China Manufacturing: NDA v. NNN v. OEM

Much of our China legal work still involves helping foreign companies navigate the legal terrain with respect to their China manufacturing. This means that one of the most common things we do is alert our potential clients to the need to use a China-focused NNN Agreement with China manufacturers because US-style NDA Agreements simply do not cut it.

The below is an email that one of our China lawyers sends out pretty much every week (or some variation thereof):

Your NDA with China Company A is of almost no value with your Chinese suppliers. The only way this NDA would be relevant is if China Company A were to disclose some confidential information to these suppliers without your permission. The more likely scenario is that the Chinese factories will simply start selling your product directly to your customers or to third parties. This NDA doesn’t address that scenario, and even if it did, the only company you could hold responsible would be China Company A. I note that China Company A is a Chinese company. This NDA is governed by New York law, and requires the parties to file suit in New York City. Even if you filed suit in New York City and won, you would then need to enforce the judgment in China (which is not going to happen), and it assumes that China Company A has money, which is speculative.

The best way to protect your IP against your Chinese suppliers is to have each one sign an agreement stating that it won’t steal your IP, and if it does it will incur clearly defined damages. The NNN agreements we draft can easily be modified for use with other companies. Note, however, that if these suppliers are already making product for you, then an NNN is probably not the best agreement as it will only address a small part of the overall relationship. If you are in that situation, you really need an OEM Agreement. To know what sort of agreement you do need, I’d want to know more about what, exactly, you’re doing in China. I can say however say that an OEM/Contract Manufacturing Agreement seems the most likely possibility.

Just let me know if you have any further questions.

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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.