China NDA: A Day In The Life Of A China Lawyer, Part II

Someone in our China Law Blog Linkedin Group (please check it out and join if you are not yet a member — we keep it entirely spam-free) asked a question regarding an NDA with a Chinese supplier. Someone else in the group responded by referring the questioner to this free online NDA.

I (and most other lawyers) virtually never weigh in on specific legal matters online because it does not make sense to provide legal advice without knowing all of the facts specific to the individual situation, I could not resist doing so here and I did. I had a vision that someone somewhere might actually think that this agreement would work when dealing with a China company and I could not allow that to stand. So I wrote the following:

This online NDA is of ZERO value when dealing with China and I would strongly urge that nobody use it for that. I do not believe any Chinese court would enforce it, and even if they did, it is not clear what there is in it that would help. Do not use domestic NDAs for China as they just do not work! Start by reading China NDA. A Day In The Life Of A China Lawyer.

That post dealt with my response to someone who had reluctantly written me at the very last minute, but only because his client “insisted” that he do so. This person then proceeded to explain why he did not think that he needed me and essentially challenged me to prove my worth before he would even consider hiring me. I did not take too well to his email and I responded with the following, all of which makes equal sense true today:

I hesitate to spend time on this because I do not think that you will retain us both because you have come to us too late for us to fix your NDA (which, quite frankly, does not achieve what you want it to achieve) and because you are neither going to believe nor like what I have to say. So I instead urge you to read  How To Stop Your Chinese Supplier From Becoming Your Competitor and China Contracts. Why Even Bother? and all of the links contained in these.

What you have done so far is unlikely to help you in dealing with Chinese manufacturers. It just does not sound like you have received good advice so far and I have to wonder whether that is because you have been hiring the wrong China attorneys (or no attorneys at all) or if it is because you are not interested in changing how you do business with China.

An American NDA with jurisdiction in Chicago is not likely to have any impact on a Chinese company. What you need is not really a China NDA at all, but an NNN (Non-Disclosure, Non-Use, Non-Circumvention) Agreement that protects you before you have actually chosen a particular manufacturer for your product.  This sort of agreement can go a long way towards preventing potential or future manufacturers from stealing your design.

The ability to sue in Chicago is not likely to give you any power over a Chinese manufacturer. The bottom line is that Chinese manufacturers do not fear foreign litigation as much as they fear being hauled into a Chinese court and hit with liquidated damages (or even worse, a pre-judgment seizure of their assets). The goal with our NNN agreements (and of all our China contracts) is to prevent the Chinese company from doing what you don’t want them to do, not so much to beat them if you end up having to sue.

There is no point in our using your existing NDA as a template because it would take us more time to do that than for us to use our own template and then modify that to suit your current needs. More importantly, non-disclosure isn’t really the risk you face; it’s non compete that really matters and your NDA is completely silent on that. Your biggest risk isn’t your Chinese manufacturer disclosing your product to someone else; your biggest risk is your Chinese manufacturer making your product.

I spent five minutes reviewing your manufacturing agreement and that was enough time for me to determine that too also isn’t close to what you need for China. Honestly, it isn’t close for what you would need in the United States either. It does not mention any penalties for bad quality nor does it set forth any sort of timeline. These two things are the most basic provisions one expects to see in such an agreement. It reads as though a non-lawyer cobbled it together from various contracts on the internet. You probably would be better off with no contract at all.

And there is no way that we can promise you anything by the end of the week because we do not even have a good idea yet of exactly what it is you really need. You are going to need to determine whether you are prepared to spend money to do things right in China contractually or just continue muddling through. You know what I would recommend, but of course it is entirely up to you.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.