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Hardware Co-Development in China: Do it Right

Wednesday, November 2, 2016 9:16
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China Product DevelopmentDan Harris and I are coming off two straight days of speeches before and meetings with start-up hardware technology companies here in Shenzhen. This post and those that follow in this three part series will discuss what we have learned about the legal side of working with these sort of companies, mostly in Shenzhen’s high tech electronics ecosystem.

Hardware companies that develop cutting edge hardware are pretty much stuck. They have to go to China to have their product manufactured. There simply are not any factories anywhere in the world outside of China that are willing and able to do small-scale manufacturing of these products. In today’s world, even more important is that the Chinese factories are the only sources of manufacturing that will work with foreign start-up hardware developers to commercialize products that are often mere “concepts” when they arrive in China.

The problems we confront arise when foreign hardware developers work with Chinese factories on projects that are more involved than the simple manufacture of a fully developed product design. In many situations, the foreign designer and the Chinese factory will work together over months and even years in order to develop a commercially viable product. When the prototype is finally complete, the question then becomes which entity actually owns the prototype: the foreign developer that came up with the idea or the China factory. The foreign developer says it owns it. The Chinese factory says it owns it. The sad result is that way more often than not, the Chinese factory is correct. It owns the prototype and it will allow the foreign developer to market its product for them. If the foreign developer succeeds, that’s great. But if the foreign developer fails, the Chinese factory will have the product marketed by someone else, leaving the foreign developer who came up with the idea high and dry.

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.


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