International Law

How To Protect Your Molds And Tooling In China.

By Dan

Twice this week I got calls from companies who were seeking my law firm's assistance in getting their molds back from their former Chinese manufacturers and in both cases I had to tell them I did not think it worth their while to pursue their claims. My firm has been called about a dozen time on such matters and we have declined all but two of these.  The two we took on we were able to successfully resolve within a week. 

In all of these cases, the U.S. or foreign company has called us because they have ceased to use a particular Chinese manufacturer and now that manufacturer is refusing to turn over the molds or tooling that the U.S. or foreign company had supplied to them. The molding/tooling have typically ranged in value from $20,000 to $100,000.

There is one massive difference between those mold/tooling cases we take and resolve and those that we decline. We take on those where the foreign company has a contract with the Chinese manufacturer that makes clear that the foreign company (not the Chinese manufacturer) owns the molds/tooling and we decline the rest.  We decline the rest because the value of the molds/tooling usually does not warrant having to sue to try to get them back, particularly when the chances of prevailing are probably less than 50-50.  

If you do not take the right steps with your Chinese Original Equipment Manufacturer (OEM)before you ship over your mold or tooling, it is nearly certain you will never get them back. As soon as something goes wrong between you and your Chinese OEM manufacturer, the OEM manufacturer typically will use your mold or tooling for ransom. It is the very rare OEM relationship that lasts forever and if you do not take steps to protect your mold/tooling, it will be the even rarer relationship where your Chinese OEM company does not end up with either your mold/tooling or at least with your having to expend considerable funds securing their return. 

So what are the right steps?

First, get your Chinese OEM manufacturer to agree in writing that the mold or tooling belongs to you. Make this clear and do it in Chinese. Second, if possible, get a deposit for your mold, which deposit you will return when the mold is returned to you. Third, and this becomes particularly important if you do not get a deposit (and you almost certainly will not), put in a liquidated damages provision that applies if your mold is not returned when specified.

Taking these steps will not guarantee that you will see the return of your mold/tooling, but failing to take these steps virtually guarantees that you will not.

If you want to read more on Original Equipment Manufacturing (OEM) Agreements and on what they should be comprised, check out the following:

• China OEM Agreements. Ten Things To Consider.
• China OEM Agreements. You Are Naked Without A Good Bill Of Materials.
• China OEM Agreements. Yet Another Reason To Have One.
• China Supply Agreements. Why The "Perfect" OEM Agreement Should Cost Less.
• OEM Agreements With Your China Supplier. Not Just For The Big Boys.
• China OEM Agreements. Why Ours Are In Chinese. Flat Out.

Full post as published by China Law Blog on December 14, 2010 (boomark / email).