1. How to Keep Your Molds
With so many companies moving their manufacturing out of China, our China lawyers have been getting a slew of emails and phone calls from companies seeking ‘”to get their molds” back from their Chinese manufacturers. Whenever a foreign company terminates its Chinese manufacture, it is at great risk of having the Chinese manufacturer keep the foreign company’s molds. The Chinese manufacturer usually holds on to the molds to extract money from the foreign company, but sometimes it does this just for revenge.
The thing about molds is that their value to the companies that call or write us almost always exceeds their actual value. This is because the molds will allow their former manufacturer (or some other company that buys these molds from their former manufacturer) to duplicate their product. Many times also, the companies simply need their molds fast to be able to fulfill already pending orders.
If you want to position yourself to be able to hang on to your molds/tooling, there are some relatively simple and inexpensive steps you should take.
A. Mark Your Molds as Yours
The first thing you should do is identify the heck out of your molds by etching or engraving (preferably in Chinese) the fact that the molds are your property and, if possible, do this both where it is obvious (to deter others) and where it is well hidden (to deter those who might try to remove your markings).
B. Get Your Manufacturer to Sign a Contract That Makes Clear You Own the Molds
The second thing you should do is require your manufacturer sign (and properly seal) a China-specific contract making clear you own the molds and what will happen to the Chinese manufacturer (specific damages) if it fails to return your molds to you.
C. Get a Security Deposit on Your Molds and/or Contract Damges
The third thing you can do, if possible, is to get a deposit from your manufacturer for your molds, which deposit you will return when your molds are returned to you. If your Chinese manufacturer refuses to give you a deposit for your molds, (which is what happens way more often than not), use its refusal as a leverage point to justify your putting in the liquidated damages provision that applies if your mold is not returned when specified. That provision alone goes a long way towards taking away any incentive for your Chinese manufacturer to hang on to your molds.
D. Mold Ownership Agreements
When we are retained to draft a stand-alone mold or tooling ownership/return agreement or when we put a mold or a tooling provision in a the manufacturing agreement we start by sending the following questions (among others) to our client:
1. Please provide a 1-2 paragraph description of what you will be doing in China that will be covered by this mold/tooling agreement.
2. What kind of items will be the subject of the agreement: molds, tooling, equipment?
3. Where will the tooling be located? One manufacturer? Numerous?
4. Do you have a direct relationship with the manufacturer, or are you working with an intermediary (sourcing agent or similar)?
5. What agreements do you already have in place concerning the basic business relationship with the various parties? If you have any written agreements, please send them.
6. Does the tooling already exist?
7. What will be the source of the tooling? Will the manufacturer design and manufacture the tooling? Will the manufacturer purchase from others? If yes, under what kind of agreement? Will the tooling be contributed to the manufacturer by the buyer? By the buyer’s agent? Some other entity?
- What will be the payment method for the tooling, and who will pay?
- Who will design the tooling? In what form will the design be provided to whoever will manufacture the tooling?
Do the above and your odds of keeping your molds will go way up.
And if you should find yourself in a situation where you are looking to leave your China manufacturer and you have not done the above things, you still can, so long as you have not yet told your manufacturer that you will be leaving.
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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