International Law

On Buying Product From China. A Run-Through On The Legal Basics.

By Dan

Just received a very typical email from someone looking to manufacture their product in China:

A bit of background on our company; we are a supplier and installer of _______ and following 18 months of design and development have finally completed a prototype model of ___________ which we now want to manufacture in China. Following two months of research and talks with various Chinese manufacturers we found a company which manufactures ____________ based out of __________.

Before beginning talks with them, we asked for them to sign a confidentiality agreement which we are in receipt of. We are now looking to arrange sending over a prototype for them to reproduce and send back. Before doing so, however, I wanted to make sure we are not leaving ourselves in a vulnerable position.

On your blog you discuss an OEM contract. Could you provide some information on what this is and whether we need to look into this at this early stage?

I responded as follows:

You do not need an OEM Agreement until you are actually ready to start manufacturing. OEM agreements cover the manufacturing relationship and you are not yet at that stage.

At this point, what you probably need is an NNN Agreement as I am virtually certain the Confidentiality Agreement you had the Chinese factory sign provides you with little to no protection. Here is some information on NNN Agreements:

• Why Non Disclosures (NDAs) Alone Are Not Enough For China
• Why Non Disclosures (NDAs) Alone Are Not Enough For China, Part II. At Least Make It Enforceable

If you are going to be spending a lot of money to have the prototype made and want to be sure that when it is done you will own the prototype and/or the molds used to make the prototype, then you should have us draft what we call a mold agreement. These agreements are usually not necessary unless you are spending so much on the molds or on the prototype that you want to be certain that if something goes wrong between you and the Chinese factory, you will end up with the molds or the prototype.  

The other thing you will need to think about at some point is securing a Chinese trademark for your name. China is a "first to file" country and so if you are not the first to file for your trademark and someone beats you to it they will own 'your' name in China. This means they will then be able to stop you from using their name in China and you will not be able to put your name on your products in China. Without being able to put your name on your product in China, you have to export them without your name on there and then add your name only once your product arrives in the United States. 

If you have any patents on your product, we should discuss that too. My firm does not do any patent work, but I would be happy to refer you to qualified attorneys who do.

If you have any additional questions, please let me know.

Full post as published by China Law Blog on October 22, 2010 (boomark / email).