This used to be more common about 15 years ago when suppliers would show their customer’s products on their websites and even at trade shows like the Canton Fair claiming the products were theirs and therefore available for purchase.
There are basically four levels of manufacturing situations buyers can work with Chinese suppliers at:
1. The buyer agrees to purchase the supplier’s products.
In this case, the buyer knows the product 100% belongs to the supplier.
- If they have a manufacturing contract that grants the buyer worldwide exclusivity, the contract also usually forces the supplier to keep the product confidential.
- In other cases, it’s quite normal for the supplier to show the product on their booth, their Alibaba page, their website, etc.
2. The buyer asks the supplier to change or adjust the design enough so it becomes a different variation of the original product.
- If the buyer was thoughtful and drafted an agreement, it usually requires the supplier to keep that version of their product confidential. (It may even prevent the supplier from developing another very similar version for another buyer, even if that happens under the direction of that other buyer.)
- The contract would also typically allow the supplier to sell that version of the product only to that one buyer who asked to make the design changes.
3. The buyer has a product idea they want to develop and launch but does not have the funds or the team to do so. They engage with a Chinese supplier who is willing to fund the product development and product parts.
This is what we call the “Chinese model” for product development where some degree of ownership over the product IP they developed/helped to develop is assumed by the supplier (which I discuss in detail on our podcast here).
- With this agreement, both parties will often believe they have the right to claim ownership of the product which can result in a business relationship breakdown.
- In some cases, the buyer will have a handshake agreement, with the supplier promising not to sell that same product in the buyer’s area but reserving the right to sell it to importers from other areas.
4. Work with a contract manufacturer.
Contract manufacturing is the safest of all situations when it comes to working with Chinese suppliers if you want to protect your product and intellectual property rights (IP).
- The buyer will come to the Chinese supplier with a fully designed product with funds to complete any additional DFM work and to get the product into production.
- Both parties will sign a contract and the buyer is secure in knowing the supplier will not sell or show their product to anyone else.
In situations 2 and 3, if there is no contract, it is a gray area and the supplier probably knows it. They may be very tempted to exploit it.
Solutions now and in the future
Regarding your situation, you can always request that the supplier take that picture down and promise in writing never to use it again. If you want to test their honesty, you could pretend to be an interested customer from another country under a fake name (or ask one of your connections to play that role) and see if the supplier would respond “sorry, we can’t sell that exact product”.
Always be aware of the situation you are getting into when discussing product purchases or development with Chinese suppliers.
Start by sourcing a good-fit supplier.
Then vet your shortlisted suppliers to gain assurance that they are legitimate, trustworthy, and capable of reaching your expectations, a good practice is to do a background check on them which will flag behaviors and practices that could lead to issues like IP infringement and product copying later on.
As mentioned, a product development/manufacturing contract (that includes an NNN agreement) is helpful protection. You should speak to a lawyer who deals in Chinese law for help with drafting one for you that is enforceable.
Do you find yourself in a difficult situation with a Chinese supplier? Let us know and we might answer your questions in a post like this! Contact us here.
Other helpful content
You may also find these posts and podcast episodes helpful in this case:
- What are trading companies?
- Chinese trading companies and their dirty little secrets
- 7 Reasons Why Your Supplier Won’t Let You Visit Their Factory
- How To Choose Which Product Quality inspection You Need?
Here at Sofeast, we are not lawyers. What we wrote above is based only on our understanding of the legal requirements. We do not present this information as a basis for you to make decisions, and we do not accept any liability if you do so. Consider consulting a lawyer before making legal decisions.