How to Protect Your Product When It Is Made in China

Summary

• China IP Protection: Register, verify, and adapt contracts.
• Trademark Ownership: First-to-file system in China.
• Manufacturer Verification: Avoid trading companies, due diligence.
• Confidentiality Agreements: NNN for safeguarding information.
• Wiser Market Solution: Counterfeit protection with monitoring.

When you manufacture a product in China, you need to protect your trademarks, patents, trade secrets, and all intellectual property – in China. 

Start with intellectual property registration. Continue to verify the company you want to partner with and work with contracts made specifically for the Chinese market to protect your product and rights. 

Register: Protect Your IP in China

Intellectual property (IP) protects your rights. Even if you have intellectual property registrations in other countries, with no registration in China, someone else may be able to use your trademark, prevent your product from leaving China ports, or sue you in China for breaking intellectual property laws in the territory.

It’s important to remember that there are separate registrations for Mainland China, Hong Kong, and Macau.

Intellectual property protection in China covers trademarks, patents, copyrights, trade secrets, and geographical indications.

Here, we take a look at protecting trademarks in China.

In China, intellectual property rights belong to the first party to register the trademark. So the first-to-use party with evidence of use in commerce is not necessarily the one to get trademark ownership. Instead, it would generally be whoever is first to file for trademark registration in China.

Once you secure your trademark registration, you are the only one who can legally use your trademark in China in your registered subclasses. Therefore, once a third party registers your trademark, it can manufacture and sell your branded products, although they are in fact counterfeits. The third party can also stop you from selling your product in China or otherwise using “their” trademark.

Bottom line: If you do not want another party to use your trademark, register now.

To do so, consider registering your trademark in Roman characters and Chinese. The reason is that trademarks in China are recognized only when used in the language in which they were registered. In other words, if you register your business name in English and find that a third party uses it in Chinese – and this can be a literal translation, phonetic translation, or a combination of the two – there is nothing you can do if you haven’t registered the name in Chinese characters.

When registering your trademark, you should know that the classes and subclasses in the Chinese trademark system are unique. It is crucial that you review the most updated categories translated so you can determine the most beneficial categories for your business.

Just like you do with trademarks, register all your intellectual property according to China’s laws and regulations.

 

Verify: Do Your Due Diligence

When working in another country and culture, far away from your home base, you face greater risks.

Make sure you have a trustworthy partner, starting with verifying if it’s a trading company or the original equipment manufacturer (OEM) you’re doing business with. Some manufacturers have a history of IP infringements and litigation that can raise red flags.

Key areas to cover during OEM due diligence:

1. Legal Compliance: Verify that the manufacturer operates legally and possesses all necessary licenses and certifications required by laws and regulations.
2. Financial Stability: Assess the manufacturer’s financial stability, cash flow, business credit, payment history, etc.
3. Manufacturing Capabilities: Evaluate the facility, equipment, expertise, and production capacity.
4. Product Quality: Review the OEM’s track record of product quality.
5. Intellectual Property Protection: Look at the manufacturer’s record in protecting confidential information and trade secrets.
6. References and Reputation: Seek references from previous clients and research feedback and reviews.
7. Communication: Evaluate the manufacturer’s communication capabilities and language proficiency.
8. Legal representatives: Find who is authorized to represent the manufacturer and make sure you are dealing with them.

 

Adapt: Use Contracts Suitable for China

Like any other country, China has its rules and regulations. Using a contract that was written specifically for China is likely to provide stronger protection locally.

Drafting and negotiating an OEM Development Agreement in China is the basis of a successful manufacturing relationship between the OEM and your company.

Ensure it outlines the ownership and protection of intellectual property rights and all other issues regarding the production of goods or components according to your specifications, branding, regulatory, and quality requirements.

Agreements with a manufacturer in China should include tooling protection – protecting the ownership and control of molds, dies, and other tooling equipment used in the manufacturing process. The significance of tooling agreements is that tooling costs can be considerable, and there’s a risk of intellectual property infringement or unauthorized use of tooling by the factory or third parties. The agreement typically includes provisions that address the following aspects: tooling ownership, exclusive use for production, protection measures, return and transfer upon the termination of the manufacturing contract or upon request, and compliance with NNN agreements.

