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China Distribution Agreements: Exclusivity is Optional

China distribution Agreements

I spoke last week on China IP at Columbia University. During my talk, I mentioned how common it is for the Chinese side in licensing and joint venture deals (really pretty much any deal) to claim Chinese law requires the foreign company to transfer ownership of IP to the Chinese side for the deal to go through. I talked of how when our China IP lawyers are confronted with such a situation we ask the Chinese side to provide us with the legal cite to the law that allegedly requires this. To which we typically get one of the following responses:

  1. There is no English language translation of the law.
  2. A Chinese language version that does not say what the Chinese side says it says.
  3. A claim by the Chinese side that it is an “unwritten” law.

I then stressed how there is no such law, though we have many times seen foreign companies turn over their IP because they believed otherwise.

After my talk, Andrew Hupert told me of how on more than one occasion he has worked with companies that have entered into exclusive distribution arrangements with Chinese companies based on the Chinese company’s assertion that Chinese law requires foreign companies grant the Chinese company exclusive distribution for all of China. Andrew described one situation where an American company had signed a long-term China exclusivity deal with a Chinese company that had no capabilities outside Shanghai.

As commentators love to point out (see e.g. Nine Nations of China), China is a large and diverse place and a good distributor/marketer/seller of a product or service in one China region might very well not know anything about distributing/marketing/selling in any other China region. The good news though is that you are not required to use the same distributor throughout China, no matter what you are told. There are though some product areas (such as pharmaceuticals) where it is very common for a distributor/reseller to require nationwide distribution even though it is not legally required.

Bottom Line:  
Chinese companies love claiming something has to be done a particular way in China, true or not. Your job is to confirm or deny this.

For more on distribution agreements in China, check out the following:

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