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Having Your Product Made In China: The Basics on Protecting It and You

Sunday, November 13, 2016 10:25
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(Before It's News)

China lawyerThe first thing our China lawyers do when commencing work for a client that is having product made in China is to figure out the contracts and IP registrations the client will need to ensure its ownership and other rights will be protected against its manufacturer and the rest of the world. In making this determination, our China attorneys typically  choose from the following manufacturing related agreements and IP registrations:

  1. NNN Agreement. NNN Agreements are basic agreements typically used to protect the confidentiality of your product and prevent your Chinese manufacturer from competing with you or circumventing you by going directly to your customers. They typically make sense before you have chosen your specific Chinese manufacturer. Oftentimes this specific agreement is not needed because it makes better sense to put all of the substantive provisions from our NNN Agreements into our Product Manufacturing Agreements, described below. This is a relatively simple agreement but it must be done correctly to have any force; off the shelf American or European NDA Agreements have zero value for China. See NDA — No Way for China.
  2. Mold/Tooling Ownership Agreement. This is a basic agreement that makes clear that the molds and the tooling you are having made for you will actually belong to you. Without such an agreement, there is a very strong likelihood that when you seek to move to a new manufacturer for your product, your old manufacturer will keep your molds/tooling. And without such an agreement, there is a good chance your old manufacturer will use your molds and tooling to start making your product and competing with you. Most of the time, this agreement is not needed because it makes better sense to put all of the substantive provisions from our Mold/Tooling Ownership Agreements into our Product Manufacturing Agreements, described below.
  3. Product Ownership Agreement. This is basic agreement that makes clear that the product you are co-developing with your Chinese manufacturer or having made by your Chinese manufacturer belongs to you. Perhaps more than anything else, you want to be sure that you have something in writing and enforceable in both China and in any other country in which your product is going to be sold. Without this agreement, there is a good chance that your Chinese manufacturer can claim to own the IP rights in your product and — get this — may even be able to register a utility or a design patent in your product in China and in whatever countries in which you sell your product or might sell your product. Without this written and legally enforceable concession by your manufacturer, your manufacturer can gain all sorts of legal rights (in China and elsewhere) to what you thought was your product. See China and The Internet of Things and How to Destroy Your Own Company. Oftentimes, this agreement is not needed because it makes better sense to put all of its substantive provisions into our Product Development Agreements or our Product Manufacturing Agreements.
  4. Product Development Agreements. These are complicated agreements that make clear all of the terms of your product development relationship with your Chinese manufacturer, including who will own what of the finished product and who will pay for what to get to the finished product stage. They make clear what you will be paying for by way of product development and set out the various milestones your Chinese product manufacturer must meet to get paid. It should, at minimum, include provisions addressing the following:
    • The product to be developed.
    • The technology the foreign company and the Chinese manufacturer will contribute.
    • Who will provide the product specifications and in what form.
    • Who will own the IP rights to the resulting product.
  5. China Manufacturing Agreements. This are often referred to as Product Sourcing Agreements or OEM Agreements. These are complicated agreements used to clarify pretty much your entire relationship between you and your Chinese manufacturer. It is the rare client of ours that does not require a China Manufacturing Agreement. Among other things, they typically address the following:
    • Quality requirements
    • Timeliness requirements
    • Product and IP ownership
    • Mold/Tooling ownership
    • Non-compete, non-circumvention, non disclosure requirements
    • Sub-supplier requirements
    • “Penalties” for breaching
  6. China Trademark Registration. If you will be having your product made in China and if your product or its packaging will mention your company or brand name or contain your logo, you must register your trademark in China even if you have no intention of selling your product in China. Because if you do not secure a trademark registration for these things, someone else will do so and that someone else will then be able to stop your product from being made in China or from leaving China’s ports. You also should secure additional trademarks in the countries in which you will be selling your product because trademarks do NOT cross borders.
  7. China Invention and Design Patents. If your product is at all innovative or distinctive, either in its function or its design, it likely will make sense for you to secure a China invention or design patent. These patents can be valuable/necessary both to protect your product from others copying it in China and to prevent someone else from registering such a patent on your product in China and then stopping you from manufacturing your product in China or from leaving China’s ports. See China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents.

There are two keys regarding the above. One, choosing the right agreement and the right registrations at the right time so as to maximize your protections while minimizing your costs. And two, doing the right agreements and the right registrations correctly. See China Contracts: Make Them Enforceable Or Don’t Bother and China OEM Agreements. Why Ours Are In Chinese. Flat Out. I mentioned above how US-style NDA Agreements simply do not work for China. Sadly, most other agreements we see for China do not work either, for all sorts of reasons. If you are going to pay a lawyer to draft a China contract of any kind for you or make any sort of China IP filing, make sure she is going to do it right. See China Contracts: Make Them Enforceable Or Don’t Bother.

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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