My law firm’s international IP lawyers draft more NNN Agreements than any other contract. I sometimes refer to our NNN Agreements as NDAs on steroids, but in reality they are mostly a completely different beast, made necessary by the nature of China businesses and our clients. The key component of our NNN Agreements is the non-compete portion, as that provision is what stops Chinese companies from using our client’s trade secrets to compete.
Even though our NNN Agreements are incredibly effective at stopping Chinese companies from using our clients’ trade secrets, no agreement anywhere in the world can give you 100% certainty. Which is why our China lawyers instruct our clients to do whatever they can to protect their trade secrets beyond having a good NNN Agreement.
One thing we often discuss with our clients is how to minimize the likelihood of trade secret/IP theft at the beginning stages of their trying to decide who to use to manufacture their products. We urge them to meet with as few potential Chinese manufacturers as possible because every new company that learns our client’s trade secrets is a new threat to exploit those trade secrets. We also urge our clients not reveal any trade names they may use in China without first filing to secure those trade names as China trademarks.
Most importantly, we urge our clients to reveal as little about the product as they can to get production quotes. What this means in real life is that if you are making a widget that is 98% standard in all respects, you get a quote for a standard widget and then reveal the unique 2 % only to the Chinese widget manufacturers that come back with the quality and pricing requirements you seek. Why reveal your top secret 2% to ten manufacturers when only three are really in the running for your business?
How much you can reveal to get an accurate reading of the production capabilities and the pricing structures of your potential Chinese manufacturers will vary with the product and your secrecy needs.
Bottom Line: Before you get on the airplane to meet with your potential China manufacturers, you should figure out the bare minimum you are going to reveal to those manufacturers and have in place the protections you need (such as an NNN Agreement and a China trademark) to protect that which you will be revealing.