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Host Sean Frost is joined by experts in the manufacturing industry to discuss bringing big ideas to life. Join us every episode for a deep dive into manufacturing trends, processes, innovation, and how to be successful in the ever-changing world of manufacturing.
Ep11_ChrisProskey_full
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Sean Frost: Hello and welcome back to another episode of inspiring innovation where we talk about custom manufacturing OEMs and our audiences supply chain sourcing. Product engineers, folks that are trying to innovate and bring products into the world across the medical industrial fire and safety and military spaces.
So thank you for joining in for another episode. Today, we've got a really exciting guest.[00:01:00] He is a partner. And he's involved in patent trademark and intellectual property. So we're going to discuss the intersection of legal contracts between custom manufacturers and OEMs and big brands.
So, we're really excited to have him and his expertise on we enjoy working with him on a regular basis and, he is very wise when it comes to these things. So we're going to talk, dive into basically the different legal considerations that you would hopefully be applying to what you're trying to accomplish in the world.
Chris, could you provide a brief overview of why having a well structured agreement is crucial in the manufacturing industry.
Chris Proskey: Yeah. And thanks for having me, Sean. I really appreciate it. Excited to be here. Just so the audience knows, who I am, where I am, what I'm coming, how I'm coming to you.
So intellectual property attorney at Brown Winnick law firm. So we're 80, 90 lawyer law [00:02:00] firm. We're a business law firm. We help companies like Polo, do business. We're not the, academic lawyers that just pound the little pebbles of law into littler pebbles of law, like we're trying to help our clients, make money, resolve issues, avoid issues.
And my core competency is intellectual property. It's the center of the world for me, and I think it's incredibly important. Work with a lot of companies, as an intellectual property attorney that are manufacturers. And it's IP issues are, one of the biggest issues that that companies often face.
For Polo, you're a custom manufacturer, you have lots of different brand owners product owners coming to you asking, what, what's your expertise and can you help us make X, Y, and Z. And when that conversation comes up my mind goes to who owns the IP.
Right? Because each party in that agreement, in that situation, they have their own I. P. Polo has their own I. P. The companies that are coming to you have their own I. P. And before we jump into bed, let's think about [00:03:00] who's going to own what? And I think that's just a critical first step.
And if you don't get that right, then you're forever going to have issues. And if you get that right, you have a really good chance of having a great relationship and a great agreement going forward.
Sean Frost: Can you speak a little bit more to that? So what, what have you seen as a well crafted agreement?
And you've been in plenty of those just with Polo to safeguard our customers innovations and designs.
Chris Proskey: So the way that I look at agreements, right, to have a well structured agreement, it's got to be clear, it's got to be fair, it's got to be straightforward. And it has to be understandable and understood.
Right. And those kind of overlap in a way, but clear is exactly that what it needs to be clear. And then fair in agreement, if 1 party is absolutely. Held to must provide X, Y, and Z, and they're losing money on every product. That's not going to work out real well. So [00:04:00] often lawyers can, can draft agreements that it takes paragraphs or pages to understand what's happening.
Maybe it's right, but it certainly isn't straightforward and then understandable. My whole goal. Understandable and understood my whole goal with agreements is to bring these two parties together and have them figure out a workable relationship. Right. And have expectations equal reality.
I see issues when expectations don't equal reality, right? One party is thinking one thing and the other party is thinking the other. We have this big gap in between and now all of a sudden we've got issues, right? So hopefully through the contract drafting process, we can make it clear, fair, straightforward, and then understood between the two parties.
And if we can do that, now we're off to a great start.
Sean Frost: , I can't agree with you more. I feel like the number of calls we've been on where we're sitting across [00:05:00] the table from a customer, trying to understand exactly why a certain stanzas in there and why it's worded a certain way, because it seems like they care about certain things.
We care about certain things. And, and if we can understand that better, we can make the language match that and, and work for both parties interests and and that's kind of where the, the magic happens, and, I think, at the end of the day, we have a template, they have a template we'd love for, our templates to just go through with the protection of both sides, but, somewhere in the middle is, is probably the answer, and, and you do a great job of, getting that information out and avoiding some of the pitfalls you talked about. Are there any others that come to mind that you would like to touch on and, and how we could avoid some of those things with customers down the road?
Chris Proskey: Again, I just can't say it enough. Lack of [00:06:00] clarity is the biggest pitfall, right? And I try to work with my clients to truly understand what the agreement says. And so often as, as lawyers and, customers, clients, right? Let it be either the custom manufacturer, the brand owner, the product owner you look at agreement, and you read the paragraphs.
