OEM Agreement, Rights

The acronym stands for Original Equipment Manufacturer. An agreement pursuant to which a third party product is offered in conjunction with a primary product as either standard item or an option. Thus for example, particular application software might be offered in conjunction with certain systems, or alternately say a particular brand of tire with new cars from a particular manufacturer. In the context of a durable optional item, the advantage to the OEM supplier is the opportunity to have its optional item offered at the moment when a customer of the primary product is buying additional items. With respect to consumables, especially non-optional consumables, the advantage is that the customer will often replace or renew the consumables with products of the same brand, e.g., he or she will buy the same tires for his car as it originally had. OEM suppliers typically either:

  • Pay a commission to the primary product vendor;
  • supply items at a deep discount; or
  • agree to make items specially tailored to the primary supplier’s needs.

These rights are also sometimes known as “bundling rights.” See Right-of-Endorsement, Right-to-Endorsement.  In China and certain other Asian countries it is important to enter into NNN Agreements in conjunction with an OEM agreement to protect against copying, knock-offs and backdoor sales,

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