Is Your China Contract Worthless?

Pretty much every week, at least one of our China lawyers will — after a five minute review — have to tell a potential client their contract is worthless. We see all kinds of worthless contracts. NDA and NNN Agreements, Manufacturing Agreements, Licensing Agreements, Distribution Agreements, Product Development Agreements, Employment Agreements. It goes on and on. And as tempted as I am to ask why these companies would think a US law contract that calls for disputes to be resolved in Boston or Des Moines would make sense in China, I always refrain from doing so, and I have seen some doozies, including the following:

  • A Seattle company was being sued by about a dozen of its China employees and its employment contracts were drafted in English under Washington State Law. Their Seattle lawyer told them he drafted their employment contracts with their Chinese employees this way because China “has no real law.” I pointed out how my law firm cannot hire people in Seattle and use Chinese law to pay them a dollar an hour because that is the minimum wage over there. They got it and we ended up settling as quickly as we could with all of their China employees.
  • Countless companies have used US or European style NDA agreements and have had their IP or trade secrets stolen by the Chinese company that signed that NDA. They want to know their chances of prevailing in a lawsuit against the Chinese IP thief and I have to tell them that unless the Chinese company has assets outside China (and incredibly few do), they do not have a case worth bringing. I then explain how China does not enforce United States court judgments and if they are going to continue doing business in China or with China they can do better the next time with a China NNN Agreement.
  • An American company that was using a Chinese company to market and sell the American company’s product in China came to us after the Chinese company started selling its own products under the American company’s name and was refusing to cease doing so, even though the distribution agreement between them prohibited exactly that. The American company wanted to retain our China dispute resolution team to make this stop, but we had to tell them that we probably would not be able to succeed because their distribution agreement provides for US law and US court jurisdiction and because the Chinese company had registered the American company’s brand name as its own Chinese trademark. See How To Protect Your Trademark In China; How To Stop Your Distributor From “Stealing” Your Trademark.

Oh and one more thing. Far too many times when we tell someone how their contract precludes us from being able to help them, they tell us something like “we knew it would not work but we knew we needed something and we figured this contract would be better than nothing. Wrong. Many times no contract at all is better than a bad contract. 

China has its own laws and its own official languages and its own court system and its own way of doing things, just like every other country in the world. So if you are going to do business in China or with a Chinese company, you almost certainly will need a contract that satisfies China’s legal requirements. There is nothing our China attorneys hate more than having to tell potential clients there is nothing we can do, but we have to do this all the time when given contracts that were not written with China in mind.

Please don’t let a worthless contract happen to you.