This post explains how to protect your product from China when having your product made in China.
One of the first things our international manufacturing lawyers do when working with a company having products made in China is to figure out the contracts and IP registrations that will ensure our client’s intellectual property and other rights will be protected against its Chinese manufacturer and the rest of the world. In doing so, our China attorneys typically choose from the following manufacturing related agreements and IP registrations:
1. NNN Agreement. NNN Agreements are basic agreements that protect the confidentiality of your products and prevent your Chinese manufacturer from competing with you or circumventing you by going directly to your customers (non-disclosure, non-compete and non-circumvent). Their highest and best use is usually before you chose your specific Chinese manufacturer. Oftentimes an NNN Agreement is not needed because it makes better sense to put the substantive provisions from the NNN Agreement into a Product Manufacturing Agreement, described below. NNN Agreements normally are relatively simple agreements, but for one to work with China it must be done correctly and using off-the-shelf American or European NDA Agreements will not work for China. See Why Your NDA is WORSE Than Nothing for China.
2. Mold/Tooling Protection Agreement. This agreement makes clear that the molds/tooling you are having made for you will actually belong to you and cannot be used to make products for anyone but you. Without such an agreement, when you seek to move your production to a new manufacturer, your old manufacturer will very likely keep your molds/tooling. Without this agreement there is also a good chance your old (or even your present) manufacturer will use “your” molds/tooling to make “your” products and compete with you. Just as is true with China NNN Agreements, it often makes sense to skip this agreement and put its substantive provisions into the Product Manufacturing Agreement. For more on these agreements, check out Manufacturing in China: Control Your Molds.
3. Product Ownership Agreement. This agreement makes clear the product you are co-developing with your Chinese manufacturer or having made by your Chinese manufacturer belongs to you. This makes sure you have something in writing and enforceable in both China and in any other country in which your product is going to be sold. Without this agreement, your Chinese manufacturer may be able to claim ownership to the IP rights in “your” product and register a patent in “your” product in China and in other countries. See China and The Internet of Things and How to Destroy Your Own Company. This agreement is rarely needed because a Product Development Agreement or a Product Manufacturing Agreement usually can cover the product ownership issues.
4. Product Development Agreement. This complicated agreement should set out the terms of your product development relationship with your Chinese manufacturer, In particular, it should specify who will own what of the finished product and who will pay for what to develop the finished product. These agreements should make clear what you will be paying in product development costs and they should set out the various milestones your Chinese product manufacturer must meet to get paid. At minimum they should address (1) the product to be developed, (2) the technology the foreign company and the Chinese manufacturer will contribute to develop the product, (3) who will provide the product specifications and in what form, and (4) who will own the IP rights to the final product.
5. China Manufacturing Agreement. This agreement is often called a Product Sourcing Agreement or OEM Agreement. These complicated agreements should clarify pretty much everything between you and your Chinese manufacturer, and unless you are spending small amounts on your product purchases, you need a China Manufacturing Agreement. Among other things, this agreement usually should — at minimum — address the following:
Mold and/or Tooling ownership
Non-compete, non-circumvention, non-disclosure See NNN Agreements above
Liquidated damages for breaches
6. China Trademarks. If you are having your product made in China, you should secure a trademark for whatever brand name (and probably whatever logo) you are putting on your product or its packaging. If you don’t do this, someone else probably will and then they will use their trademark to stop your product from leaving China. You also should secure trademarks in the countries in which you will be selling your product because trademarks do NOT cross borders. Getting a China trademark is nearly always essential. See China: Do Just ONE Thing: Register Your Trademarks.
7. China Patents. If your product is innovative or distinctive in its function or its design, you should consider securing a China invention or design patent. These patents can be valuable/necessary to protect your product against copying and to prevent someone else from registering a patent on your product in China and then using that patent to stop you from manufacturing your product in China or from leaving China’s ports. See China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents.
The thing we as lawyers always need to focus on is maximizing value/protection for our clients while minimizing costs. This involves choosing the right agreement(s) and the right registration(s) at the right time(s) and doing everything correctly.