts, they only sell their expertise.  There is no reason to assist your competition by providing your internal documentation.
3.  If the mold has been in your possession for less than a year, SPI indicates the custom and standard in the industry is that you can charge for engineering services.  If you’ve had it for more than a year, it is assumed you’ve recovered what you invested learning to start it up and therefore you cannot charge a ‘removal fee’ unless it was pre-agreed.
4.  The documentation you generated learning to run the mold is what the lawyers tend to refer to as ‘work product’.  The only difference being is that it doesn’t have any legal standing.
5.  If you are a US company and you write your Dear John Memo for all your tooling to be removed from (for instance) China and relocated to India; expect a huge removal fee and don’t expect any cooperation.  Remember US law, custom and practice has little standing outside our borders.  Dummy.

Your internal documentation is at best to be considered internal.  IT IS NOT proprietary unless you’ve taken some very specific steps:  (1) It must be physically labeled “proprietary”. (2) Steps must be taken to show you’ve not made it public by keeping it locked in a secure place with limited access or encrypted electronic files that have restricted access to only those with a ‘need to know’.  (3) Your employees must have signed a personnel handbook document stating they both understand the meaning of Company Confidential and Proprietary and will take specific steps to protect these documents. Check with your local attorney to be sure you’ve done everything the law requires if you feel you own a trade secret or something proprietary.  Example:  The formula for Coca Cola.  It’s never been patented because patents expire.  It’s a trade secret.

If you have developed a proprietary process you must also protect it.  This means not only squirreling away the documents, but also preventing those who could benefit from it from either knowing about it or giving the opportunity to examine it.  Here’s where the silliness begins to come in.

Some molders simply declare all their internal documents to be Confidential and Proprietary.  However they take no steps to secure them.  It’s hard to insist that your profitability is a function of some secret improvement you’ve made to decoupled molding if you have the process guides hanging in a transparent folder on the press easily visible to anyone who visits your plant.

Here’s an example of a proprietary process:  Look at the needle on the end of a hypodermic syringe.  As someone who knows insert molding this seems pretty simple.  But is it?  How do you not dull the tip of the sharpened end?  How do you not get flash down the other end of the steel cannula?  How do you make millions upon millions of them on a daily basis?  How?  Simple – it’s a proprietary process and the folks who sell the needles will never tell you. AND you can’t go dumpster diving into the US Patent Office or anywhere else and find out how they do it.

I have heard of some customers not wanting their competition to see the new model of the latest Widgit and therefore have declared the part/part design/mold/process “Confidential”.   In order to enforce this you’ve essentially been denied access to bidding on any job your client has deemed his ‘competition’.  If you’re a tier-1 automotive supplier and GM insists on this, then you can’t bid of jobs from Ford, Honda, etc.  If you’re in consumer electronics, Dell will demand you not take jobs from IBM or HP.

Silly yes?  This only makes sense if you are a defense contractor or you do this magic process under your own roof.  In every other instance you probably have one of two strategies:  If you’re not going to be able to bid other customers demand you be paid for your loss of doing business with them.  Since your client will rarely agree to this Plan B is either don’t agree to it OR allow no one past your lobby including having a peek at the sign in book.  This includes the moron who insisted on it being kept secret.  There are actually molders that will never let you into engineering or out on the production floor.  Their logic is you’re buying parts and therefore have no need to see how they do it, proprietary or not.  They actually do it so the buyer/engineer won’t bring in a stop watch then comment “You quoted 22 seconds and your machine is running parts at 15 seconds.  We demand a price drop!”

So when the Dear John letter shows up what do you ship?  Everything the client paid for and nothing else.  They didn’t pay for the mold design unless the PO said ‘design and build a mold ……..’ Just ship the mold. If you weren’t physically paid for the assembly jigs and fixtures, you’re client doesn’t own them.  If you’d care to sell them, the price is up to you to determine.  If you charged your client a ‘One Time non-recurring engineering charge to develop tools, jigs, and fixtures’ in reality they purchased a service; therefore they are not entitled (unless they buy them) to anything.  This is a common practice for the folks in thermoforming, metal/ceramic molding, and micro-molding because the tools, equipment and other stuff are custom fit to the molder’s equipment.

Your setup guides are easily reverse engineered by the new molder and therefore regardless of how much time, energy, mistakes, and talent you’ve put into them; they are neither the property of your client (unless he wants to purchase it) nor are they proprietary.  Your quality documents only serve one purpose:  Depending on the industry you serve (for example medical) they may have historical use in an FDA audit.  However they are actually a measure of the robustness of your process and while a historical record, their true use is instructive to how you can improve your profitability.  Again, they are not confidential or proprietary and would have little or no competitive value to another molder.  However since they are your ‘work product’ if your customer would choose to purchase them, you have that choice.

If your client has in his original purchase order laid claim to all documentation regarding the production of his product that should be included in the price you charged.  If you didn’t get paid for it, you just gave it away.

Custom Molding is a lot like being your local dentist.  Anyone can buy the required equipment, read the publications, and attend training.  You both charge for the same thing – the application of equipment and expertise to provide goods and services.  Nothing is particularly secret.  So before you declare a company-wide secrecy policy make sure you have something to protect and take all the appropriate actions necessary to protect it.  Otherwise admit to yourself you’re just good at what you do.

Since everything published on this site is neither secret, proprietary, confidential, or occasionally even intelligent, feel free to print this out, and post it in the front office to scare away salesmen who don’t buy you lunch.

No responses yet

Trackback URI | Comments RSS

Leave a Reply