Not every strong NNN agreement is perfect.

For instance, your NNN agreement may seem to be ‘watertight,’ providing excellent protection of your IP, but it may lead to difficulties in working with Chinese suppliers or with service providers if it’s too strict.

How far does an NNN agreement need to go to protect your IP in China?Here at Sofeast, we take IP protection of our customers’ products, designs, supply chains, and information very seriously, so we’d never suggest creating an NNN agreement which is toothless.

But some NNN agreements, perhaps drafted by lawyers in the West who have a limited understanding of what it takes to get products manufactured abroad in China, Vietnam, or India for example, are so draconian that most sophisticated suppliers will not sign them and work with you.

If your goal is to manufacture your new product, or even simply to check the quality of workmanship from a supplier, then your legal agreements need to be strong enough to have ‘teeth’ if needed, but not so strict that suppliers will refuse to sign. If the latter occurs, you’re still at square one as you’re unable to fulfil your needs and get started.

To make matters worse, in many countries (and even in certain states in the USA), most of the examples we included below are considered unreasonable restraints on trade and are disregarded by courts of law… which means the entire agreement may be unenforceable!!


Clauses in an NNN agreement that suppliers or service providers will find hard to stomach

Over the years we’ve signed hundreds of NDA and NNN agreements with clients from around the world for many different reasons so we have a good understanding of what is effective and what is overkill. We are not lawyers, so consider this article merely for your information – always check with legal counsel if you are unsure.

Here are several clauses that could work against you in China if you include them in an NNN or NDA because they could make them too unbalanced:

1. Termination period

Most legal agreements have a set time period by which their obligations terminate, so including a clause that makes obligations remain in place forever is likely to be a sticking point. An example:
“The supplier is bound by the agreement in perpetuity.”
It’s quite reasonable for the NNN agreement to be terminated 2-5 years after disclosure, or after the business relationship ends.

(Note: trade secrets are a separate matter, and it may make sense that obligations specifically related to them never expire. You should definitely consult a lawyer if you think you may have a trade secret.)

In addition, established companies are quite unlikely to accept obligations that never end, as they accumulate over time and they become heavy to manage. Pushing back on such obligations is actually a sign that an information security management system is in place and is taken seriously.

2. Damages

NNN agreements often mention that the owner may sue for a specific penalty amount if there is a breach. An example of this would be something like this:
“The supplier agrees to pay damages of at least USD 50,000 to the customer if there is any breach of their obligations laid out in this agreement.”
That’s common in contracts with companies based in mainland China. However, the amount should not be extremely high, or a Chinese judge might disregard that penalty entirely. It always has to be within the bounds of what can be qualified as ‘fair’…
Similarly, what about the case where a project manager at the supplier’s company emails some of the confidential information and CC’s the wrong person by mistake? Automatic penalties are a danger that can’t simply be ignored.
Now, what about contracts with companies in Hong Kong or Singapore or other places with the Common Law system? The approach is usually quite different. The appropriate approach is to let a judge (or arbitrator) decide what the damages really are. The threat of suing for damages is often enough for an NNN agreement. There is no limit on the amount and that’s quite dissuasive…

3. Burden of proof

This kind of clause will state something like this:
“If it is found that any 3rd party gains access to any of the owner’s IP it is seen as due to the actions of the supplier unless they prove otherwise.”
This is a clause that we rarely see and we don’t believe that it is reasonable.

4. Holding a company owner personally liable

Another that may sound like it adds to your safety but is, in fact, unrealistic, is holding the owners of the company you wish to work with personally liable.
The threat of suing the company which would then have to pay appropriate damages is enough to deter suppliers and service providers from behaving badly.

What owner would sign this agreement knowing that they might lose everything even if an employee made a mistake or behaved irresponsibly?


These clauses make the agreement quite unbalanced and can scare off suppliers or service providers completely, even if they’re a perfect fit for you and have no intention of harming your business.
And, as far as we are concerned, we have always refused to sign clearly imbalanced terms. In nearly all cases, the person pushing for those terms is following bad advice…which often leads to other issues down the road.


How to make your NNN agreement more effective?

When dealing with suppliers in, say, mainland China, the key is to make the NNN enforceable in their country, NOT your own. If you provide a ‘local’ NNN, a Chinese court is unlikely to enforce it and courts in your country are unlikely to be able to act against the supplier.

So what makes an NNN agreement effective when your counterparty is based in mainland China?

  • The NNN should be based on Chinese law only.
  • It should be written in Chinese as the official language of the agreement (an English translation is appropriate to keep on file, but this will not be seen as official).
  • Chinese courts in the supplier’s locality should be chosen to enforce the agreement.
  • The agreement should specifically mention how to correctly handle the relationship with subcontractors and their use of your IP and whether this is acceptable at all.
  • It will include the standard language:
    Non-use – the supplier cannot use your IP in any way.
    Non-disclosure – the supplier cannot make public your IP or share with others (such as a friend’s factory, or via unauthorised subcontracting).
    Non-circumvention – the supplier cannot start making your products themselves and selling at a lower price to steal your customer base.


Here at Sofeast, we will always advise you if an NNN agreement is appropriate for the work we’re doing.



👉 Related: How To Create A Valid Manufacturing Contract In China To Protect Your IP

👉 Related: Read some more examples and get an insight into what is typical in NDAs (very similar to NNNs) here: How to Use and Review Non-Disclosure Agreements (NDAs)

👉 Related: Learn how to create a valid manufacturing contract in China, with a focus on protecting product IP.

👂 Listen: We also think you’ll enjoy this episode of our podcast which does mention IP protection in the contract with your supplier:



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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