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What is an Original Equipment Manufacturer- OEM?



What is an OEM- Original Equipment Manufacturer?

In international trade and supply chain management, you are likely to come across the term Original Equipment Manufacturer "OEM". Let's have a look at what it means and how the relationship works.

There are two meanings:

When OEM is a noun:

The OEM is a supplier which allows their goods to be used as components in the products of another company. The purchasing company is sometimes referred to as the 'value added re-seller' because they have added value to the original product to then on-sell in a B2B or B2C transaction.

When OEM is a verb:

The purchaser intends to re-brand the product and then on-sell to end users. This use is increasingly more common.

For example, the Microsoft operating system uses OEM licenses from manufacturing companies such as Dell and Toshiba.

What are the legal issues for OEM Manufacturing?

The primary legal issues with OEM manufacturing is managing the intellectual property in the country of manufacture and the countries where the product is being supplied to.

Steps parties can take to protect their OEM parts include: registering patents, designs and trademarks, set up strong contracts which protect the confidentiality of your information other aspects to manage include the nature of the relationship with third parties including on-sellers and members of the public.

The Grey Market involves the products being sold to third parties outside of the formal distribution channels. The grey market is big business. Harvard Business Review estimates that $7 billion to $10 billion of products are sold on the grey market in the US. After sales services are typically not provided in the grey market.

When the product is on-sold to consumers, consumer protection legislation kicks in. The question is- who is responsible for defects, returns, replacements and customer care?

Summary

In summary, the OEM manufacturer and distribution relationships is a growing market with opportunities and risks to be managed.

If you would like further information, please contact Legal Enablers:


Caroline Mense Principal Lawyer

Call: +61 3 8691 3128 Email: carolinem@legalenablers.com

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Disclaimer: The content including publications on this page is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. Seek legal or other professional advice.


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