IP Protection For Manufacturers. Keep Component Suppliers In The Dark

There are two complementary approaches to improve IP protection for manufacturers and reduce the risks of your IP being infringed when developing and manufacturing products in Asia.

1. Use legal methods, such as an NNN agreement.
2. Use strategies outside of the legal framework, such as keeping tight control over who has access to your IP.

In this post, we’ll look in more detail at the second point, methods of protection that don’t rely on the law, which is generally how we help protect your IP here at Sofeast.

Why IP infringement in China is a real danger

Chinese suppliers are a great option for getting your new product mass-produced and ready to sell at a reasonable price, but they’re not always very conscious of the importance of IP protection.

Most everyone has heard the term ‘copycat China‘, and this regularity of IP infringement here is a real concern to inventors and SMEs who are eager to use China’s manufacturing base to produce their products.

After all, the thought of putting up a lot of time and money to develop your product, only to have the IP copied and used to create competing products is far from compelling for most businesses.

A common trap is using an ODM with experience in creating products like your own to quickly get yours produced. Read more about this in this interesting blog post: The Danger of Developing your Custom Product with an ODM Factory

Possible outcomes if your IP gets into the wrong hands

As a manufacturer who imports from China or Asia having your products copied, trademark registered (in China by someone else) and put on to the market in your country is an extreme, yet possible, scenario.

Here are some other outcomes:

• You should also be wary of your suppliers sharing your IP with sub-suppliers who they subcontract work on your products to without authorisation. In this case, your supplier may be trusted, but the people they share your IP with are totally out of your control, and therefore your supply chain becomes very porous when it comes to IP protection.
• Trade fairs can be risky, too, because how do you know that the person you’re revealing product information to at a fair is a legitimate supplier? They may take your IP and use it to copy your products!
  Dan Harris over at China Law Blog makes a great point about trade fairs:

I have gotten far too many calls from people who provided product information to potential manufacturers they met at trade fairs, only to realize too late that they had revealed too much, too soon.

• You may also find it beneficial that the suppliers in your Chinese or Asian supply chain are not aware of each other or your final product as this information can be used as leverage for them to, for example, raise prices. More on this later.

The legal route to IP protection for manufacturers in China

In the West, it’s common to create an NDA and have your suppliers sign it.

This should be enough to legally keep your IP confidential.

Agreements like this can be effective in China as well, but only if they’re created in adherence to Chinese law. Your regular NDA contract in English (or your language) which is valid in your country might not hold water in a Chinese court of law as it may not even be valid in China.

As mentioned in ‘How To Create A Valid Manufacturing Contract In China To Protect Your IP:’

If [a supplier] sees a document in Chinese, referring to Chinese law, drafted by a Chinese lawyer or business, and with an official red seal, then that is a different story; they know that you take IP protection very seriously indeed.

An [effective] manufacturing contract between yourself and your Chinese supplier would ideally include these three elements:

• China NDA or more comprehensive China NNN agreement
• Product Development Agreement (PDA) – (if developing product/s with your supplier)
• Manufacturing Agreement (MA)

It is fine that the contract has an English translation, however, Chinese should be the main language of the contract, and it should be stamped with your official red seal (or that of the company or law firm preparing it).

Some say, though, that legal channels only go so far towards protecting IP. A good relationship with suppliers is as good a remedy as using a legal stick to beat them with should problems occur.

Most will agree that using litigation to fight an issue certainly isn’t preferable, as it may be expensive, time-consuming, and difficult (if it involves needing to attend a Chinese court). Let’s also consider IP infringement for a moment as well.

If this has happened, i.e. your IP has made it into the wrong hands and is being used illegally, litigating after the fact won’t stop that IP having gotten out. So it could be a case of closing the stable door after the horse has bolted.

With this in mind, it’s important for importers to also consider IP protection for manufacturers that is effective without needing to rely on the law.

A key strategy outside of the legal framework of reducing IP risks in China (that Sofeast use)

At Sofeast one of our key concerns is IP protection, as we understand the importance of its security for many reasons, some of which we mentioned at the start of this post.

One effective way to protect IP which is proven to work, and which we do regularly, is to ringfence IP during production by setting suppliers to work on components without knowing or having access to information about the final product.

Why it’s beneficial to deny suppliers or sub-suppliers access to IP about the final product

There are 2 main reasons to keep your potential suppliers at trade shows and your wider supply chain in the dark about your product IP.

1. Too many Chinese suppliers still send confidential information around without thinking about the buyer’s requirement for confidentiality and this can lead to counterfeiting. Hiding the “big picture” is one more way of keeping confidential information safe.
2. Component suppliers might think that you are making a fat margin if they see certain types of products and will adjust their pricing accordingly. In this case, their full knowledge of what you’re making erodes your ability to control pricing.

How to protect your IP from the wider supply chain

The process that can be followed to keep IP from filtering throughout your supply chain is as follows:

• Break down the products and its components, think of how many suppliers are needed
• Send only enough information for the component suppliers to give a quotation and to do their work
• Never show them the brand, nor tell them what their part will become
• Have a separate facility do the assembly, final testing, labeling, and packing

By following this process, you will be able to get suppliers to create your components, but without them knowing too much information which could be used to hurt you in future.

How do YOU keep your Intellectual Property confidential?

Is our process for keeping suppliers away from your IP something that you’re doing at the moment? If not, what else do you do in order to protect your information and products?

Please let us know by leaving a comment or question.

Sofeast Solutions Where IP Protection For Manufacturers Is A Priority

The following solutions help enhance IP protection for manufacturers, so hit the links to learn more about them in detail and request a quote:

1. New Factory Identification
2. Supplier Management
3. New Product Introduction
4. Prototype Development
5. Product Assembly (at our manufacturing facility near Shenzhen, Agilian Technology)

Disclaimer

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.

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