Don’t Waste Your Time with an NDA in China
Lawyers familiar with doing business in China will recommend an NNN agreement: Non-use, Non-disclosure, and Non-circumvention.
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I spoke at IEEE in Silicon Valley recently and raised some eyebrows when I told the audience of engineers that NDA agreements are worthless in China. Several people in the audience had the misconception that if they signed a mutual NDA with a Chinese company, it would be respected on both sides, or if broken could end up in court. But they are wrong.
NDA agreements are common practice when discussing sensitive or private information in the U.S., but they don’t work in China. This is because NDAs are written in English and subject to U.S. laws, enforceable only in the U.S. In addition, if the NDA or any contract is not written in Chinese, it may not be valid in China.
If your Chinese manufacturer violates a U.S. NDA, it’s unlikely you could successfully sue in the U.S. The Chinese simply won’t show up, or they will argue that the agreement is not valid in China, even if they have signed it and assured you they will comply.
Instead of an NDA, lawyers familiar with doing business in China will recommend an NNN agreement: Non-use, Non-disclosure, and Non-circumvention.
Non-use means the Chinese factory agrees by written contract not to use your idea or concept or product in a way that competes with you.
- Non-disclosure means the Chinese factory cannot make your trade secrets public, but beware: they may share your trade secrets with sister factories owned within the corporate entity or family, and that entity might use your idea.
- Non-circumvention prevents a Chinese company from going around you to sell direct to your customers
An NNN agreement must also be in Chinese. It will offer you at least some protection for your intellectual property and technology. But you must get the Chinese company to sign it before you transfer technology or begin work.
With Xi Jinping’s “Made in China 2025” initiative, the Chinese are looking to acquire vast amounts of information and technology know-how over the next few years. Made in China 2025 calls for China to achieve ‘self-sufficiency’ through advanced technology development in China. The race is on for Chinese companies to obtain as much technology as possible and develop their own integrated supply chains.
Because of this initiative, many technology companies, inventors, and engineers are likely to be engaged in discussions regarding products, technologies and supply chains. We must all learn to be careful about sharing information that may compromise our IP or violate U.S. Export Regulations. NNN agreements, not NDAs are a good first step.
About the AuthorRosemary Coates Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith - How to Avoid and Defend Supply Chain Disputes. Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters. She is passionate about Reshoring.
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