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It is my pleasure to let you behind the bamboo curtain and offer some practical tips to protect your intellectual property.
First off, I want to say that the majority of suppliers are a pleasure to deal with, but it is best to protect yourself by following some basic protocols which will help you avoid losing control of your intellectual property.
# 1 rule.
Register your IP in China before you even start to source here.
China is a first to register rather than first to market system. That means that if you have a cool logo or design and it has not been registered in Beijing, then anybody can register it and you would have to pay them to get it back.
Even if everybody back home and in China knows you are the originator of that brand or IP, you will still be fighting a steep uphill battle in China if you fail to register it first. In China, it doesn’t matter who had the idea first, it only matters who registers it first!
Assuming you register in advance in China, a Chinese court will give even foreign companies a fair shake. In the past few years, the legal system in China has made great progress and there is much more of a level playing field when it comes to the courts.
Now some more good news:
If you hire a Chinese lawyer in China who speaks English, it doesn’t cost a lot to register your Intellectual Property. And if you have to litigate because your IP was infringed upon, the costs of a court battle in China are a fraction of the costs back home assuming you are using local, yet professional lawyers.
Rule #2 Reduce exposure during the RFQ
When you are conducting your request for quotation, you will probably interact with many suppliers in China to get quotes, but in the end you will probably select just one to get your business.
A non disclosure agreement signed in advance with those suppliers that you didn’t end up selecting is not going to do much to prevent them from using your IP, plus monitoring all those suppliers is very hard. So during the RFQ, do all you can not to let the idea out of the bag.
For example, conduct your RFQ with a ”representative product” which doesn’t expose your secret sauce. Then after you pick your supplier, let them get a look at the secret sauce only after you feel confident they will respect your IP.
BTW, if you are worried your supplier may steal your IP, know that there are 3rd party contract assembly centers in China which you can hire to be your “black box”. In this fashion, your appointed sub suppliers send the various components to the black box where final assembly and final branding takes place. This way the sub suppliers don’t see how the pieces come together and are in the dark about your logos and designs.
Rule #3 Use simple and easy to understand clauses in your bilingual contracts
I have found that many conflicts stem from poorly explained contracts. It is not so much that the suppliers are breaking the terms of the agreement on purpose, because it turns out they never understood the contract in the first place.
So often, the buyer presents a massive technical contract, in English only, which some NY lawyer has drafted to protect the buyer. There are some key terms buried in there about who ones the IP and how it should be used. The supplier knows that if he signs the agreement, he gets the order. So he signs without having it translated, let alone understanding it.
So keep it simple, put it in Chinese and get clear confirmation that the supplier has read and understood it. Most of my suppliers are honorable people and if they are clear on the terms relating to IP in advance of starting production, we generally have very few problems.
I’m not a lawyer, but if you need legal advice, email me and I’ll put you in touch with the firms that have represented me.
On that note, as always, I sign off- wishing you successful sourcing in China!
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Please watch: "The China Sourcing Manual - Learn How to Successfully Source in China by Mike Bellamy"