Contract Production

[KRS]

Hi!  I'm not a new distiller, but I would be a beginner at contract production.  They want my gin under their label, but I'd like to hear from anyone about drawbacks to that arrangement.  Please let me hear from you about recipe ownership considerations specifically.  Then, I'll be wanting to know about the best legal procedures and who is recommended.  Thank you.

[dhdunbar]

You are asking questions that are best answered by an attorney familiar with the issues around ownership of intellectual property.  The agreement into which you enter should contain terms that provide both you and your customer protections. You don't say who the "they" is that want your product under their label.  It makes a difference whether they are a retailer or a supplier (distributor or wholesaler).  If they are a retailer and they want a gin branded with their name, it seems straightforward.  You enter into an agreement to supply the specified product for a specified term.   To protect you, the agreement would probably specify that they are purchasing the finished product, not the right to use the formula, etc, whose title rests solely with you, yada yada ... but again, that is something best left to the attorney who draws the contract on your behalf.    

If I am someone who is purchasing for resale at wholesale, my expectations change.  Since I will be investing time and money in developing a brand, I need some assurance that I will be able to supply the market with a consistent product, even if you decide you no longer want to produce it for me.  I would not enter into the agreement unless I had assurances that I held a right to use the formula to produce product if you terminated production.  

 

 

 

[tndistilling]

Get the FET paid before any bottled product leaves your bonded premises. Set up an escrow account and have the Government's money wired there in order to keep it segregated from your operating account. 

Set clear terms on accounts receivable and don't let them get behind, whether bottling or just distilling.

If bottling make sure that all the packaging materials you are receiving are on premise before you start. 

Unless you are set up for R&D have the customer do it and  tell you exactly what they want.  Have them sign off on formula and sample. Do what they tell you to do instead of doing the R&D and giving advice. You don't want to be tweaking a formula forever. And you don't want to hear, "if you made it better, it would have sold better."

[KRS]

I apologize, but I haven't figured out how to respond to posts separately.  I feel dumb saying so, but there it is.

DHDUNBAR:  Thank you for answering.  It's a local bar, and as far as I know they would like me to bottle my gin with their label.  It may be that they want their own recipe, but when they asked me about it some time back, it was about my gin with their label.  I will find an an attorney for this.  We will require a commitment by the batch and one month's lead time, make that 6 weeks.  I like to rest the gin for a month.  Maybe that's unrealistic for contract production...

 

TNDISTILLING:  Thank you, too, for answering.   I will build the FET into the price, which is what we did when we distilled and bottled a liqueur recipe that belonged to the customer.  I can see that it's a good practice to put the tax money aside, but we just pay the excise tax on everything we take out of bond during the quarter.  As far as R&D, well, they're not able to create a recipe.  I'm hoping that bottling my gin under their label is all I'll have to do.  If that's what they want, that's what they'll get, it's what they asked for and it's up to them to sell it.  I imagine that they'll cough if they want their own recipe when they find out how much I'd be charging for R&D.

I'm aware that private labels don't need to be submitted if they're special events, but I don't know about labeling contract spirits. It would be nice to find out that it's the same as long as what's in the bottle is the same.  In any case they'll pay for their own label design and we'll get them printed.  We'll charge them for label printing, bottles, corks, sleeves. We'll charge them for recipe ingredients, federal taxes and some labor cost factored in, by the proof gallon.  The distributor will add a cost, of course.  They'll need to have a contract with the distributor as well as with us.  Payment will be upon receipt from our distributor. 

 

I really appreciate your advice.  Thank you.  Karen

[tndistilling]

I thought you were talking about much larger volumes.

 

[dhdunbar]

Give me a call at 206-914-0595.  I can discuss in 10 minutes what it would take me 30 minutes + to type.  Plus, it will prevent misunderstandings.  No fee or obligation if it is a short answer, which it should be.  I charge consulting fees when it gets complicated.  What you propose is not.