Our clients often ask that we put a provision into their manufacturing agreements prohibiting their Chinese manufacturer from making the same product for anyone else. This naturally leads to a long discussion, that often goes somewhat like the following, using a laptop computer bag as the example:
China Lawyer: What do you mean by a product like yours? A laptop bag?
Client: That would be great. Is that possible?
China Lawyer: Not unless you are planning to commit to buying $800 million worth of bags a year. Your Chinese manufacturer probably makes laptop bags for 40-50 other companies and unless you commit to massive yearly volumes, there is no way it is going to just make bags for you. What we need to do is figure out what makes your laptop bags different from everyone else’s laptop bags and see if we can get your manufacturer to agree not to make laptop bags for others that contain your unique features.
Client: That makes sense. Well, first off, our name is unique and I certainly don’t want our Chinese manufacturer making bags with our name on it for anyone but us.
China Lawyer: Absolutely. We will put that in there, but also, we are going to need to register your brand name as a trademark in China so that nobody in China (not just your manufacturer) can make bags with your name on it. We also need to register your trademark in China to prevent anyone else from registering your name and then being able to stop you from using your own name at all in China. What else distinguishes your bags from others?
Client: We use orange stitching and I don’t think anyone else does that.
China Lawyer: Great, so we ask that this manufacturer not make bags with orange stitching. What else?
Client: We have a side pocket that perfectly holds a passport. What about something like that? Oh, and we have an orange rubber tab on all of our zippers.
China Lawyer: Perfect. We will put a provision into your OEM Agreement that prohibits your Chinese manufacturer from making laptop bags with any of this attributes.
Client: Are these provisions enforced?
China Lawyer: Yes, in both China and the United States.
Client: The United States?
China Lawyers. Yes, the United States. If one of your US competitors were to go to your Chinese factory and start purchasing laptop bags with stitching or zippers or a side pocket like yours, we would immediately send them a letter, attaching your OEM contract with your Chinese manufacturer. That letter would point out the provision saying that your manufacturer is not allowed to make laptop bags with your specific attributes and then it would say that your competitor’s getting such laptop bags from your Chinese manufacturer constitutes tortious interference with your contractual relation. We would then say that if they do not immediately cease buying such bags, we will have no choice but to sue. These letters generally work because the US company either did not know it was infringing on your contract rights or else because it simply does not want to be sued in a US court, even if it may think it will eventually prevail. These provisions tend to be very effective.