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China Non Disclosure Agreements (NDA). A Really Good Thing.

Posted in Basics of China Business Law

Someone over on the China Law Blog Linkedin Group just posed a question about using non disclosure agreements (NDAs) in China. My first thought was to refer them over to one of our posts on the subject, but then I realized we have not really written anything on them since 2006. That is far too long for something so important and so effective.
We love NDAs. They are fast, cheap, easy, telling and effective. Let me explain.

If you are going to be revealing anything in China that you do not want dispersed into the public sphere, you should consider an NDA. If you are going to be showing your product, prototype or designs to a Chinese factory, you should consider an NDA. The most important thing to know about using NDAs is that they are far more effective when signed before you reveal the information than trying to get someone to sign one after they have the information you are trying to keep quiet.

They are fast, cheap and easy because they do not require much customization from company to company or from product to product. We like putting in an attorneys’ fee provision and a provision regarding injunctive relief so that if the other side violates it, we will be able to act quickly to stop them from continuing to do so and we will get our attorneys fees in the process. Just putting in these provisions makes a violation less likely. We always do our NDAs in both English and Chinese. We make the Chinese version the official one and the English version just a translation for our clients. Making them in Chinese means that the Chinese courts will be able to better understand them and enforce them more quickly. It also takes away the other side’s argument that it did not know what it was signing.

Well-crafted NDAs are effective in China for two reasons. First, they greatly reduce the likelihood of your information being revealed. Chinese companies are no different from anyone else and if they can help it they will seek to avoid a lawsuit where the odds have already been stacked against them. Second, the Chinese courts are pretty familiar with them and they will generally enforce them.

We also like how much we can learn from the reaction of Chinese companies to the NDAs we draft. This is the “telling’ part and it is telling because we have found that if a Chinese company refuses to sign one, it is probably not the Chinese company with whom you want to do business. NDAs have become so common in China that it is truly the rare company that will not sign.

  • http://www.foarp.blogspot.com FOARP

    My position:
    - NDAs for specific purposes covering specific activities/material are a necessary safety belt for any business deal in which sensitive information could be disclosed.
    - NDAs for employees who regularly come into contact with sensitive information, and limited to such sensitive information, are a necessary defence against industrial espionage and other such dirty dealings.
    - NDAs blanket-applied to entire workforces and drafted so as to cover practically anything that employees might come into contact with are a god-damned human rights violation, often foisted on employees after they have signed their contracts of employment and separate to their employment contracts. The same goes for the non-compete agreements that employees are asked to sign along with them, the main purpose of which seems to be to restrict the employees freedom of action in seeking employment with other firms in the same line of business. China is correct in giving such contracts short-shrift.

  • http://adamdanielmezei.com Adam Daniel Mezei

    At first I thought there was a bit of humor to the post, but then as I got through the third paragraph I realized Dan was being dead serious.
    Punchy and juicy (not Punch and Judy). This is why I come to CLB. Ideal length for any post, Dan.

  • http://www.exro.com John McDonald

    Do you have a strong opinion on NDA jurisdiction? (PRC vs. Hong Kong? If PRC, do you have a preferred state?)

  • http://www.chinalawblog.com/2010/02/all_lawyers_will_tell_their.html China Law Blog

    Why Non Disclosures (NDAs) Alone Are Not Enough For China.

    The other day, I did a post on why non disclosures are so often critical for those doing business with China. Within a few hours of that post, entitled, “China Non Disclosure Agreements (NDA). A Really Good Thing,” my co-blogger, Steve Dickinson, was p…

  • http://www.ppm.net Paul Azous

    With great respect to all on this list here is my take on non-disclosures.
    In all of my years doing what i do, I have never heard a good enough reason to sign non disclosure agreements. When an entrepreneur asks me to sign an NDA, my first question to them – and I mean right away – is why?
    I am often told for ‘protection’ but the truth is they do not protect all that much.
    Here is what needs to be understood: except for a very few rare companies, asking to sign an NDA means you have something to hide and that it must be hidden no matter what. The fear is, of course, that someone will steal one’s project.
    If you give me a business plan and ask me to sign an NDA, what I basically interpret is that you are afraid that I will steal your idea and make millions off of it and so on.
    However, if I can really ‘steal’ your plan and build a business off of that plan than what you are telling me is that you have a very, very weak business. Who would want to invest in a company if I could simply take away your 20 or 40 page document and start making money?
    A real business is not only the business plan, but much, much more.
    However – and to be fair to those who want people to sign NDAs – if you came to me or if I approached you with a business idea, I would most likely ask you to sign an NDA prior to releasing any real information.
    So I guess I am not consistent (:

  • Chinese Lawyer

    Most of non disclosure agreement americans use for China are not good because they have it all wrong for China including and especially when they expect the dispute to happen in an American court as though American court can tell Chinese company what to do.

  • Ron in Guangzhou

    Is there a place I can download a standard Chinese and English NDA that is written to protect invention ideas in China? Or is that something I need to pay for? I am an American living in Guangzhou wanting to prototype an invention but want to make sure my idea is not stolen or copied in prototype stage by the factory personnel. It is a small operation

  • Maria

    I would also like to know of a standard Chinese and English NNN I can download or an affordable one I can use in China to protect my products. I found one, but its a little over my budget (approx. $1000)! Please help!

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