China Product Development Contracts: I Don’t Get No Respect
Our clients that manufacture product in China typically use us for some or all of the following:
As discussed, the basic problem with having a Chinese (or Taiwanese) factory do product development without a development agreement is ownership of the IP should ABC Company not end up ordering products from the factory. We talked about what happens if the factory cannot make the product pursuant to your specifications. The variant of this that we see most often is when the factory likes the product and thinks it can do better selling it on its own, and once development is complete, it quotes the buyer (in this case, that’s you) a ridiculously high per-unit price. The buyer says forget it, at which point the factory thanks the buyer for reinvigorating its product line. We have seen this scenario play out dozens of times, and the buyer has absolutely no recourse: it has no agreement covering development, and it did not pay the factory a dime. I don’t think there’s a court in China that would hold the factory accountable.That being said, I am not unsympathetic to your concerns. A separate development agreement would increase the cost of the process, and it would take additional time – time that you may not have, if your target launch date is mid-2015. I can’t say how your factories would respond, but sophisticated factories are (or should be) familiar with such an agreement.Your point about your ongoing relationship with Chinese Manufacturer A and Chinese Manufacturer B providing some comfort is also well taken. The sort of behavior I describe above is more likely to happen with a factory that has no previous relationship with the buyer, and therefore more incentive to opt for a “sure thing” short-term gain. And it doesn’t happen every time. But we would be remiss as lawyers, and in particular as professionals with years of experience dealing with Chinese factories, if we didn’t flag the loss of your IP as a significant risk here. And the best way to protect against loss of your IP is to have a separate development agreement.If you don’t want to do a separate development agreement, the next best option is an OEM agreement with two essential features. First, you will want a paragraph stating that the factory will be doing product development for Company ABC but that Company ABC will own all of the IP. This may not be enforceable, but it is better than nothing, and it will at least memorialize the parties’ understanding. Second, you will need language about mold ownership, and you absolutely must pay for the molds.Do not let the factory create the molds for free. If you do not pay for the molds your arguments that you own the molds will hold little to no weight.Given Company ABC’s time and cost constraints, and the primacy of product design (and hence molds) to the new product line, a single OEM agreement for each factory seems to be the most realistic course of action.Don’t hesitate to contact me should you have any questions about the above.
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.
Source: http://www.chinalawblog.com/2015/01/china-product-development-contracts-i-dont-get-no-respect.html
Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.
"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.
Please Help Support BeforeitsNews by trying our Natural Health Products below!
Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST
Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!
HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.
Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.
MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser! Cleans out toxic buildup with oxygen!
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover - Reduces Smart Meter radiation by 96%! (See Video).