Can I accept this? Is this acceptable? But when does my phone ring after we put an agreement in place? It's when something went wrong, right? Or somebody's expectations are different than reality. So what I really try to do as an attorney, and I try to counsel my clients is, okay. Yes, look at the agreement from the front side, right?
Looking, can I accept these terms? But then after you think you've gotten it to a point where. You can accept those terms, write down the 10, 5, 10, 15, 20 things that could possibly go wrong and then let them work backwards through the agreement to see how that turns out. Right? So, in, in, in Polo's case, your customer doesn't pay you.
All right. [00:07:00] So what let's let's work through the agreement and see what do we do in that circumstance? And can we live with that? Your customer hires a different company and takes your takes the design there, right? Is the agreement appropriate? Does it live with the result there? They go bankrupt, whatever it is.
So it's really and it's really looking at the agreement and to make sure that it works. For you and you're okay with how it turns out. The other thing, so clarity is one of the big issues that I truly try to work on. But then the other one that I would say is like alignment of incentives.
And you kind of mentioned it or hinted at it before, a contract is a grand negotiation. And the things that may be important to you, Polo maybe very different. Then your customers, needs or what's important to them and just really opening that dialogue to understand, what's important to them.
What's important to you. And then hopefully we can achieve an even higher [00:08:00] level of, happiness between both parties, One of my favorite classes in my MBA was negotiations and the classic there is, two parties are negotiating over an orange, but if they just talk to one another, one party would realize that they want the peel and the other party realizes they want the juice.
And now all of a sudden it all comes together. So I'm always trying to work towards understanding what, what each party needs and then aligning the incentives in the agreement. To, help them achieve that, right? I go back to having a financial advisor, right? If your financial advisor makes money on the amount of money that they make for you, like, boy, that's a great incentive, right?
They're incentivized to get, generate more money for you and, and, that may be in a, an analogy that doesn't apply perfectly here, but what are those things, right? If volume is great for you and they want more volume, like let's put an incentive, the more you, the more volume, the, there's some sort of incentive if defects are an [00:09:00] issue.
It's really critical that the other side has no, no receives, no defects, let's put an incentive in there. And just figuring out what those important things are. So again, clarity and aligning the incentives. And if you, and if you do those two things, if the agreement is clear and the incentives are aligned, boy, we're off to a great start.
Sean Frost: Yeah, that's great, Chris. And I got my MBA a few years ago as well, and I spoke to someone that got their law degree and said, I learned so much more about business through law than I did through my MBA program. And, and I could see how that's applicable because, my first foray into, into manufacturing had a lot of contracts involved.
At first it was like. Oh my gosh big large, documents that have just so much information in them, but that ends up being the backbone of the relationship that's, that's spelling out what elements, should we ensure that are clearly [00:10:00] defined in these contracts to avoid disputes down the line, like you had touched on earlier.
So, could you break down a little bit about what's key for a good supply agreement?
Chris Proskey: Before we ever put an agreement on paper and trust me, I despise these long agreements. So much of law, especially when you're working with big, companies is, is historical in nature.
And, and, and what did they do before? What's our standard process. And it gets a little bit onerous, right. But before we really get to drafting an agreement. I think it's really critical for the two parties to have a meeting of the minds, right? What's, what's the objective here?
What are we doing? And then from there, concepts that, that, what's the quantity, what are the quality requirements? Lead time pricing, who owns the IP, right? How do we terminate the agreement? I mean, these are things like, I will tell you, it is a thousand times easier to get into an agreement than it is to get out of one.
Where's the venue if something does go wrong, right? Where are [00:11:00] we litigating or negotiating this? Cause, cause where are companies today? Most of the time when I'm talking to you, you're in, you're in Kansas I'm in Iowa, my clients are all over the country and all over the world.
So if we do have a dispute, where, where are we going to resolve it? Who's, who's result resolving and how are we going about that resolution process? Indemnity is a big one, right? We're going to get into this agreement. The two parties are going to work together, but if something goes wrong, who's responsible?
And we try to figure that out ahead of time. And then again, I mentioned those, those incentives, like what, what are the incentives, right? How are we aligning the incentives? So those are from a very high level, to me, that's, that's the anatomy of an agreement and preferably my clients will come to me saying, look.
We've come together, we've had lots of talks, here's the bullet points on how this is going to work out. Now we're off to a roaring start. The worst thing I can do is, is try to use an agreement. An agreement captures the understanding of the two parties. The worst thing I can do is try to draft an agreement that puts [00:12:00] into the minds of the two parties what their ideas are, right?
