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This is a really interesting and complicated issue as there are several factors and questions that need to be taken into consideration namely:
- Was an agreement signed between the vendor and supplier that outlined rights/ownership concerning intellectual property or industrial design with respect to the product? 
- Were any non-recoverable expenses charged for the development? Was there a non-disclosure agreement in place? 
- Does the design incorporate proprietary elements that are exclusive to the client alone or are they more industry-specific? 
- Was this product exclusively designed for the client, knowing that they would have exclusive rights to the product? 
- What would be the "best" way to handle this issue with the client moving forward?
CRM Community Industrial design is an incredibly complicated area under intellectual property law which is why the Canadian Intellectual Property Office has created a Guide to Industrial Design and features a Frequently Asked Questions to answer basic questions in this area of law.
The first step would involve the agreement (implied or written) with the client as your starting point. If the client uses this product (a durable good) and treats it like a unique sales proposition (USP) in their marketplace, then you have a serious problem.
If a client has asked for a unique solution to solve another issue (e.g. special conveyor system to move product in a factory), that system is not exclusive to the client in the sense that it is a USP to the marketplace - just a better way to move product in the manufacturing process. You need to involve senior management and revisit the issue with your client. It is not worth damaging your reputation and integrity or that of your company by jumping the gun. 
Additional Resources
CPSA′s Sales Institute Code of Ethics
"Ethical Sales Practices" Contact Magazine Fall 2008 
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