Got a somewhat frantic phone call a few weeks ago from a company wanting to sue “somebody.” This company, Company A, had just learned why its largest buyer, Company B, had stopped buying its product from Company A. The reason: Company B had learned who Company A was using to have its products manufactured in China and Company B had started sourcing from that company itself.
Our conversation went something like this:
Me: Do you have a contract with your Chinese supplier?
Company A: Just a one page “agreement” we signed years ago.
Me: Does that contract say anything about your Chinese supplier not being able to go around you?
Company A: No.
Company A: No.
Me: Does your product have any IP protection in either China or the United States? Any patents or trademarks?
Company A: No.
Me: Okay, well you do not need to register a trademark in the United States to have a trademark in the United States so we should talk with one of our trademark lawyers to see if maybe you have a trademark claim.
Company A: How can I when Company B’s product is using a different name than ours and looks a little bit different.
Me: Well, you very well may not have a trademark claim, but we still should look at this.
Company A: I know how Company B learned who our Chinese supplier is. Do you want to know that?
Me: Sure, but I am guessing they learned it simply by looking at custom records, right?
Company A: No, they learned it because some company out there is publishing supplier information on the web. Can we sue them?
Me: I doubt it. Those companies are just publishing public information. You can get that information from customs in the US. There are companies that consolidate all that information and set it up with great search engines and charge for the privilege.
Company A: But I think this company was using export information from the Chinese government. Can they do that?
Me: I don’t see why not. China makes a lot of this public as well. I’m having real trouble thinking of how anyone did anything legally wrong. I hate to tell you this, but I think the problem is that you did not put anything in place to avoid something like this.
The other day, a really savvy client of ours stopped by our office. This company has been doing business in China for a long time and it has NNN agreements with its Chinese suppliers and its foreign buyers. I mentioned the above conversation (no names or other identifiers, of course) and we talked about the benefits of the contracts his company has both in China and in the U.S. and elsewhere in the world (Spain, Vietnam, Mexico and Poland). He then reminded me that this was also one of the reasons his company had set up its own trading companies in China. This company gets its product from about a dozen different Chinese factories, but the records in both China and the United States all point to the U.S. company’s own trading company as the exporter. This company has never had a problem with its customers going around it.
What do you do to prevent your Western buyers from learning about your Chinese suppliers and going around you?