That's not gonna work. We try to construct the agreement to fit what the two parties want.
Sean Frost: I'm thinking about even, the, the typical thing that, that everyone has to spend a few minutes discussing, which is how much things have changed in the last few years.
And I imagine that applies to the legal landscape as well. How have you seen any changes take place in accommodations with changes in demand or unforeseen disruptions?
Chris Proskey: Yeah. Things, are changing and changing rapidly. And, and I'm, I've always known, but I'm more convinced than ever. The. The only thing that stays the same is constant change. That makes sense. I don't have any clients that are making the same thing that they were making 30 years ago, right?
So, we have to embrace change and we have to plan for it. But it's funny you say, force majeure and, and, I, I had a litigation out in San Diego and I flew home Saturday, March 7th, and [00:13:00] then came back to the office. And, boom, the pandemic broke out and boy, there was nothing that, that in law school that trains you for what we went through.
I mean, I got phone calls from clients, can the government really shut down my business? The answer to every question is that's a good question. We, we dealt with things that we've never dealt with. And we had no scripts. But I, at that time, I authored just a little tiny blog post on force majeure because as, as lawyers, and for those that don't, don't know, force majeure is just this concept of, if something truly unexpected happens, flood, acts of God war, right.
What are the two parties do? And as a lawyer up to that point, I had been writing for, most contracts have a force majeure clause in them. And I authored this blog post just saying, we've been putting this force majeure clause and never before have I used it, government is telling us we have to stay at home.
The government tells us that, you have to shut down your business. Like if there's ever been a time when the force majeure [00:14:00] clause comes into effect, it's, it's now. And, and that was really interesting Now a force majeure clause doesn't mean that you can just throw up your hands and stop doing anything.
You still have to do your best. Right. And did it truly. It didn't mean that you didn't have to pay your rent or your mortgage, right, but it, it might have, if you were depending on what you were doing, it, it, it certainly did apply.
Sean Frost: There were a lot of implications of, of all the, all the changing factors that, that came into play and, and yeah, that's, that's funny that you made a blog post. I imagine that was, that one went maybe mini viral or, or viral viral.
Chris Proskey: Oh, it was just a simple thing. And all of a sudden it was top of everybody's mind, right?
I've got all these agreements. I can't do business the way that I was. So what do I do? And the fallback for the first time, and at least my legal career was force majeure, right? And, and, and to me, that still means just. The two parties [00:15:00] coming together and saying, look this happened, how do we deal with it?
And we're going to set, set the term, the specific terms of the agreement aside to, to some degree. And I guess that brings me to, another point that, agreements are incredibly important, right? They, they lay out the. The understanding of the two parties, right there where we put our, reality on paper.
And if we don't do that, each party is going to have, they're biased. They're gonna A lot, take whatever they're on, look out the window and describe for me what you see, right? I'll look out the window and describe for for you what I see and we'll be looking at the same thing But the words that we use are going to be completely different, right?
And again, that's the different perspectives that parties have. So going through the process of putting your, your ideas on paper is this great distillation process. And again, it's where we can align incentives and make sure everybody's on the same page. With all that in agreements are incredibly important because, business is [00:16:00] moving fast.
Companies are acquired. Parties move on. Different things happen. Right? So we got to put it on paper because, the people that had that meeting in the minds and understanding may may no longer be there. With all that said about how important how important agreements are if the two parties can get along.
The agreement means really nothing, right? Because I always laugh in agreements when you see, you read in there, unless the parties agree otherwise in writing, blah, blah, blah. Well, the two parties can always agree otherwise in writing, right? And, and take the pandemic, all of a sudden we have an issue.
We can't build your house. We can't deliver your products. If the two parties can hop on the phone and, figure it out amongst themselves, it doesn't matter what the agreement. Really means or really says, because the two parties are going to work it out. And I encourage parties to work it out all the time, but in the event that the two parties can't work it out, that's where the, terms of the agreement [00:17:00] really, they control. And that's why it's so important, for, in this case, the custom manufacturer or the brand owner, the product owner to truly think about what could happen and make sure you're okay when you work through through the agreement.
Does that make sense?
Sean Frost: Yeah, it does. It does. We've touched on intellectual property and I think this is probably, what, what comes into play most for development agreements. But I was wondering what you thought our engineers and our product developers and in the OEMs that we work with should pay special attention to in those agreements early on to ensure a project success.
Chris Proskey: Again, I'm biased intellectual property attorney. I think intellectual property is, is by far the most important property a business has with that said it's, it's interesting, many businesses. Really have no understanding of their own intellectual property. Right. And I think every business that's in operation today [00:18:00] is a technology company.
