Q: I’m worried that my sensitive product information won’t be kept confidential when it is sent to component suppliers. How can it be kept secure?
There are legal and non-legal approaches here.
Non-Legal: Reducing the amount of information being shared
1. The most important action is to avoid giving too much information to one given supplier. If they see what the end product is, and if they think there is plenty of margin to grab, they might add 50% (or more!) to their price. Or they might give a low price, in the hope of being selected and with the purpose of competing with you later, and that’s probably even worse.
2. The second most important action you can take is avoiding sending sensitive information to multiple suppliers or simplifying the tender to remove the most confidential parts.
Note: When working with Sofeast on sourcing, in some cases we know a supplier that is already qualified and is probably a good fit. In many other cases, we involve other suppliers but do some screening first. It is usually possible to ask them to provide information based on a similar component, or at least a part that requires similar processing when doing that screening.
If we do a good job of restricting both the information sent and the number of suppliers we need to send it to, the risk is already lower. As Steve Dickinson wrote last week in China Law Blog, there are many ways information can leak, and you want to minimize that.
Legal: Getting the supplier to sign an NDA or NNN agreement
The next step is figuring out whether each component supplier needs to sign a non-disclosure, non-use, and non-circumvention (NNN) agreement.
Read more about manufacturing contracts here 👉 How To Create A Valid Manufacturing Contract In China To Protect Your IP
We usually discuss this with our client, to make sure we are aligned. There are several cases:
- We already have an NNN agreement with that supplier: we are all set.
- We only communicate a very small part of the project information, and in itself that poses no IP dissemination risk: no need for an NNN agreement.
- We communicate too much information to be in the situation above: it usually calls for a NNN agreement.
(Note: each project is unique in its own ways, so there are many special cases. For example, if we need to use a piece of technology developed by an OEM supplier, the approach is necessarily different, since they might have more confidential information to protect than our client.)
If you want to learn even more about legal options and China manufacturing contracts, listen to this episode of our podcast:
- In our experience, it’s always better to try to keep your product or brand information from suppliers unless they’re conducting the final packing. We discuss this in more detail here: IP Protection For Manufacturers. Keep Component Suppliers In The Dark
- There is a relationship between a supplier’s interest in IP infringement and your order volumes. Low volumes (let’s say USD 10k per order or less) won’t be as attractive.
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