confidential information

Just responded to an email from a client that went something like this:

A couple of the potential manufacturers to whom we are showing the NDA you did for us are saying that “we don’t respect” them and that these sorts of agreements are “not done in China” in the _____ industry.  Is this true?

My response was as follows:

China Non Disclosure Agreements are quite common and they tend to work very at protecting confidential information.

Chinese companies often say that something isn’t Chinese as a way to avoid it.  What I always say about NNN Agreements (what we call our NDAs) is that we have done about 300 of them.  Maybe 148 times, the Chinese company just signs it.  Around 147 times, the Chinese company suggests reasonable changes and then signs it.  About five times, they say “this is never done in China.”  I then tell our client that can’t be true and we have our own proof of it — the 295 out of 300 times that we got one signed — and that the Chinese manufacturer saying that is a very bad sign.

 Nothing unusual about the ____ industry either.

A potential client recently sent me a contract written in both Chinese and in English. The English portions were silent about the controlling language but the Chinese portion made crystal clear that the Chinese language portion would control.  And guess what? The Chinese language portion was very different from the English language portion. So different, in fact, that the American company that sent me the contract had no claim under the Chinese language portion, yet it would have had a claim under the English language portion.  My firm always rejects this sort of case because we just assume that the Chinese court will look only to the Chinese language portion of the contract.

This taking advantage of what looks like a dual language contract is a very old trick, and one I have seen at least a dozen times, and not just with China/Chinese.  But for the trick to work, the non-English speaking party has to assume that the foreign language in its contract (in this particular case, Chinese) is the same as the English and never even bother to get it translated.  The foreign party is betting on ignorance/laziness/cheapness/naiveté.  Unfortunately, that is too often a good bet.

I also have on two recent occasions received poorly drafted “Non Disclosure Agreements” (NDAs) from potential clients who want to use those agreements to sue their manufacturer for copying their product and stealing their customers. In both cases, I have had to write the following email:

Near as I can tell, your “NDA” does not help you one bit. It says that your Chinese manufacturer cannot disclose confidential information to any third party, but it does not say a thing about it stealing your designs or competing with you.  In fact, it makes clear that it is free to do whatever it wants with whatever is in the public domain and it will no doubt argue that your __________[product] is in the public domain. I also note that the manufacturer did not chop/seal this document so there is also a good chance that it may not even be binding on it and an even better chance that it will at least make that claim.

It is possible that you can bring a trade secret/unfair competition (or some other non-contractual) claim against your manufacturer, but in many ways, your existing contract may hurt you in pursuing even those claims. If you want to sue this company I suggest you seek to retain Chinese counsel to do so, but I suspect that you will have difficulty finding a good firm that will take this case on a contingency basis.
Whatever you do in terms of your present problem, you should get a new contract in place for any new China orders. That new contract should, among other things, state clearly that your manufacturer cannot use your designs or copy your products or solicit your customers.
Sorry I cannot be more encouraging on this.
Before anyone accuses me of writing this post to try to convince those who are doing business with China to retain a qualified and Mandarin-fluent lawyer to assist them with their China contracts, let me say that I plead guilty. I have said it before and I will say it again. Nearly all of the contracts we see that were drafted without such assistance are of little to no value to the foreign party.  I know that is strong language, but it is also the truth.
What are you seeing out there?