Right. I mean, you just cannot do business without technology, right? Let it be, you're making a suit, you're, you're, you're building a house. You're developing, products. Intellectual property is, what you're in the business of. So, so to protect your intellectual property, first thing is you have to have institutional knowledge, right?
Your team, your engineers, and I was a engineer at Seagate technology. I designed hard drives for, for computers, the heads, like true nanotechnology. And I went to law school to be a intellectual property attorney. And I'd never seen a patent. I had really no understanding of IP other than it was important.
So the first step to protect yourself is, is to really embrace. Intellectual property. And what I, what I do when I meet a new client is I offer like, Hey, I'm happy to come in, sit down with your management team your engineers, and let's go through an IP overview so that you all understand what patents, what trademarks are, what trade secrets are, what copyrights are, what you can and can't do.
Because that's, that's the, the, the first line of [00:19:00] defense, right. Is, is having an understanding yourself, Once you have that. Let's say a brand owner or product owner comes to, to Polo and says, we want you to make this product. In that situation, you have two parties. Like I said earlier, everybody's a tech, every company is a technology company. They have their own IP.
They think the world of themselves and they're going to come together and they're going to share their IP and they're going to work together. They're going to try to solve problems. We don't know what the result is going to be. We don't even know if we're going to solve the problem or develop the product.
There's a lot of unknowns. We have to figure out who's going to own what before we do that, because there is no putting Pandora back in her box, right? Once you see innovation, it's like, man, they call it the flash, flash of genius in, in our industry. Once you see it, it's like, man, why didn't I think of that? When it comes to IP, when it comes to agreements like this, we really need to think about who owns [00:20:00] what, right, who's going to contribute what and because the situation, a company comes to, to, to Polo and says, Hey, we have this idea for a product.
Maybe it's only half baked, but we know we can sell it and they come to you to, to, okay, can you make it for us? Obviously company a, the product owner. They own the IP in, in, in their ideas and, Polo as an example, they own their manufacturing facilities or tools, their, in house knowledge, their manufacturing capabilities, all that.
And it may be a very different situation. You design the product for us, your ideas, you design it and are they paying you for the product and then they can take that product elsewhere or, are they coming to you? You make it and we'll, we'll buy it from you right now. Are they limited to going to your competitors or anybody else or are they not right?
These are all things that we have to figure out really before we, we, jump into the relationship set another way.[00:21:00] I often get involved into, in issues where two parties have come together, they've developed something and now they're no longer getting along and they have nothing written or no clear understanding of who owns what.
And of course, each party taking, things in a light, most favorable to themselves. They think, well, I own the product. Well, I own the product. And now all of a sudden we have a great divide between expectations. And that's when we see, see your foods. So again I think you're asking, IP and, and, manufacturing agreements, most critical thing is before we start delivering products before we start really digging in is let's figure out who owns what before we, we, we start, really working together, spending money, allocating resources and coming up with solutions because inevitably, the two parties will, will see things differently on the other side, and that's just not a great situation. In contrast, we have a great opportunity to make sure it's crystal clear. If we do all [00:22:00] that work up front.
Sean Frost: There's a lot of really great points that you made there and attempted to take it in several directions.
But I mean, definitely, it is so amazing to watch the light bulb go off and to see, see the innovation take part when we've got engineers from, big medical OEM and engineers from our team that are experts in those capabilities and, and the magic that happens when the two meet it's just, it's, it's really exciting.
And I think, what you mentioned about determining upfront what the expectation is, right? If it's a long term project where they're just in the ideation stage and. Once, if, if we're in that early, then it might be something that we're really just more of a prototyping house that, that is helping them come up with a design that's manufacturable, but, they might take it out for bid later.
That's different than something that we're designing. That we maybe do something similar and, and it's going to be [00:23:00] built in house. There's a lot, a lot to potentially wade through upfront that you mentioned, and, and I wanted to kind of touch on potentially high level, but maybe even some details of what milestones or deliverables might be important to create realistic expectations.
In that, in those early conversations.
Chris Proskey: Milestones and deliverables, right? Okay. I think that goes back to what I was saying of, being clear and having that, that meeting of the minds between the two parties milestones and deliverables are not really things the lawyers get involved in that comes from the clients, right?
And I need the client to provide those to me, and I, I need the client and then their, their counterparty to, to really have a good understanding and an agreement there. Now, what we can do as lawyers is really build in what happens if we miss those milestones, [00:24:00] right? What's the penalty? What's the maybe incentive if we exceed those, those milestones.
