YOUR China Supplier Information. It's Out There.

Got a somewhat frantic phone call a few weeks ago from a company wanting to sue "somebody." This company, let's call it Company A, had just learned why its largest buyer, Company B, had stopped buying product from Company A. The reason: Company A had learned from whom Company A was having its product manufactured in China and had started sourcing from that company itself. Our conversation went something like this:

Me: Do you have a contract with your Chinese supplier (Company B), an OEM Agreement?
Company A: Just a one page "agreement" we signed years ago.
Me: Does that contract say anything about your Chinese supplier not being able to go around you?
Company A: No.
Me: Okay, well, we will still want to look at it.
Me: Did you require your Chinese supplier to sign anything like a non-disclosure or non-compete or non-circumvention agreement before you entered into a supply contract with them?
Company A: No.
Me: Does your product have any IP protection in either China or the United States? Any patents or trademarks?
Company A: No.
Me: Okay, well you do not need to register a trademark in the United States so we may want to hook you up with a US trademark lawyer to see if maybe you have a trademark claim.
Company A: How can I when Company B's product is using a different name than ours and looks a little bit different.
Me: Well, you very well may not, but we will still want to look at it.
Company A: I know how Company B learned who our Chinese supplier is. Do you want to know that?
Me: Sure, but I am guessing they learned it simply by looking at custom records, right?
Company A: No, they learned it because some company out there is publishing supplier information on the web. Can we sue them?
Me: I doubt it. Those companies are just publishing public information. You can get that information from customs in the US. We used to do it all the time using FOIA (Freedom of Information Act) but now I know there are companies that consolidate all that and set it up with great search engines and charge for the privilege.
Company A: But I think this company was using export information from the Chinese government. Can they do that?
Me: I don't see why not. It's possible they can't if they are bribing the Chinese government for that, but I highly doubt they are doing that, but that may also be something you will want to look into.
Me: I'm having real trouble thinking of how anyone did anything legally wrong. I hate to tell you this, but I think the problem is that you did not put anything in place to avoid something like this, not that anyone violated any contracts or laws, but we can certainly research this issue if you would like.

The other day, a really savvy client of ours stopped by the office. This company has been doing business in China for a long long time and it has non-disclosure/non compete/non circumvention agreements with all of its Chinese suppliers and US Buyers I mentioned the above conversation (no names or other identifiers, of course) and we talked about the benefits of the contracts his company has both in China and in the U.S. He then reminded me that this was also one of the reasons his company had set up its own trading companies in China. This company gets its product from about a dozen different Chinese factories, but the records in both China and the United States all point to the U.S. company's own trading company as the exporter. This company has never had a problem with its customers going around it.

Smart company.

What do you do to prevent your Western buyers from learning about your Chinese suppliers and going around you?

NOTE: I am a big believer in ALWAYS linking over to other blogs whenever my idea for a post has come from their blog. By sheer coincidence (I swear), with this post already in my head, I came across a brand new post on the PassageMaker Blog, entitled, "Sheer Import Genius." Though that post was not the inspiration for this one, I am nonetheless linking over to it as evidence that I am not the only one thinking of this issue.