How to Frame a Solid Manufacturing Contract in China to Safeguard Intellectual Property

China has the lowest labor costs in the entire world for manufacturing employees. Their manufacturing capabilities have continued to grow since the inception of China manufacturing, and their factories produce private label products worldwide. China is the largest exporting nation in the world largely because it specializes in a number of different product categories. Especially if you’re looking to build custom product, you will save so much time and money by working with a manufacturer who specializes in your product category.

However, when a foreign company hires a Chinese manufacturer must ensure that the products they produce will meet the agreed quality criteria. Having a well-defined manufacturing contract can alleviate the various legal issues inherent in manufacturing in China along with safeguarding your intellectual property. You should contract with a China manufacturer that has sufficient financial resources. This seemingly simple principle is often overlooked because a lot of U.S. buyers contract with third-party sourcing companies unaffiliated with the contract manufacturer that owns the factory.

 

Register your IP in China

Arguably, this is one of the most important things that companies can do even before they start looking for manufacturers in China. Intellectual Property rights include trademarks, design patents and copyrights. Foreign companies are still at risk from IP ‘hijackers’ – for example, Chinese suppliers that file their foreign client’s IP without their permission. Align your IP strategy with your business strategy. Identify business goals, protectable IP, regional requirements, potential partners and capacity to expand into your target markets. IP rights are important—take the time to identify your IP to determine what can be registered and/or enforced in China as early as possible. Make IP protection a core responsibility of the entire China management team, not merely a function of the legal or brand protection teams, and adjust internal information flows and reporting structures to reflect those responsibilities.

 

Product Development Agreement

A product development agreement contract protects you and your work, as well as helps you obtain the final product you may want. Additionally, the agreement helps the designer by addressing and resolving disputes and aiding you in getting paid. A good product development agreement generally includes provisions addressing the following:0

  • 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.

 

NNN Agreement in China

Instead of drafting a pure NDA agreement, foreign companies should be opting for a Non-Disclosure, Non-Use and Non-Circumvention agreement (NNN) that includes the normal protections of a NDA including non-disclosure and non-use provisions but in addition to those, also non-circumvention protection. China NNN agreement prevents your Chinese manufacturer the distribution of your IP to 3rd parties. It stops Chinese suppliers from using your IP for any purpose other than manufacturing the product in question for you and prohibits a supplier from selling direct to your clients.

Over the past few years, the Chinese government has taken significant measures to improve the framework for IP protection. Nevertheless, it is important for the foreign companies to take a strategic approach from the very beginning to safeguard their intellectual property in the best possible manner with the help of experienced China business lawyers.

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Registering IP of Pharmaceutical Products in China

The market pharmaceutical products in China is now worth more than $120 billion, second only to America’s. China imported more than $55 billion worth of drugs last year, and these numbers are expected only to grow as the population ages. In spite of the increase in the number of patented drugs in the pharmaceutical industry in China, patents have made relatively low contribution to the industrial values.

The IP held by Chinese firms is less competitive compared with that of foreign companies. While companies from the U.S. have consistently filed more international patent applications under the Patent Cooperation Treaty than companies from other countries, they have been filing only half as many patent applications in China as their Japanese counterparts.

Pharmaceutical Trademarks Regulators in China

In China, pharmaceutical trademarks are regulated by both the pharmaceutical law and trademark law. Pharmaceutical generic names are prohibited to be registered as trademarks as per Article 11 of the PRC Trademark Law, but only those distinctive pharmaceutical names can be registered as trademarks. Biotechnology companies need to pay close attention to this disclosure requirement because failure to comply could result in either the denial or invalidation of a Chinese patent. It should be noted that there is no equivalent requirement in the patent laws of Europe, Japan, or the United States.

Quick Overview of Pharma IP Law of China

A pharmaceutical trademark should not conflict with another’s pre-existing copyright, trademark right or any other interests protected by Chinese law. According to the relevant law, the registration of pharmaceutical trademarks has numerous restrictions. Pharmaceutical trademarks should have distinctive features and must not conflict with any pre-existing lawful rights of others in order to qualify for registration.

The Opportunities of China’s Pharmaceutical Market

China’s pharmaceutical market is a multi-billion-dollar sector with substantial amounts of drugs imported. With an ageing population and Beijing also looking to remove import tariffs on commonly imported drugs, such as cancer drugs, this market is expected to grow. Potential pharmaceutical investment opportunities in China may involve more complexity than opportunities in countries with longer histories of partnerships with U.S. businesses, but opportunities in China represent tremendous potential.

However, the reports are, as of yet, unconfirmed and the new rules appear to be conditional, raising some questions over how the news will be perceived globally. China’s current Patent Law, promulgated in 1992, treats pharmaceuticals like any other patentable item. Nevertheless, the categories “methods of treatment of diseases” and “scientific discoveries” are still prohibited from patent protection.

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