But I think it's really important to put those down on paper and again, have an understanding. Now, when I think of agreements and the parties developing something new the terms of an agreement can be very, very clear, right? And I like to build in, you know, this is, these are the, again, the objectives, the who owns the IP, you know, what, maybe what the pricing and, and quality requirements and all that.
But then I try to put, those things that are very alluvial that, that can move around a lot. Like milestones, especially for developing, let's put that in an attachment to the agreement. So we can agree to the terms of the agreement, but then the 2 parties can put together can work together.
Like, Hey, this is this is where we are. And you modify those milestones from time to time with the writing of the parties. Right? And that can be, just a crystal clear. This is where we are. [00:25:00] This is what our expectations are. And then the terms of the agreement would, would control over whether those milestones are, are hit or missed.
And sometimes we also think about this as like a statement of work. We're going to pay you another 200, 000 for another month of developing X product. Right. And at the end of that, and we'll figure out what we're going to do and maybe enter another Statement of work that the master services agreement or the overall manufacturing agreement applies to.
Does that answer your question?
Sean Frost: Yeah, that was really helpful, Chris. Thank you for, for that explanation.
We might be beating this topic to death, but NDAs are commonplace. What are some nuances though, that we should be aware of to ensure. Confidential information is protected and most importantly, mutual.
Chris Proskey: Yeah. So, I love NDAs. I think they should be liberally entered, right? A party comes to you again, everybody, every company is a technology company. And as soon as the conversation gets to a point where we're going to start [00:26:00] sharing confidential information. Let's slap an NDA in place. One of the key things about a NDA in my opinion, right?
And you have, you have two types of NDAs. You have mutual NDAs, which all the terms are supposed to be mutual. Whatever applies to you applies to, to them. And then there's unilateral NDAs, right? Which really in, in these conversations aren't really going to come up, but if it's, it's one party is going to share information with with you and you're not going to share any information with them. An example there was, I was general counsel of the motorized window shade company, and we would bring our dealers in and train them on all of our new products that weren't public yet, right? We were going to show them non public information.
They weren't going to share anything with us, and we needed them to keep that. Quiet, confidential until we, until the products were launched. But a mutual NDA is really what you're going to enter in most cases. That means the two parties are going to share confidential information. Generally speaking, that confidential information remains the, the property of the party that shared it.
The other party can't use it for any other [00:27:00] purpose other than evaluating whether to do business together. They all describe the confidential information is not information that was known beforehand, information that's public, information that becomes public by, by no wrongdoing of your own at a later point in time.
So we put some boundaries on what is confidential, what's not. My pet peeves are the things that I think are really important about NDAs, and there's really two of them. One is you got to read the agreements to, to make sure when does that confidentiality expire a, many of them say, confidentiality expires five years after the termination date.
Well, there, we have this concept in intellectual property law called trade secrets and trade secrets is any information that has value because it's not secret, right? The most classic example is the formula for Coca Cola. They've been selling coke for over 100 years and nobody really knows. Well, a few people, it's a closely guarded secret what the [00:28:00] formula is and we can get pretty close.
We can understand what, there's some water in there, there's some bubbles, there's some sugar, but we don't know exactly how it works. So if you entered an NDA and share the Coca Cola formula with the other party, and it said, confidentiality expires five years after the termination, all of a sudden, five years after that NDA was signed, they could just release the Coca Cola formula to the world, and you don't want that to happen.
So what I like to do, and I always check NDAs is, make sure it has a clause, that's fine. Confidentiality expires five years after the termination. Unless information qualifies as a trade secret under applicable law, and then confidentiality needs to be maintained for so long as that that information qualifies as a trade secret.
Does that make sense?
Sean Frost: Yeah, That's really helpful. Appreciate that explanation in the Coke example. That's it puts it into, into perspective.
Chris Proskey: And then you ask, another thing about NDAs is in all my years of [00:29:00] doing this and helping my clients literally enter thousands of NDAs many NDAs, you see, say something along the lines of, information that's confidential needs to be marked as confidential.
And then if one party shares confidential information with the other party orally, then they should follow up or they need to follow up within 30 days with a written notice of what was shared to who, description of it, so on and so forth. I am not lying to you in all of my years doing this, all the agreements that my clients have have, signed that have clauses like that. I have never once seen a company come back and, 20 days ago, we, we, we shared orally, our ideas on X, Y, and Z, and that's confidential information. So I always try to revise those, those, I mean, and I understand that business is moving too fast for people to look back on what was done yesterday and follow up with a writing.
