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China NDA: A Day in the Life

Forming a China WFOE

Every so often one of our China lawyers gets an email from someone who essentially challenges us to tell them why they should hire us. Our response is to patiently explain why they are wrong to think that they do not need a lawyer.

One of our lawyers got such an email the other day from an American company that seemed irritated that one of our clients “had insisted” they contact us:

________ at ________ [our client company] insisted that I contact you about our China manufacturing plans even though I have been doing business with China for more than twenty years.  ______ tells me that you believe that contracts with China manufacturers can be worthwhile but I know that it is the government there that determines everything. I want to stop my Chinese manufacturers from copying my products and selling them to my competitors. I doubt any contract can do this for me but can you lay out for me exactly how your company can help me, how long it will take and what you will charge. They just signed the attached NDA but ________ keeps telling me that I should have you modify it. If you are going to do that, I will need it back by the end of the week.  I also am enclosing a manufacturing agreement my lawyer drafted for me and I would appreciate your point of view as to how realistic it is.  We made it very favorable for my company.  It is approximately 10,000 words and so I also need to know what you will charge to revise it. I need this back by the end of the week as well.

Here was our response:

I hesitate to spend time on this because you seem convinced that you do not need help and because it is too late for us to fix your NDA, which does not do what you want it to do. I instead urge you to read  How To Stop Your Chinese Supplier From Becoming Your Competitor and China Contracts. Why Even Bother? and whatever links are contained in those two.

The NDA you sent will not help you in dealing with your Chinese manufacturers. An American NDA with jurisdiction in Chicago will not impact Chinese companies. What you need is not really a China NDA at all, but a China NNN Agreement (Non-Disclosure, Non-Use, Non-Circumvention) Agreement. This sort of agreement can go a long way towards preventing potential or future manufacturers from stealing your design.

The requirement that you sue in Chicago strips you of any power or leverage over your Chinese manufacturers. Chinese manufacturers do not fear U.S. litigation as much as they fear being hauled into a Chinese court and hit with liquidated damages (or even worse, a pre-judgment seizure of their assets based on the liquidated damages provision). The goal with our NNN agreements (and of all our China contracts) is to prevent the Chinese company from doing what you don’t want them to do, not so much to beat them if you end up having to sue.

There is no point in our using your existing NDA as a template because it would take us more time to do that than for us to start from scratch. More importantly, non-disclosure is not really the risk you face. Your biggest risk isn’t your Chinese manufacturer disclosing your product to someone else; your biggest risk is your Chinese manufacturer making your product and your NDA is completely silent on that.

I spent five minutes reviewing your manufacturing agreement and that was enough  for me to determine that it too isn’t close to what you need for China. Honestly, it isn’t close for what you would need in the United States either. It does not mention any penalties for bad quality nor does it set forth any sort of timeline. These two things are the most basic provisions one expects to see in such an agreement. It reads as though a non-lawyer cobbled it together from various contracts on the internet. You should consider using no contract at all because if you did that you would at least be able to sue your Chinese manufacturers in China, instead of in the United States. I suggest you read Suing Chinese Companies in US Courts.

And there is no way we can promise you anything by the end of the week because we do not even have a good idea yet of exactly what it is you really need and for that it would make sense for us to talk by phone.

Not surprisingly, we never heard from him again.

4 responses to “China NDA: A Day in the Life”

  1. It’s no surprise you didn’t hear from him. I suggest a more tactful way of proving your value and expertise may have earned you some business. But I suppose as you mention that you don’t need more clients. More power to you. I suppose this man really doesn’t need your services now that you have given him all your tips for free. Never judge a book by its cover; 20 years experience may not make him a lawyer, but it may make him a profitable client.
    While well written, I find this type of response unprofessional at best and in bad character at worst. My opinion respectfully.

  2. I find this type of reply unprofessional at best, and of bad character at worst. You certainly showed your expertise but allow me to suggest that a more tactful approach may have shown true value and earned you a client. I suppose as you say, that you don’t need the client, but then I guess he doesn’t really need your services now that you have given him all your tips for free. Never judge a client by their cover. 20 years experience may not make him a law expert, but it could make him a potentially profitable client, grumpy or otherwise.
    My opinion respectfully.

  3. I disagree with mkv. Your response is straight-talking, professional and assertive; to water it down and be “tactful” would be to accept the role of courtier rather than independent adviser. The original enquiry is very pushy in tone and the only reason why I would have responded in such detail to such an email would be out of respect for the client who recommended you.

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