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China OEM Agreements. Yet Another Reason To Have One.

By Dan Harris and Steve Dickinson

Got an email the other day from an attorney seeking help for a client. Client (Company A) was interested in suing one of the online customs/sourcing sites for having broken out by name all of the Chinese companies from whom Company A bought its Chinese product. Company A was (rightfully) in a panic about its United States customers learning from whom it was getting product and then watching as those US customers went around Company A and purchased the product directly from the now-listed Chinese suppliers. Company A is convinced that the site which is providing the names of Chinese suppliers (for a fee) is doing so illegally and Company A wants to sue. I suggested that what Company A should have done (and should still be doing) is to require its Chinese suppliers sign an OEM Agreement that forbids them from dealing directly with any of Company A's US customers. I also suggested Company A consider having its US customers sign an agreement agreeing not to go around Company A by going direct to its Chinese suppliers. I then explained how it might not make economic sense to try to enforce such a provision against the Chinese companies, but that they still can be quite effective because they can be used to threaten any US company with a lawsuit for tortious interference with a contractual relationship. In other words, if the US company starts trying to deal directly with the Chinese supplier, Company A can point out to that US company that it has a contract with the Chinese company that forbids the Chinese company from dealing directly with the American company and if the American company is going to interfere with that contract, Company A will sue it. Tortious interference with a contract is a valid tort claim in the United States. I am not saying such a provision is going to guarantee you will not have problems with companies seeking to go around you, but I know these provisions have been used to prevent these sorts of circumvention and I also know that without such a provision, you do not stand a chance, unless maybe you want to sue the messenger.

Full post as published by China Law Blog on May 10, 2010 (boomark / email).