Manufacturer vs Distributor Who Owns the Customer and the IP?
- Delta Law
- May 5
- 3 min read
In the manufacturing and distribution world, the lines between who controls the customer relationship and who owns the intellectual property can become blurred.
This becomes especially important as companies scale, enter large retail networks, or launch private-label and co-packing relationships.
Many manufacturers believe that producing the product means retaining control.
Many distributors assume that bringing the customer means they command the relationship. Without clear contract terms, both sides risk losing leverage, margin, and long-term rights.
Ownership of the customer and intellectual property is not implied by effort or contribution. It is determined by the written agreement. When these terms are vague, business value can shift overnight.
Below are the critical legal considerations manufacturers and distributors need to understand to protect their business, margins, and market position.
Customer Ownership: Who Controls the Relationship?
Customer ownership determines who maintains long-term rights to the account, pricing, and ability to sell into that channel in the future.
Key contract questions include:
Who controls pricing and negotiations?
Who receives and manages purchase orders?
Who owns customer data and purchasing history?
Who manages customer service and chargebacks?
Who controls marketing and listings?
Can either party sell directly to the customer in the future?
If these rights are not clearly documented, disputes often arise when success increases. Manufacturers risk being locked out of accounts they helped grow. Distributors risk losing commercial value if the manufacturer bypasses them.
A properly structured distribution or co-packing agreement should clearly allocate customer ownership and future access.
Intellectual Property: Who Owns the Product and Process?
In manufacturing relationships, intellectual property can include formulas, processes, packaging designs, product specifications, and trade secrets. Confusion here creates real financial risk.
Contracts should address:
Who owns the original product formula or specification
Who owns improvements or product modifications
Whether private-label formulas remain confidential
Whether the distributor may move production elsewhere
Whether designs and packaging belong to the brand or the manufacturer
Manufacturers often assume they retain production rights. Distributors often believe they own the formula once they bring the customer. Both assumptions are wrong unless the contract says so.
Protecting intellectual property is not only about ownership. It is also about use. Even if you own it, sloppy contract terms may allow the other party to use it, replicate it, or move production without consequence.
Non-Circumvention and Channel Protection
To preserve the value of a commercial relationship, agreements should prevent either party from bypassing the other to pursue customers independently.
Important protections include:
Non-circumvention provisions
Channel protection clauses
Limitations on direct solicitation or competing sales
Exclusivity terms, if appropriate
Minimum volume commitments for exclusive relationships
Without these terms, a manufacturer may find a distributor taking a private-label recipe to another producer. Or a distributor may wake up to a manufacturer selling directly to its best account.
Termination and Post-Termination Rights
Even strong partnerships can end. The contract must address what happens next. Consider:
Whether customer access continues after termination
Whether formulas, packaging, and product IP revert to the manufacturer
Whether the distributor may continue selling off remaining inventory
Restrictions on selling similar or competitive products for a period
The clarity you establish at the beginning prevents expensive disputes later.
Customer ownership and intellectual property control are core value drivers for manufacturers, distributors, and co-packers. These are not matters of trust or handshake agreements. They must be clearly defined in writing.
A well-structured contract protects margins, safeguards your brand, and preserves long-term commercial rights. As your business grows, the stakes increase. Strong legal foundations prevent erosion of business value and strengthen strategic relationships.
Book a Consultation
If you are a manufacturer, distributor, or co-packing partner and want agreements that protect your customers, your intellectual property, and your rights, you can book a consultation below.