I always revise my NDAs that if oral information is shared, it should be treated, it's reasonably understood that it was [00:30:00] confidential, it needs to be treated as confidential under this agreement. So those are the two big provisions, making sure there's no expiration on the confidentiality of trade secrets.
And then oral information, like it should be treated as even if it's not, because there's no way to market as confidential that it should be treated as, as confidential. And I say for companies. Again, having an understanding of what these agreements mean is really key. While an agreement may be mutual, not all provisions are, equally applied.
There's provisions in there like venue, right? Is it, is it? Are we going to resolve any disputes in their location or your location or somewhere in between? So understanding what those provisions are that, that maybe have or are equal, but have a different impact on the two parties. And then also, again, I mentioned earlier that it's important for companies to understand what their intellectual property is.
And just because you signed an NDA that the other side should keep your confidential information confidential [00:31:00] doesn't mean that you should just share everything with them, right? If you're Coke, maybe you don't want to share the Coke formula with the other side, right? So having an understanding of what you're going to hold back, not share because you are your own first offense on the loss of confidentiality of your, of your information.
So really understanding that is critical.
Sean Frost: That's a, that's a great point. And really funny, understanding the contracts that you're entering into. I saw, and this was a really strange, random reel that I never get stuff like this in my social media, but there was a divorce attorney saying, basically, people don't understand what, what they're entering into in these, in these marriage contracts.
And it has huge ramifications if something goes wrong in the marriage. And, and so, so that's a really bizarre way to, to think about it. But those marriage license are not, not something most people review and people [00:32:00] do it. Yeah. Some people do it multiple times in their lives.
And, and it's really important. So I love, I love that first line of defense point to that's important for both parties to consider and it's not surprising that people aren't coming in and in writing saying we shared this thing that we consider to be confidential. So that's smart that you get ahead of those clauses.
One of the things that I think is important, at least in sales and manufacturing is. Delivering on time and delivering a quality product at the best price, that you can do that. So let's go into quality issues. They're inevitable in manufacturing. Obviously, we have systems in place to reduce those things.
The possibility of those things even happening from a larger systems level. And then from an individual level, we have. Checks and inspections and things like that. How can we create a fair and effective quality and return clause that doesn't [00:33:00] strain a relationship between both parties?
Chris Proskey: Quality is going to be key, right? In every agreement like this. Now quality has a lot of different meanings and the meaning of quality in, let's say the aerospace industry is a very different thing than quality in like a consumable product or a disposable product industry. Quality in the healthcare industry is very different than, the agricultural industry. We need to be clear on what do we mean By quality, right? Again, meeting of the minds, putting it on paper and then, issues are going to happen, right? And I really, it's one of those things where the incentives are aligned for both parties. Neither party wants quality issues, right? The company receiving the product doesn't want quality issues.
Company making the product doesn't want issues. And we want to put a system in place where the [00:34:00] 2 parties work together. To resolve this, resolve these issues, right? And it really comes down to understanding what you need. I was as mentioned, general counsel of the motorized window shade industry, and we would have motors fail, right?
And it was really important to us to understand why they fail. So we would work with our dealers or distributors or fabricators to get those motors back so that we could do QC and try to, understand the the underlying problems so that we never let it happen again. And interestingly, strange things happen.
In that example, we had motorized window shades that were wirelessly controlled. They work perfect here in the U. S., but over in Germany or in Europe, where there's a lot more RF noise, the density of population is much higher. All of a sudden, we were having issues that we never, expected.
The product worked perfect here, but once we sent it over there and nobody was really to blame. But we wanted to, to figure out what that problem was, which was really interesting because again, we'd bring them back here, test [00:35:00] them, and they work perfect, send them back over there. And then we had issues.
And, an agreement kind of two things when it comes to quality issues is the agreement really establishes the baseline. Right. What happens when the inevitable occurs, but the two parties can always, as a reputable manufacturer, Polo or whoever you probably want to exceed, your customers and their customers expectations when quality issues occur.
But we do want to take. The agreement to, to establish a reasonable baseline because, your minimums that you can live with because, the manufacturer they're releasing that product out of their control. Oftentimes, most of the time it's shipped. What happened during shipping, then it's released to the, the OEM, they do something with it and then it ends up in the customer's hands.
So it really takes a true understanding of the product process, what it is, the industry in coming to reasonable terms that the two parties can work with [00:36:00] on how do we resolve these issues, understand these issues, work together and exceed everybody's expectations. And if we can do that.
