A Chinese EV battery plant in Vietnam — moulds, jigs/fixtures and engineering drawings designed, built and shipped over by the Chinese parent — when the contract/cooperation ends, who owns the tooling, do the drawings go home, and how are sunk costs handled? Tooling transfer is many projects’ blind spot: easygoing on the way in (“just use them”), disputed on the way out — because nobody defined it upfront. This article guides drafting complete tooling transfer clauses: ownership, use rights, handover on termination, and costs.
Tooling is two assets in one
Tangible asset + intellectual property
Moulds and fixtures are tangible assets (graspable, movable) — yet embody intellectual property: design drawings, specifications, manufacturing know-how. On termination, both must be addressed: who gets the physical tooling back, and do drawing/design use rights survive? Many disputes arise because parties agree only on the physical moulds (“return the moulds”) while forgetting drawings and data — a partner keeping the drawings can build new moulds.
Who owns tooling? Three models
Model 1 — Chinese side owns: the parent designs, pays for fabrication, and merely lends/licenses use to the Vietnamese side during the contract term. On termination: recover all physical tooling plus drawings; the partner keeps no copies. Model 2 — Vietnamese side owns: the Vietnamese side orders and pays for the moulds (even to Chinese designs) — on termination it keeps the moulds, but design use rights need separate provision (terminable under the licence agreement). Model 3 — Co-ownership: most complex, only where both sides co-funded fabrication — requiring detailed disposal rights on termination (buyout rights, pricing).
Drafting termination tooling clauses
(1) Inventory and marking: from day one, maintain a tooling register (each mould/fixture coded), record ownership, and physically mark (engraved codes, tags) — so termination brings no “whose mould is this” fights. (2) Handover duties: on termination, the holder must return tooling within a fixed period (e.g. 30 days), in agreed condition (fair wear excepted), with all drawings, data and manuals. (3) Copy destruction: the returning party must certify deletion/destruction of all drawing copies, CAD files and technical data — with minutes of confirmation. (4) Costs: allocate dismantling, transport and storage costs on handover — and how unamortised fabrication costs are treated (owner bears, or time-apportioned). (5) No copying: during and after the term, the licensed user may not copy or re-fabricate tooling — breach infringes IP rights and trade secrets.
The money question: who pays for tooling across its life
Ownership answers “whose”, but money answers “who pays” — and the two are negotiated separately. Upfront: fabrication costs are typically borne by the owner-to-be, but where the Vietnamese side funds moulds to Chinese designs, the design fee or royalty element should be priced separately from the steel. During use: maintenance, repair and calibration costs need allocation — usually the user maintains at its cost, with major overhauls needing owner approval. Modifications: who pays for engineering changes, and who owns the modified tooling, must be agreed before the first change order — retroactive arguments about “improvements” are where most tooling money disputes start. At the end: unamortised value is the flashpoint — agree upfront whether the owner absorbs it, the user compensates pro-rata for remaining useful life, or a pre-agreed depreciation schedule settles it automatically. Put the money terms in a schedule to the main agreement with worked examples: abstract clauses about “fair allocation” collapse the moment real money is at stake, while a table with numbers gets signed and followed. Revisit the schedule whenever the commercial terms change — a pricing table frozen at signing slowly drifts from reality, and drift is where disputes breed.
Managing tooling during use — never “free-range”
The tooling log — the asset’s “title deed”
Each mould/fixture needs its own file: code, photos, commissioning date, periodic condition (6-monthly checks), repair history. Reality: a mould run 3 years without maintenance → breaks → fights over “who pays repairs” (owner or user?). Fix: contracts assign maintenance duties (user handles routine, owner funds overhauls) + cost thresholds (repairs under X: user decides; over X: owner approval).
Surprise inventories — the owner’s right
The tooling owner (Chinese parent) should hold surprise inventory rights (48-hour notice): reconcile physical vs register, check condition, detect unauthorised copying. Reality: many “twin mould” (copied) discoveries come from surprise inventories — waiting until termination is too late (the fake mould already mass-produced).
Tooling upgrades — who pays, who owns?
During use, moulds need upgrades (productivity, model changes) — who funds upgrades? Who owns the upgraded portion? Fix: every above-threshold upgrade needs prior written agreement (who pays, ownership split, termination treatment). Never: “upgrade now, settle later” — “later” in tooling always becomes a dispute.
End-of-life tooling — the forgotten phase
Moulds wear out. When a mould reaches end-of-life: who decides to scrap it? Who pays for replacement? Who owns the replacement? Without answers, the user keeps running a degraded mould (quality drops, the owner’s brand suffers) or scraps it unilaterally (ownership fight). Fix: define end-of-life criteria (shot count, tolerance deviation), a replacement decision process, and cost allocation (often shared by usage benefit). Also address scrap value: who keeps the proceeds when a mould is sold for scrap metal? Trivial amounts cause non-trivial fights when trust has already broken down — decide it in the contract, not at the scrapyard.
Tooling insurance and risk — never forget
Tooling (molds, fixtures) costs hundreds of thousands of USD — who insures it? (1) fire/disaster (mold burns — who bears it?) — contracts must name the insuring party; (2) wear (molds degrade after X thousand shots — who pays repair/replacement?); (3) theft (molds that “vanish” — is there theft cover?). Principle: expensive tooling deserves matching insurance — never gamble.
Tooling valuation disputes — agreeing on worth
When tooling is damaged, lost, or transferred, parties fight over value: (1) book value (depreciated — favors the user); (2) replacement cost (new mold price — favors the owner); (3) remaining useful life (shots left × value per shot — the fairest). Agree the method in the contract (before disputes) — and revalue periodically (annual condition reports with photos). Without an agreed method, every tooling incident becomes a valuation war — experts hired, months lost, relationship destroyed over a formula that takes one paragraph to fix.
Tooling transfer checklist
On inbound: (1) detailed tooling register (codes, descriptions, owner); (2) physical marking of each mould/fixture; (3) signed handover minutes recording ownership and use rights; (4) original drawings kept by the owner (controlled copies only outbound). During use: (5) condition tracking and maintenance; (6) no unauthorised copying/re-fabrication. On termination: (7) inventory against the original register; (8) physical handover within the agreed period; (9) recover/delete all drawing copies and CAD files; (10) minutes confirming completed handover + no-retained-copies certification; (11) settle dismantling, transport and unamortised costs. Principle: tooling isn’t managed on “trust” — but on registers, markings and minutes.
Contact us
FLAT Law Firm advises Chinese investors in Vietnam across the full lifecycle: investment structuring, IRC/ERC procedures, tax, labour, intellectual property and dispute resolution. Contact us for advice tailored to your case.
This article has been quality-reviewed by the FLAW AI Legal Council