International Market Platforms and Intellectual Property specialist, Shelly Pritchard takes a look at the steps businesses can take to protect IP when outsourcing manufacturing to China…
Intellectual property is an established concern for those businesses operating or considering operating in China.
Fear regarding the enforcement of IP is a factor which influences a business’s strategy and processes in China.
In order to be protected, businesses need to consider IP contracts, registrations and other rights against Chinese manufacturers. The following are manufacturing related agreements and IP registrations:
Non-disclosure, non-compete and non-circumvent Agreement.
Non- disclosure, non-compete and non-circumvent Agreements (NNN Agreements) are contracts that guard the confidentiality of products and prevent Chinese manufacturers from competing or circumventing by going directly to their client’s customers. It is best practice to have the agreement in place before you chose your specific Chinese manufacturer. The NNN Agreement forms triple protection for products.
- Non-use will preclude manufacturers from using a business’s IP to compete directly with it. Robust non-use clauses in an agreement will deter this conduct.
- Non-disclosure will prevent manufacturers disclosing a business’s trade secrets. A trade secret only has protection for as long as they continue to be secret. If a trade secret enters the public domain, any protection they had is lost.
- Non-circumvention will prevent the manufacturer from side-stepping anti-counterfeiting structures built into a business’s IP. A manufacturer will be prevented from producing extra goods and selling them.
Mold/Tooling Protection Agreement
A Mold/Tooling Protection Agreement gives clarity to the ownership of that the molds/tooling being made for a business and prevents these tools/molds being used for another, without prior agreement. Without this protection molds/tooling could be used to hold a business hostage. This agreement should include any details of a mold/tooling list. It is also advisable to consider including a liquidated damage provision to the agreement.
Product Ownership Agreement
This provides clarity to whom the product is owned, if a business is having a product developed or made by a Chinese manufacturer they still own the product. If this agreement isn’t in place and enforceable your Chinese manufacturer may be able to assert rights of ownership.
Product Development Agreement
This agreement sets out the terms of your product development association with your Chinese manufacturer – who will own what part of the finished product and who will pay for different aspects to develop the product. Agreement should include: the product under development; technologies contributed by whom; any product specifications; who owns the intellectual property rights; what will be paid for; signposts to be achieved before payments are made.
China Manufacturing Agreement
The Product Sourcing Agreement or OEM Agreement. This agreement should, at the very least include:
- IP ownership
- Mold and/or Tooling ownership
- Non-compete, non-circumvention, non-disclosure, Sub-supplier/sub-contractors
- Liquidated damages for breaches
For a product which is inventive or distinguishable in purpose or design, a China invention or design patent should be obtained. China patents can be extremely valuable & indeed essential for protecting products from copying and to preclude another from registering a patent product in China and then using that patent to stop the original owner from manufacturing their product in China.
Having a product manufactured in China, a trademark for the brand name (and the distinct logo) that are being used on the product or packaging. Again, if this isn’t obtained by a business then there is a strong risk that someone else will use that trademark, register it and prevent the business moving that product out of China. It is also considered wise to register trademarks in countries where sales are intended. Trademarks do NOT cross borders and obtaining a China trademark is virtually always vital.
If you’d like to know more about how to protect your IP whilst sourcing competitively, contact us today!
Shelly Pritchard is International Market Platforms and Intellectual Property specialist at International Trade Matters.
At International Trade Matters Ltd, our experts can assist you in all aspects of international trade services across sectors, geographies and disciplines.