Made in China: Understanding the Legalese of Product Trademarks and Agreements

Made in China: Understanding the Legalese of Product Trademarks and Agreements

Many companies have their products made in China, but why? It can be an attractive option for companies with limited budgets and a new product idea looking for a low-cost and reliable manufacturer.

In order to find the right manufacturer, i.e. to minimize your costs and maximize your legal protections, you’ll need to choose the right agreement and file the right registrations in a timely manner. You will also need to make sure they are done correctly. Many US-style agreements (such as DEAs) don’t work for China. Here are some of the advantages with Chinese manufacturing, as well as some tips and information to get started.

Getting Started

When starting out with China, look for leads among your industry associations, online directories (e.g. Global Sources), recommendations from business contacts and networking groups, international trade shows or your nearest Small Business Development Center.

You’ll want to finalise a list of options by ranking your leads on, among other factors, product similarity (those offering to make anything will rarely be high quality), online ratings and reviews, availability of documentation (e.g. business licence, quality control documentation and other certifications) and whether they have strong histories of importing to the U.S. or other Western countries. You’ll want a shortlist of 2-6 manufacturers to consider.

Once you’ve secured a nondisclosure agreement from one or a number of them, you’ll want a request for quotation (RFQ), with details of your product prototype include model images, its size, weight and other details necessary to make the item. You should ask for estimates for prices, for production and samples, payment terms, time to manufacture and minimum order quantity. Don’t select one of your shortlist without the full information requested. Ask for a sample of your product and select the manufacturer which makes the most promising one in the timeliest manner.

Ownership Agreements

In doing your due diligence, you might consider hiring a Chinese consultant/lawyer or a professional manufacturing facilitator like ITI Manufacturing to discover which contracts and Intellectual Property registrations you’ll need to ensure ownership and other rights against your manufacturer and the world.

The most crucial set of agreements are those relating to ownership. You’ll need to register your trademark with China Trademark Registration, even if you have no intention of selling your product in China. Otherwise, you’ll be powerless from another Chinese company making your product. Always remember to secure additional trademarks in the other countries which you will be selling your product as trademarks are not international.

Secondly, you’ll need to sign a Product Ownership Agreement which states that the product you’re co-developing with your Chinese manufacturer indeed belongs to you. Again, without this right, your Chinese manufacturer can claim IP on your product and even patent it. If your product is functionally or designedly innovative you may want to consider a China Invention and Design Patent. These prevent someone else patenting and stopping you producing your product.

Relationship Agreements

Relationship agreements between you and your manufacturer are likewise essential.

Product Development Agreements specify, in a highly detailed manner, the terms of your product development relationship with your manufacturer, with provisions addressing the product to be developed, payment responsibilities for product development, technological requirements of the manufacturer, the manner in which product specifications are provided and ownership of the IP rights of the final product.

Chinese Manufacturing Agreements – AKA OEM or Product Sourcing Agreements – clarify the relationship between you and your Chinese manufacturer by addressing questions of product, IP and tooling ownership, quality, timeliness, and non-disclosure requirements, as well as penalties for agreement breaches.

Additional Agreements

For confidentiality, a NNN Agreement is often needed to protect you from competition with your manufacturer, best sought before selecting a manufacturer although they aren’t necessary if you can include their terms in a Product Manufacturing Agreement outlined above.

There are also Mold/Tooling Ownership Agreements which specify ownership of molds and tooling to maintain them in the case of a plant closure or transfer and to avoid competition from your manufacturer. These, however, will also probably not be necessary provided equivalently strong provisions are in your Product Manufacturing Agreement. Other, more specific agreements may pertain to specific production requests.

Finding the right Chinese manufacturer and securing the right agreement can be difficult but the rewards in manufacturing costs and quality can be significant. The process can be made easier by consulting a legal expert and/or discussing the transition with business associates who’ve made the move. Look for leads at your next industry or trade show event, or start searching online.

Mike Stewart WHAT I DO: I help North American companies achieve their offshore manufacturing goals. COMPANIES I WORK WITH: I work with three major company types: Entrepreneurs who have a product idea and do not know where or how to begin, companies that are currently manufacturing in the United States and are considering offshore manufacturing, and companies that are currently manufacturing offshore and are having issues.