Someone on our China Law Blog Linkedin Group just posed a question about using non disclosure agreements (NDAs) in China. My first thought was to refer them over to one of our posts on the subject, but then I realized we have not really written anything on them since 2006. That is far too long for something so important and so effective.
We love NDAs. They are fast, cheap, easy, telling and effective. Let me explain.
If you are going to be revealing anything in China that you do not want dispersed into the public sphere, you should consider an NDA. If you are going to be showing your product, prototype or designs to a Chinese factory, you should consider an NDA. If you do not want your Chinese manufacturer competing with you with your products, you should consider an NDA. The most important thing to know about using NDAs is that they are far more effective when signed before you reveal the information than trying to get someone to sign one after they have the information you are trying to keep quiet. The other most important thing you need to know about NDAs for China is that they really should not be NDAs at all; they should be China-specific NNN Agreements instead because Western-style NDA agreements do not work for China and most of the time using one of those is truly worse than having nothing at all.
NDA agreements prohibit your Chinese counter-party from disclosing your secrets. They do not stop them from competing with you or going around your back to your customers or clients or to anyone else. For these things — which are what is needed 99+ percent of the time in China, you need a China NNN Agreement.
China NNN Agreements (non-disclosure, non-compete, non-circumvent) are fast, cheap and easy. We like putting in an attorneys’ fee provision and a provision regarding injunctive relief in our China NNN Agreements so that if the other side violates it, we will be able to act quickly to stop them from continuing to do so and we will get our attorneys’ fees in the process. Most importantly, we put in a finely tailored contract damages clause because Chinese companies know how quick and effective and deadly this clause can be and — more than anything else — it is this clause that will make your Chinese counter-party abide by your NNN Agreement. We always do our China NNN Agreements As in both English and Chinese. We make the Chinese version the official one and the English version just a translation for our clients.
Making them in Chinese means that the Chinese courts will be able to better understand them and enforce them more quickly. It also takes away the other side’s argument that it did not know what it was signing.
Well-crafted NNN Agreements are effective in China for two reasons. First, they greatly reduce the likelihood of your information being revealed. Chinese company owners are no different from anyone else and if they can help it they will seek to avoid a lawsuit where the odds have already been stacked against them. Second, the Chinese courts are familiar with them and they generally enforce them.
We also like how much we can learn from the reaction of Chinese companies to our China NNN Agreements. This is the “telling’ part because we have found that if a Chinese company refuses to sign one of our China NNN Agreements, it is probably not the Chinese company with which you want to do business. We have drafted and put before Chinese companies around 500 of our China NNN Agreements and they have been signed approximately 495 times. If a Chinese company says, nobody signs these in China, we tell them that is not true and they either buckle down and fly straight or our client walks.