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Why You MUST Have A China OEM Agreement.

By Dan Harris and Steve Dickinson

Woke up three weeks ago to the following email from CLB co-blogger Steve Dickinson, who is based in China. I have changed a the names and any other potential identifiers, but have retained the gist of the story. I had to wait until the "emergency" supply agreement was signed before I could go with this post. Here it is:

Odd story. I met with NewClient yesterday. In our discussion, NewClient asked about supply agreements. I said they are necessary and that one important part was to provide no copying, no placing of products in the supplier show room and no placing of the product in the supplier catalog. As a remark, I said: "The reason you need it is to prevent the supplier from copying your line and selling it as their own. You will really feel bad when you go to a trade show and see you entire product line for sale with all your products on display and in your suppliers own catalog." They clucked clucked and nodded and that was it. This morning, NewClient called me to say they had just received a call from one of their employees attending a trade show in a city outside China. Their supplier from China was at the show. On display was NewClient's entire product line down to the part numbers with all the products on display and in their supplier's catalog. So now I am working on an emergency agreement to try to deal with this issue. Another interesting point. They actually have a really complete supply agreement from a New York law firm. The agreement is subject to New York law, excludes CISG [United Nations Convention on Contracts for the International Sale of Goods] and provides for UNCITRAL arbitration in Hong Kong. Meaning, of course, that by law they have absolutely no remedy in China against the offending party. In fact, their 24 page long supply agreement does not deal with any of the real issues involved in China and it takes the stance that China and Chinese law do not exist. I do not see us being able to get any sort of injunctive relief here to stop this Chinese company quickly.

Bottom Line: Get a good supply (OEM) agreement that provides you with the possibility of securing injunctive relief in China. This oftentimes can be achieved using a carve out from arbitration. This provision will be what will allow you to go to the Chinese courts for an order requiring your supplier to do something such as stop exhibiting and selling your products.

Full post as published by China Law Blog on May 26, 2008 (boomark / email).