We've got a workable agreement and again, that's just every agreement is unique. Every product product is unique when it comes to these quality issues. But it's something that we spent a lot of time on figuring out.
Sean Frost: Yeah, that's a helpful explanation. And I'm just going to make a selfish plug because it's my podcast and I can do that and we have at Polo defective parts per million goals and we were way, way, way below that. So, these clauses don't come into play very often for Polo, but uh, it's great to be prepared up front. And so, after that selfish plug, I'll move on to the probably.
Most unpleasant clause in, in any contract, which is termination. And so what considerations should be in place to ensure a smooth transition if a termination arises, I know, obviously[00:37:00] that's something that's hard to consider up front, but. It happens. It happens very rarely for Polo custom products.
I mean, we have a 96 percent customer retention rate. And we've got just really, really incredible relationships with our customer. But, on the flip side too, there might, there have been. Really even during COVID, there were times that we had to terminate a customer. And so just what's, what's best to consider in terms of termination to protect both parties?
Chris Proskey: Termination is one of those clauses, one of those terms that we just obsess over and we try to get it right. It's like quality. It's like ownership of IP company. The two parties have to have a pretty good understanding of. What the overall situation is and tailor the termination clauses to, meet that, right.
If one party, the manufacturer in this case, Polo if they've got to invest, 50 million in completely unique, equipment, machinery, [00:38:00] personnel, training, all that kind of stuff, a 30 day. No, reason at all termination clause isn't going to work. Right? In contrast, if this just, slides in perfectly with your workforce and, your equipment and, your capacity.
Binding the other side to a 10 year you can't terminate for any reason whatsoever agreement isn't, isn't going to work as well. So we need to understand the specific situation and then, then tailor those termination terms appropriately. And then this is, this is one of those situations where.
We try to look at it, at least as an attorney. And, I try to counsel a lot of young attorneys, how to be attorneys and, look at these terms on paper. Can we agree to that? It's 30 day, anybody can terminate for any reason. Is that acceptable in this situation? Or it's a 10 year fixed agreement.
Neither party can get out of it. Is that okay in this circumstance? Understanding if the shoe fits, but [00:39:00] then also. Going back, looking at it from the other way, what are the 10 things that happen if you're locked into a 10 year agreement and they stop paying you and you can't get out of it? Wow, that's going to be a problem, right?
So really writing down those 10, 15, 20 things that could happen that you envision and making sure that you're okay. With that termination clause, or they terminate you for whatever reason, making sure that you're okay. And, I can't answer that for you. That really comes down to, the customer being okay with it, the client being okay with it.
But again, making sure having a good relationship with your lawyer and making sure that that termination clause really fits the circumstance perfectly. And again, this is where clarity. And fairness and understanding and being straightforward really applies. It's up to you, the customer, the client to know this provision and know that you're okay with it.
Cause if you tell me you're okay with it. It's not really something that I can come to you under some, some circumstances I can, but [00:40:00] you, you've got to be okay with it. And it's the bed that you're going to have to sleep
Sean Frost: And then the other uncomfortable section of these is, and, and, or not sections, but really action that would have to take place if there's been violation of contracts or.
There can't be agreement is disputes and how can you, how can people approach dispute resolution? I mean, are there mechanisms and contracts that prioritize swift and fair resolutions? How, how would you want to approach that and, and how should our customers think about that? those types of things too?
Chris Proskey: Dispute resolution is key. And again, the best thing the two parties can do is get along with one another, really work hard at, disputes is one thing disagreements are another, right? When. We come together, I mean, try to understand again, are we fighting over the orange and one party wants to peel the other party wants to juice?
Understanding that stuff. I, I know in, in the manufacturing world, litigation is, is a [00:41:00] swear word, right? It's a, and I, and I truly believe that that litigation is an insult to the plaintiff and the defendant. Nobody wins. Not even the lawyers, I, I despise litigation. Now I'm involved in lots of it.
And sometimes it's, it's necessary, but it is never a good option. So if we can avoid litigation, that's good with that said, everybody can agree that litigation is bad, but what's the alternative ADR, alternative dispute resolution, those are clauses that we put in into agreements and really what, what are, what are those the two mechanisms that we really have is mediation and arbitration mediation is the two parties, we, we try to work it out together, We can't, we got a dispute.
Here's a procedure that we're going to go through. We're going to hire an independent third party, which is essentially going to be a counselor and help us try to, work it out. I just had one of these with, with the client. And the thing about mediation is the mediator has no power.
