TEXTILES AND APPAREL

Contract Manufacturing Agreements in Türkiye: Patterns, Designs, Quality and Overruns

Türkiye has long been one of the most important nearshoring countries for European fashion and retail brands. Many of these brands do not set up their own factory in Türkiye but have products, whose design and technical files they prepare themselves, made by Turkish manufacturers under contract manufacturing arrangements. This relationship often develops into a cooperation lasting many years; in the day-to-day flow of orders, however, the legal framework between the parties is frequently limited to an order form and a few e-mails.

Disputes in contract manufacturing typically centre on who owns the patterns, designs and materials handed over by the brand, who is responsible for quality problems and what happens to overruns. The following sections address the main points that brands manufacturing in Türkiye under contract should cover in their agreements.

Ownership of patterns, designs and technical files

The brand's most valuable assets in contract manufacturing are the designs, patterns, technical drawings and size charts handed over to the manufacturer. A distinction must be made here between ownership of the physical patterns and samples and the intellectual property rights in the designs, since the two do not always belong to the same person. The contract should clearly state which physical tools and which design rights are provided by the brand, that they may be used only for that brand's orders and that, when the relationship ends, the physical tools must be returned and the use of the design rights must cease. Otherwise, the brand's remedies are weakened if the manufacturer uses the same patterns for other customers or markets similar products under its own name.

The fact that the patterns are physically held by the manufacturer creates a further risk. Since Turkish law grants a creditor a right of retention over movable property in its possession that is connected with its claim, the manufacturer may refuse to return the patterns if invoices remain unpaid. It is therefore advisable to regulate in the contract under which conditions and within what period the patterns are to be returned. However, providing for their return independently of any payment dispute does not automatically eliminate the statutory right of retention; whether the manufacturer may rely on that right should therefore also be addressed expressly in the contract.

Fabrics and trims supplied by the brand

In many contract manufacturing relationships, fabrics, labels and trims are supplied by the brand or purchased on the brand's account from suppliers it has approved. It is important to state in the contract that ownership of these materials remains with the brand and to keep them separately and recorded in the manufacturer's warehouse. Where production uses materials belonging to another person, ownership of the resulting product is determined by the statutory rules on processing, and without a clear contractual provision this question can become contentious.

The status of the materials as property held on behalf of the brand becomes decisive particularly where the manufacturer runs into financial difficulty. Materials and semi-finished goods that can be shown to belong to the brand may be protected against the manufacturer's creditors; by contrast, this possibility is often lost for materials that cannot be distinguished within the manufacturer's general stock.

Quality, acceptance and defects

Defining quality standards, sample approval and pre-shipment inspections in the contract determines the scope of later disputes. The inspection and notification rules that apply in contract manufacturing depend on the legal nature of the contract. Whether the relationship is characterised as a sale or a contract for work, and whether the UN Convention on Contracts for the International Sale of Goods applies, directly affects the brand's rights in the event of defective production. Since short inspection and notification obligations may arise in any case, the brand's rights regarding defects discovered weeks after the goods reach its European warehouse may become disputed. Inspection and notification periods should therefore be set separately in the contract to suit the brand's logistics processes.

Contractual penalties agreed for late delivery are also important. Since merchants under Turkish law cannot, as a rule, request a reduction of a contractual penalty on the grounds that it is excessive, the amount of the penalty and the delays to which it applies should be determined carefully by both parties.

Overruns and defective products

A frequent problem for brands manufacturing in Türkiye is the sale by the manufacturer, on the domestic market or in third countries, of overruns or products that have failed quality control. Products placed on the market without the trademark owner's consent may constitute trademark infringement; establishing the infringement and tracing the goods, however, becomes difficult if the contract contains no clear provisions.

Reporting of production quantities, destruction of overruns and defective products under the brand's supervision, counted delivery and return of labels and branded trims, and an audit right for the brand should therefore be among the core provisions of the contract. Customs and marketplace tools against counterfeits are discussed separately in the trademark article in the Consumer Products and E-Commerce sector.

Confidentiality and exclusivity

Seasonal collections falling into third parties' hands before launch is a significant commercial risk for brands. The confidentiality obligation should be drafted to cover the manufacturer's employees and subcontractors, and it should be specified whether the manufacturer may pass part of the work to other workshops without the brand's approval. In practice, the brand's control over quality, confidentiality and employment law compliance diminishes markedly for work passed to subcontractors.

Conclusion

The value of a contract manufacturing relationship in Türkiye depends as much on the trust built up over the years as on the extent to which that trust is reflected in the contract. Clearly specifying in the contract who owns the patterns, materials and design rights, setting quality and notification periods according to the brand's processes, controlling the destruction of overruns and defective products and limiting the use of subcontractors contribute to a smooth relationship and to a stronger position for the brand in a dispute. General questions on trademark and contract law are addressed on the pages of the relevant practice areas.