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Protecting Your Business Secrets in China with an NNN Agreement
When engaging with original equipment manufacturers (OEMs) in China, safeguarding your intellectual property (IP) is essential. A China NNN Agreement—which includes non-disclosure, non-use, and non-circumvention obligations—is a vital tool for small businesses to prevent IP theft and unauthorized use of their designs, trade secrets, and confidential business information.
What is an NNN Agreement?
The term NNN represents three fundamental obligations imposed on the receiving party:
- Non-Disclosure: The recipient must not share confidential information with third parties.
- Non-Use: The recipient cannot use your IP or trade secrets for its own benefit.
- Non-Circumvention: The recipient cannot bypass you to work directly with your customers or suppliers.
Without an NNN Agreement, there’s little preventing an OEM or supplier from using your business secrets to create competing products, enter your markets, or cut you out of your supply chain altogether.
Key Clauses in a China NNN Agreement
Defining "Confidential Information"
A well-drafted NNN Agreement must clearly define what constitutes confidential information—including trade secrets, business strategies, product designs, and any other proprietary data. The definition should be broad enough to cover critical business assets while ensuring practicality for enforcement.
Non-Disclosure Obligation
This clause restricts the recipient from sharing confidential information with any third parties, including affiliates, shareholders, or employees, unless explicitly permitted for business purposes. Given that some suppliers may have shareholders who are direct competitors, this clause plays a crucial role in risk mitigation.
Non-Use Obligation
The recipient must not use your confidential information to create competing products or improve their own offerings without authorization.Many SMEs assume their designs are safe once disclosed, only to find unauthorized copies in the market later.
Non-Circumvention Obligation
This provision prevents the supplier from bypassing you and selling directly to your customers, distributors, or retail partners. This is especially important for businesses that rely on unique product designs or market relationships for their competitive advantage.
Agreement Termination & Ongoing Obligations
An NNN Agreement should specify the duration of protection and how parties can terminate the contract. Even after termination, confidentiality obligations should continue indefinitely as long as the information remains outside the public domain.
Dispute Resolution: Enforceability in China
This clause dictates which laws govern the agreement and the jurisdiction for resolving disputes. To ensure enforceability in China, the agreement should specify that disputes will be resolved in Chinese courts and follow local legal frameworks.
Bilingual Agreement: Which Language Prevails?
When drafting a contract with a Chinese entity, it's common to have both English and Chinese versions. However, inconsistencies can lead to disputes. The agreement should state which language prevails in case of discrepancies. A previous Trustiics blog covers best practices for avoiding contract disputes due to language differences.
Why Use a Customized NNN Agreement Instead of a Template?
Many business owners seek free or generic templates, but these can be risky and ineffective. A customized NNN Agreement drafted by an experienced lawyer offers:
- Tailored Protection: Industry-specific clauses that address your unique business needs.
- Legal Compliance: Ensuring the contract is legally enforceable in the relevant jurisdiction, e.g. China.
- Balanced Terms: A well-drafted agreement builds a sustainable supplier relationship.
- Consistent Bilingual Versions: Avoiding translation-related disputes and ensuring clear obligations in both English and the other language, e.g. Chinese.
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