You, you come together, if you haven't [00:42:00] been through one, the mediator is, tries to understand the topics at hand. Then they separate the two parties and they essentially yell at you, break you down, point out all the flaws of your side, goes to the other side, yell at them, break them down, point out all the flaws and hopefully like hammer you into position where you can kind of bridge that gap in a good resolution, let it be through.
Mediation, arbitration, whatever is where both parties are unhappy. So you got to understand that the, the best outcome is you're both going to be unhappy. The alternative is you keep just, keep the dispute going. The problem with mediation is if the parties aren't willing to resolve it, or if they aren't really ready to resolve it, then you just went to mediation.
The mediator has no power and we don't have a resolution. Arbitration, on the other hand, is the process where we hire another party, a third party intermediary, or maybe there's two parties and they pick a third one, whatever it is. There's lots of different ways that we can go about doing it and they'll work with parties to come to a resolution.
And if the [00:43:00] parties don't come to a resolution between the two of themselves on their own free will, then the arbitrator will make the decision. That's really draconian. That's really terrifying. In concept, maybe a lot of entities think, Oh, arbitration is great because it's a lot faster and less expensive than, than litigation.
Let me tell you this. We had a mediation here, two gigantic parties. I mean, it was as much. Of a litigation as any litigation I've ever been involved in. We had witnesses, we tried the thing for a month, a month. The cost was enormous. The effort put in place by the two parties was enormous.
So, so this is not a silver bullet, right? It is the word mediation has kind of migrated more and more towards litigation without a judge. And really there is a judge. It's just there really is not a silver bullet here what are the solutions?
I try to put out a really clear process that is very Kumbaya in nature, right? If there is a dispute, the two. [00:44:00] Managers are going to work together. They're going to put their issues together. Maybe they, maybe it's, maybe, maybe they're required if the parties are, in two different geographic locations, they get together in a mutual place and see each other face to face and try to resolve stuff, then maybe they bring in their managers, the next level up really lay out a process where, where it requires the two parties to knead the dough, to really roll the stone over and try to polish it and then if not, we got to think.
Are we going to, obviously mediation is always a good, good start. But are we going to elect ultimately if, if, if the two parties aren't willing to, come to an agreement, who's going to make the decision is going to be an arbitrator or is it going to be a judge? And that's, that's kind of terrifying because the decision is then out of your hands.
Sean Frost: I didn't think that Kumbaya would come up for the first time on this podcast in a legal discussion, but I do, I like that the way that you laid that out, I think that is really beneficial and and I appreciate your time today just [00:45:00] closing thoughts.
I, do you have any Anything that our audience should think about in terms of the legal landscape, how that's ever evolving, are there trends, changes in regulation, things that we should be paying attention to when we're coming up with drafting these types of agreements and contracts.
Chris Proskey: Yeah, the landscapes always changing, right?
I mean, there's always these buzzwords. Right now, the big one is, machine learning and AI and, and, but at the end of the day, it, the central theme remains and that's human judgment and relationships. And again, putting things on paper that are clear, straightforward, fair, understandable, and understood.
Right? And if we can do that in agreement, we're off to a great start, right? Between the two parties, in issues. Are going to arise and, I'm in an adversarial business. I'm a lawyer. But I really try to approach issues [00:46:00] from a non adversarial standpoint. This isn't me versus you. This isn't Polo versus their customer.
This is Polo and their customer versus the problem. We've got defects. We've got delivery issues. We've got capacity issues where, you know, like, how do you work together with the other side to find a, a. A better right? And, I think in agreement, well drafted and, taking the time to get with the other party to understand and have a meeting in the minds that, we want to work together is, is the best is the best possible avenue to success.
So yeah, that's, that's kind of how I, how I look at stuff. I mean, I see resolutions first rather than conflict. And try to draft agreements in accordance with that, knowing that, conflict is going to be inevitable at some point in time
Sean Frost: And that's good business. And that's why we enjoy working with you.
Appreciate your expertise. It's definitely, in our business, there's a lot of, a lot of [00:47:00] collaboration and that's what needs to take place and you have a very great collaborative approach to, to cut, to determine how we can avoid any resolutions of disputes, before we even get into business together.
So we appreciate your expertise, Chris. We appreciate your time today. To our audience make sure to like and subscribe comment on what you want to hear what you have questions about still maybe we can get chris on for another conversation down the road at some point So, we really appreciate everyone tuning in the podcast comes out on the second tuesday of every month and Chris, thanks for being the latest guest of the inspiring innovation podcast.
Chris Proskey: I appreciate it Sean. Thanks to you and everyone at Polo.
Sean Frost: Thanks Chris. [00:48:00]