As regular readers of our blog know well, we constantly emphasize the need for a China-specific NNN Agreement to protect your intellectual property. See Why Your NDA is WORSE Than Nothing for China and China NNN Agreements: Do Them Correctly or Walk Away.
To put it another way….
Earlier this week I was cc’ed on an email from one of our China IP lawyers to a client, very briefly explaining to our client the differences between the China NNN Agreements we draft and a Western-style NDA agreement. I found it very clear and helpful and so I am running it below (with some minor changes to be sure to hide any client information) for the edification of our readers
Attached please find an English language/Chinese language PRC NNN Agreement and an English language/Chinese language draft Hong Kong NNN Agreement. For the reasons we previously discussed, the Chinese language will be the official language for the PRC NNN Agreement and the English language will be the official language for the Hong Kong NNN Agreement. Please note the following:
1. These are not traditional NDA agreements. A traditional NDA agreement relies on the concept of trade secrecy. Under this sort of an agreement only something that qualifies now and later as a trade secret is entitled to protection. As a practical matter, the information you will be disclosing will almost never meet the technical legal standard for trade secrecy. Our NNN takes a different and more effective approach. We write these to prevent your Chinese and your HK counter-parties from using the information you give them in competition with you.
2. The agreements hold the Chinese and HK receiving parties liable for any damages caused by a company/person related in any way to the receiving parties as if the act were committed by the receiving party. This is critical as one of the most common ways confidential information gets “lost in China” is when the Chinese recipient discloses that information to another entity owned by a relative or a business associate. For this reason, we are very careful in this area. In principal, at the NNN stage, there is no reason for a Chinese company to disclose your confidential information to subcontractors. However, if this happens, our approach makes the Chinese company that signs the NNN Agreement liable for any violations of the agreement by a related party or by a subcontractor.
3. Our NNN agreements also provide for contract damages in a specific monetary amount for every act of breach. This provision provides the following primary benefits. First, it makes clear to the Chinese party that it will face real and quantifiable consequences if it breaches the NNN agreement. For the PRC, a specific monetary amount also provides for a specific minimum level of damages and this sum certain amount then provides a Chinese court with the basis for a pre-judgment seizure of assets. A credible threat of your seizing assets greatly increases the likelihood of the Chinese company abiding by your NNN agreement. Please let me know if you wish to adjust this amount: note though, this amount needs to be a reasonable pre-estimate of your damages as a result of the receiving party’s violation of the NNN. If you wish to read more on China contract damages (more commonly referred to as liquidated damages under Western country legal systems) I urge you to read On the Importance of Contract Damages in China Contracts.
4. These NNN Agreements have no set term. This means the receiving parties (those to whom you turn over your confidential information) can NEVER use your confidential information. It is a permanent obligation.
5. Seeing as how the receiving parties have orally accepted the terms of theses agreement, you should go first by signing and dating these agreements and then sending them to the receiving parties in the PRC and in Hong Kong. You should wait until you get these agreements back, fully executed, before you send them any confidential information.
6. The NNN Agreements we draft for Vietnam, Thailand, Mexico and Malaysia are very similar to these, though in different languages. Please let me know when you want to discuss those in greater depth.