Beware the China Mutual NDA
1. A China Mutual NDA Will Not Help YOU
Should I Sign a Mutual NDA With a China factory? Our international manufacturing lawyers get this question once a week, which is up from maybe once a year only a few years ago. Our usual answer is no, because these agreements are usually just a ruse to steal our client’s intellectual property.
Mutual NDAs with Chinese companies rarely protect a foreign company’s intellectual property or confidential information. And this is exactly why Chinese companies like them. Your Chinese counterparty does not want to sign a China-specific NNN Agreement that will you give you a good lawsuit against them, so they propose a Mutual NDA as a diversion or a ruse.
But with the increase in Chinese factories seeking Mutual NDAs has come an increase in Chinese factories insisting on Mutual NDAs. Our strategy in these situations is to agree to an innocuous (and separate) NDA that protects the Chinese factory, but only if the Chinese company will sign a separate, China-specific NNN Agreement that actually protects our client.
2. You Need a China NNN Agreement Instead
We draft China NNN Agreements to protect our client’s IP. These are intentionally not mutual agreements that protect the Chinese company’s IP as well.
Our China NNN Agreements protect the unauthorized disclosure of whatever it is our buyer does not want revealed or used by its Chinese factory. They also make the Chinese factory liable for any unauthorized disclosure of information by any company related to the Chinese factory, such as a subsidiary or affiliate. We almost always write our NNN Agreements pursuant to Chinese law and we make them enforceable in a Chinese court that has jurisdiction over the Chinese factory. We write them like this because securing a judgment against Chinese companies in most foreign courts simply does not work. We also write them with Chinese as the official language. See Drafting China Contracts That Work.
China Mutual NDAs are nearly always enforceable only in the courts of the foreign buyer’s home country, which for our lawyers usually means the United States, Canada, Australia, or an EU country. Though it may sound good to have your lawsuit against your Chinese counterparty in your home country, this is usually the worst of all worlds for our clients. Because Chinese courts rarely enforce court judgments from these countries, calling for contract enforcement in one of these countries essentially grants the Chinese company a license to steal. But on the flip side, the Chinese company can both secure and enforce a judgment against our clients in our client’s home court.
In other words, you’ve harmed any potential lawsuit against your Chinese counterparty, and you’ve helped any potential lawsuit by your Chinese counterparty against you. This is why Mutual NDAs are so popular among Chinese companies and this is also why you should almost never enter into one.
Bottom Line: Beware the China Mutual NDA. It’s not for you; it’s against you.
