American companies are attracted to China for their manufacturing requirement. 2018 will be another fruitful year for the US importers and the Chinese manufacturers. With a comparatively cheap labor force, competitive pricing and a wide variety of manufacturers and products to choose from, this country is an ideal destination and will remain so in the current year. Although there are many important parts involved in getting your product(s) manufactured in China, the most important is your contract. As more and more overseas businesses are likely show their interest in China, there are so many key factors foreign businesses need to keep in mind such as:
- Do not use a U.S. style NDA (non-disclosure) agreement
- Use an NNN (non-disclosure, non-use, non-circumvention) agreement written to deal with the specifics of OEM manufacturing in China
- Draft the NNN agreement so it is enforceable in China
Comparing to the countries like USA, UK, Australia and others, the legal procedures and laws in China are completely different. Chinese legal system works in a way that is contrary to the other parts of the world. An American NDA with jurisdiction in Chicago is not likely to have any impact on a Chinese company. What you need is not really a China NDA at all, but an NNN Agreement that protects you before you have actually chosen a particular manufacturer for your product. This sort of agreement can go a long way towards preventing potential or future manufacturers from stealing your design.
Because of this, it is suggested to draft a China binding NNN contract. The NNN agreement should be the entity to which you are directly sending confidential information. Assuming that the Chinese company is the proper counter-party, you should be sure to follow the terms of the NNN Agreement. Only send information to the Chinese company. The agreement stands for Non-use, non-disclosure and non-circumvention.
NNN agreements should clearly define which rights are being disclosed or licensed, their nature, and their scope. Always have a written contract for all business activities in China, and the language should be Chinese. Keep in mind that your contract is not translated into Chinese from another language or from Hong Kong to the mainland, because the meaning of a translated version could be ambiguous and could hold entirely different meaning. That’s why China lawyers suggest to draft the NNN contract completely in Chinese language.
China’s knockoffs come in many different forms, and can affect businesses large and small. Factories will make products that physically resemble ones made by prominent brands. A solid NNN agreement will comprehensively restrict your Chinese manufacturer to use your idea or product. The NNN agreement not only incorporates non-disclosure provisions, but it also has provisions that restrain a Chinese manufacturer from misusing the sensitive private information that it has gathered as an outcome of its working relationship with the overseas company.