Every other month or so, we get a harried call from someone wanting our help in “getting their molds” back from their Chinese supplier. Though I know this cannot be the case, it does seem that nearly every time a foreign company decides to terminate its Chinese manufacturer, the Chinese manufacturer refuses to return the foreign company’s molds. The Chinese manufacturer holds on to the molds either to extract money from the foreign company or simply out of revenge. 

We have yet to take on a case for a foreign company wanting to sue to get its molds back. We have turned down all of these cases both because we have yet to deem one good enough and because they are generally too expensive in relation to the value of the asset. in other words, these are not good cases and the key to this sort of case is to avoid getting yourself into a situation where you feel you may need to bring one.

How can you achieve that?

The way to avoid having your Chinese manufacturer run off with your molds is to make sure you require the manufacture to sign (and seal) a contract (preferably in Chinese) that makes very clear to whom the molds belong (to you) and what will happen to the Chinese manufacturer (liquidated damages) if it fails to return your molds to you. 

Even better, you should, if possible, get a deposit for your molds, which deposit you will return when your molds are returned to you. If the Chinese manufacturer will not give you a deposit for your molds, (most will not), put in a liquidated damages provision that applies if your mold is not returned when specified. That provision alone goes a long way towards taking away any incentive for your Chinese manufacturer to hang on to your molds.

You wanna keep those molds for which you paid? Do something about it now, not later.

What do you think?

  • Hua Qiao

    So, question back to you is if the foreign company put these specific provisions in their agreement (liquidated damages), would you take the case? Or is spending legal fees on pursuit of such a case putting good money after bad? If you sue in the manufacturer’s local court, and the manufactuer gins up the normal, expected counterclaims, what is the foreign company’s chance? Please respond with some guidance more than just “it depends on facts and circumstances”. Thanks.

  • Chris

    One of the best pieces of advise I heard before coming to China to run a company was “If you would not make the deal in London or New York, don’t do it in China”. In other words, if this was the US and you had a mold and you gave it to another factory to use, you would have some sort of written agreement as Dan describes. This would be standard practice and you wouldn’t think (nor would your counter part) any other way about it.
    So in China, don’t fall into the trap of “things are different in China”. While they are and you do have to have a certain level of flexibility, when it comes to protecting your interest and assets, don’t bend. You can do things “differently in China”, but then you open yourself up to much more risk. If you do decide to do it the China way, then don’t cry over spilled milk. The Chinese will take you to the cleaners (no pun intended).
    Normally, they want your business, but they will always try to leverage you to get the best possible terms for them. You need to be patient, hold your ground on the areas that are most important to you and eventually you can almost always get what you want.
    They know we have no patience and that we are usually push overs in negotiations. They will always ask for the moon. And why not, so many get down on their knees and give it to them. And always have a plan B. Don’t get your self into a position that you cannot get out of. Once they have you cornered in negotiations, you are dead.
    And don’t, under any circumstance, fall for the “its all about the relationship. What, you don’t trust me?”. Like Ronald Regan used to save about the Soviets, “Trust, with verification”. You trust them, but you need to verify (or protect) everything.
    Patience in negotiations is key.

  • Joel

    Re: normal, expected counterclaims
    Let’s say that contract says that Chinese manufacturer, at termination, will return the molds, or else pay damages equal to the value of the molds, which the parties mutually agree is X.
    What types of arguments could be expected?
    Manufacturer:
    1) I couldn’t return the molds because of logistics issues etc. (impossibility).
    2) The value of the molds I previously agreed to was too high (unreasonable liquidated damages amount).
    3) Lies (I already returned the molds; I don’t have them; they were stolen; the foreign company agreed to give them to me, etc.).
    4) It wasn’t me (sued the wrong company).
    I think the first one is pretty weak, because the court could say “so what?”. Also, it doesn’t seem true: if they were able to get the mold in the first place, they should be able to send it back. This should be easy for them to do, especially if the parties agreed on who will pay the related costs to begin with.
    For 2, this is something the manufacturer would have grounds in the Contract Law to fight. But it’s going to be up to the manufacturer to say what he previously said was reasonable is now unreasonable.
    For 3, all of these can be handled in the contract. The contract should specify that the foreign party owns the molds and how return of the molds is to be handled/ acknowledged. Anything other than that results in the liquidated damages.
    For 4, you should be okay if you made sure that you had the right company sign the contract to begin with, and that it was validly executed by the manufacturer.
    What else could they say?

  • Frank A.

    I lost two molds in China, worth about $60,000 total. I went to a couple of Chinese lawyers and they both told me that my case would be very difficult because it was unclear whether I owned the molds or the Chinese factory. My contracts now make ownership very clear.

    • Storage #1

      Hi Frank,

      I’m considering doing a line of insulated flask, which I am planning to design patent prior. Who did you use to draft your contract regarding the moulds? I only will be making 1-2 molds. Value of around $14k to $18k. My email is lolnotmyemail@gmail.com

  • Dan,
    Good article and solid points as always. However, we’ve still had clients lose tooling when suppliers closed suddenly and sold the tools for scrap. We formulated a service at PassageMaker to take physical possession of the tools and warehouse them between production runs. Our people monitor the runs and bring the tools home when production is complete. At the end of the day the only way to protect your tooling investment is to control the tools.
    Chris, as to your point about doing a deal in NY or London the same way in China, I couldn’t agree more. We tell all our clients that they need proper POs, MOUs, contracts, etc., but I am still amazed how many people ignore these steps. I have done plenty of small deals on a handshake, but when real money is involved, got to do the paperwork.

  • PaulR

    Or just take the practical view that if you take your molds to China (or your designs, blueprints, IP, or software) you can assume they will be lost, stolen or copied – so act accordingly.

  • huyuanyuan

    in china,we have the “Sino-Foreign Joint Ventures Law, ” the “Sino-foreign Joint Ventures Law, ” “foreign law”.those contain three forms of cooperation between chinese and foreign businessmen.i think if you want to keep ownership of molds,the best way is to invest in the molds use rights which you must write clearly in your Cooperative Agreements .just that simple.
    i am a native chinese and have a Bachelor of Law in china.