 

Add: Safeguard Your Information

Consider including confidentiality agreements to safeguard your information. Companies working with Chinese manufacturers often use a Non-disclosure, Non-use, and Non-circumvention Agreement (NNN). “Non-disclosure” means no disclosing of confidential information that you provide, known as NDAs. “Non-use” means that the other party, in this case, the manufacturer, cannot use your IP for any purpose other than what you agreed to under the contract. “Non-circumvention” means that the manufacturer can’t circumvent you and sell directly, usually at a lower price.

Tailoring the NNN Agreement to China, it’s recommended you consult with a lawyer who can do both the English and Chinese versions and best protect your IP.

 

Identify: Who Signs the Contracts

Coming into China with no experience, be sure to choose the best manufacturer for your product. When small and medium businesses go into manufacturing in China, they may communicate with trading companies rather than with the factory owner. Without proper verification, companies may not even know they are not contracting with the actual manufacturer.

When issues arise, such as defects in manufacturing or quality issues, you turn to the contracting party. When this party is not the actual manufacturer, this may cause further problems.

Going back to the due diligence stage, verify the company and its business owners. China has fake companies and you want to make sure this is not the case. You also don’t want a shell company that has no assets or only very few. Sometimes, the shell company is registered as the parent company and the manufacturer as its Chinese subsidiary. In this case, the shell company can still be the contracting party and may prevent you from claiming the actual manufacturer’s legal obligation under the contract.

Another issue to be aware of is Chinese names. If you registered your trademark in China, you are probably aware of the fact that names can be translated and transcribed in various ways. Therefore, make sure your contract includes the Chinese company’s legal name, English name, and business registration number.

 

Act: Wiser Protection in China

Businesses considering manufacturing in China should be mindful of potential challenges, such as intellectual property protection and language barriers.

Counterfeits are big in China, and it can be critically important to protect your trademarks, patents, trade secrets, and any other intellectual property rights in the number one source of counterfeit products in the world.

Registration and confidentiality agreements are essential. Unfortunately, they are simply not enough. It’s crucial to monitor the manufacturer and the Chinese market and have an anti-counterfeiting strategy and the technology to support it online.

At Wiser Market, we monitor and identify major brand infringements and effectively enforce, eliminate, and deter counterfeiters in China and around the world.

Wiser Market’s solution is designed to combat online counterfeiting and abuse on a large scale while achieving an exceptionally high success rate.

 

FAQs

Are trade secrets protected in China?

There is no unified trade secret law in China, but several different laws and regulations govern the protection of trade secrets. The most important of which is the Anti-Unfair Competition Law (AUCL).

Under the AUCL, trade secrets must not be known to the public, proper measures are used to protect their confidentiality, and they must have commercial value.

According to the AUCL, if the rights holder has provided preliminary evidence that proper measures were taken to protect the claimed trade secret and if there is a reasonable likelihood that the defendant infringed on the trade secret, the burden of proof regarding the state of secrecy is shifted to the defendant.

 

What if the contracting party of a China manufacturer is a Hong Kong or Macau holding company?

In this case, the business relationship may be affected by the different legal and administrative systems in place. Hong Kong has a separate legal jurisdiction from mainland China, which can impact contractual obligations and dispute resolution. It’s important to ensure that the contractual terms specify the applicable laws and jurisdiction. It’s advisable to seek legal advice from professionals familiar with both mainland China and Hong Kong.

 

How to find genuine manufacturers?

Many manufacturers on B2B platforms such as Alibaba, Made in China, and Global Sources are trading companies.

Here are a few tips to help you find genuine OEMs:

1. Look at the supplier address and see if it makes sense (such as a residential area vs. an industrial park).
2. Check if the address is in the industrial cluster where this type of product is usually made.
3. Check the manufacturer’s product categories. Most manufacturers have expertise in a certain category and produce one type of product.
4. Check out the business license to see if the business scope includes manufacturing/producing.

 

Disclaimer: This information is intended to help the reader gain a basic understanding of the issue covered. It is NOT designed to provide legal, business, or other relevant professional advice.