Just about every month I give a talk on how to protect IP from China and just about every speech I start off with something like the following:
If you are doing business with or in China, you have to plan on someone in China making a play for your intellectual property. It’s not a matter of if, but when. It may be your partner, your distributer, your manufacturer, your sales manager, your top scientist, your supplier, or your customer who seeks to take and then use your IP. Big Chinese companies steal IP. Small Chinese companies steal IP. State owned Chinese companies steal IP. Privately owned Chinese companies steal IP. And despite the beliefs of many Americans just starting out in China, Chinese companies with people who speak great English and invite you to their family weddings also steal IP.
In the last few weeks, I received two calls involving companies whose excessive trust led to their getting burned in China. The first call went something like the following:
Caller: My husband is very trusting. He met the seller and looked him in the eye and the guy spoke really good English and my husband just knew that he could be trusted. They had dinner together two days in a row. We sent him $60,000 and now he is not even responding to our emails. My husband has found another supplier and I am wondering if there isn’t something we can do to make sure that he does not do the same thing. My husband insists this guy is also honest.
Me: Reminds me of what Bush said about Putin and look what Putin has been up to lately. I much prefer the Ronald Reagan’s ”trust but verify.” Here’s the thing. My law firm’s China lawyers get at least one call or email pretty much every week from someone who got ripped off or cheated or maybe just shortchanged by someone in China. And probably 99% of those cases, the people calling or emailing us started out trusting their Chinese counter-party. In fact, I don’t remember a single instance where the caller or the emailer told us that they knew from the get go that they were doing business with a crook.
There are a lot of things we can and should be doing to verify that your potential supplier is legitimate. Let’s talk….
The second call was from a company that had spent hundreds of thousands of dollars setting up a subsidiary in China, hiring employees, and hunting down business, only to have its entire team leave the company to form their own. That conversation went something like this [by the way, I secured approval from both parties to discuss their situations here -- in fact, both encouraged that we do so]:
Caller: But I set them up. I gave them good jobs. They owed me. They were my friends.
Me: Did you have a formal written employment agreement with them that set out trade secret protections? Did you have a non-compete agreement with any of them?
Caller: No, because I had worked with all of them for years before I started my China company.
People, I really hate to sound cynical here, but the reality is that if you are doing business in China (or anywhere else in the world for that matter) the most likely people to do you wrong are those whom you trust. The people you do not trust are usually not going to get access to your money or your secrets.
So, yes, you do need contractual protections against even those you trust. Check out Chinese Contracts. Because They Really Do Make A Huge Difference.
What do you think?