My law firm is always getting emails like the following (I got one this morning which spurred me to write this post):
I’m a __________ based business owner and widget designer. I’m developing my own line of widgets and I am now preparing to move forward by sending out my samples to factories in China. I am interested in knowing what my next steps should be from a legal perspective and how you can help me with those.
My response was and is usually along the following lines:
The first two things you will likely need are a Non Disclosure Agreement (NDA) and a registered trademark in China. We prefer to do what we call an NNN Agreement — non-disclosure, non-use and non-circumvention. This is an agreement that you use when you are trying to find manufacturers for a product. You have the manufacturer sign the agreement before you show them the product. It prevents manufacturers from stealing your design for themselves and from going around you to sell the product to your U.S. customers.
Here is some more information on NDAs/NNNs:
- China Non Disclosure Agreements (NDA). A Really Good Thing
- Why Non Disclosures (NDAs) Alone Are Not Enough For China
- Why Non Disclosures (NDAs) Alone Are Not Enough For China, Part II. At Least Make It Enforceable
If you are not concerned about manufacturers in China copying your widget designs, you do not need an NDA/NNN Agreement.
The one thing you will almost certainly need to do (but maybe not right away) is to register your trademark in China. Before you use any of your trade names (think brands or product names) or trademarks in China (think logos), you absolutely must register them in China or someone else almost certainly will and then you will not be able to use your name in China, even if all you are doing is exporting your product from China. Here’s some info on that: China: Do Just One Thing. Trademarks.
Depending on your situation, you may also want/need a Product Development Agreement. If you are going to work extensively with a Chinese manufacturer to develop a new product, you need a specific product development agreement. These agreements cover the cost and procedure for development and ownership of the developed product. Many companies fail to enter into this kind of agreement and then discover the Chinese side owns “their” product and/or molds at the end of the process.
Once you have chosen the manufacturer for your widget, the next thing you will need is a Manufacturing Agreement (these are also called supplier agreements and OEM Agreements). Many U.S. companies do all their manufacturing in China based on purchase orders. This is very bad for the U.S. side. A good manufacturing agreement covers IP, quality control, NNN issues, warranty, ownership of molds, tooling, supplies, diversion, dispute resolution, and all the other various issues that arise in a manufacturing relationship.
Here is some more information on Manufacturing Agreements:
- China Manufacturing Agreements. Watching The Sausage Get Made
- China Manufacturing Agreements. Make Liquidated Damages Your Friend (please read the linked posts in this as well).
If you have any additional questions, please don’t hesitate to ask.