Had no idea what I was going to write about this morning, but thanks to one of our China lawyers having cc’ed me on the following email exchange, I have a ready-made post.
The email exchange started with the following email (modified to hide any identifiers) from a U.S. Internet of Things company having problems with its China manufacturer:
Last year I ordered $450,000 worth of my own OEM product from a factory in China. Half of the products do not work (even though I was told that they were tested). They [the Chinese manufacturer] said in writing that they would replace them free of charge but they are now refusing to do that. What grounds do I have to stand on?
Our China attorney responded as follows:
The fact that you are writing us and not your regular attorney makes me think you have almost no grounds on which to stand. I say this because 99.9 percent of the time this is true of those who write us with a product quality problem.
If you check out this post, China Contracts that Work, you will see that your contract should, at minimum be in Chinese, call for disputes to be resolved in a Chinese court under Chinese law. A manufacturing contract should also contain a liquidated damages provision, a mold protection provision (so that the factory does not keep your molds if there is a dispute, see Product Molds And Tooling In China: Three Things You Must Do to Hang on to Yours), be properly chopped/sealed (see Signing And Chopping A China Contract. It’s Complicated). It is also critical that your contract be with the right Chinese company as Chinese companies are notorious for signing agreements with an essentially empty shell company, usually based in Hong Kong.
If all of the above are the case for you, we would love to take your case on a contingency fee basis. If the bulk of the above are not true, we would need to charge you by the hour to represent you against this manufacturer. The first thing we would do is to look at what you have to determine whether that makes any sense for you.
My even bigger worry/question for you is whether you have registered your trade names and logos in China. Have you? I ask this because many times when foreign companies start having problems with their Chinese manufacturer, their Chinese manufacturer goes off (using an apparently unrelated third party) and registers the trade names and the logos of the Western company with which it is having a dispute. Chinese manufacturers do this to gain leverage and this really works because your Chinese manufacturer can use “your” trademarks to stop you from having your products manufactured in China or shipped out of China with your own brands and logos on them. See When to Register your China Trademark. Ask Tesla and China: Do Just One Thing, Trademarks. So if you have not already registered your brand names and logos in China, you should do this IMMEDIATELY (you very well could already be too late) and you should do so before you complain any more to anyone there.