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, mostly 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 that is exactly why Chinese companies like them. They do not want to sign a China-specific NNN Agreement that will protect the foreign company so they propose a Mutual NDA as a diversion or 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 usually to agree to an innocuous NDA that protects the Chinese factory, but only if it 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. 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. This is 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.

Bottom Line: Beware the China Mutual NDA. It’s not for you; it’s against you.