How to protect your IP before outsourcing to China in 2022?
In 2021, Chinese firms inked outsourcing contracts worth 2.13 trillion yuan (334 billion USD) according to the China Ministry of Commerce. A lot of companies are still considering China for its outsourcing options. One of the main concerns that North American companies have when selling to the Chinese market is ensuring their Intellectual Property rights will be protected. This is especially important for tech companies that have R&D in North America and outsource certain parts or the entire production to China. It is also important for companies that have their trademark and wants to protect it.
What is an NDA and why sign it?
One of the key tools companies can use are agreements that govern how other parties can use their Intellectual Property. In Europe and America, companies typically use a standardized Non-Disclosure Agreement (NDA). This type of agreement essentially requires the other party to maintain confidentiality about trade secrets that it receives.
What are the limitations of typical NDAs?
Most “Western”-style NDAs focus on the possibility of trade secrets being leaked to the public; in China, however, the main concern is sometimes that the other party may use trade secrets to create a similar product and compete against the original.
What is a China NNN Agreement?
In addition to conducting due diligence on your business partner, companies should consider signing a “Chinese”-style NDAs (i.e. tailored to China and drafted by a Chinese-speaking and licensed lawyer) to truly protect themselves from trade secret theft. The most comprehensive of these types of agreements are referred to as an NNN Agreement (Non-Use, Non-Disclosure and Non-Circumvention). This gives more overall protection than an NDA with special consideration to the circumstances of the Chinese market.
Why should you sign an NNN Agreement?
A high-quality NNN Agreement will be drafted specifically for China; it will convince the counter-party not to breach it; it will contain an appropriate damages provision, and it will avoid costly litigation. The reason an NNN Agreement is stronger than a standard NDA is because it is essentially a contract between the parties that says that the counter-party will be legally responsible for specific damages if your trade secrets are leaked and used against you.
Specific legal enforceability considerations
Another often-overlooked aspect is to make sure that the Chinese-language version and the English-language versions are consistent. It is much better for your English- and Chinese-speaking lawyer to confirm this consistency before signing rather than assuming the Chinese company to have the same understanding as yours or expecting a Chinese court to interpret English-language documentation, which would have to be translated anyways at great time and expense. Lastly, Chinese law doesn’t allow the litigant to choose any court it wants, so make sure your NNN Agreement provides for the correct jurisdiction.
Tailor-made China Legal Solutions
Trustiics provides tailor-made NDAs and NNN Agreement services for SMEs interested in operating in China or selling to the Chinese market. Our experienced and vetted lawyers will draft both official Chinese and English versions of these documents; the work can be tracked on your Trustiics dashboard and be delivered in 5 business days or less.
For basic protection, the NDA drafted for enforcement in China has a fixed fee of US $990. If considering manufacturing in China using your designs or IP, we highly recommend using the premium NNN Agreement (bilingual version) service, for a one-time fixed fee of US $1,790. You can check out all of our services here.
Once your order is submitted through the Trustiics portal, a China-based experienced lawyer will process your order and you will also be able to directly communicate with the lawyer on your Trustiics private dashboard. This will save you both time and money and provide you with legal peace-of-mind.
Feel free to book a free 15 min call to let us help you navigate through.
For any questions, feel free to send us your inquiries here.