Foreign manufacturers are skeptical of Chinese manufacturer since they will be future competition. Most importantly, though, they fret over IP theft. When the product requires development work (i.e. new products), three types of agreements are necessary: an NDA, product development and OEM agree ment. A typical IP theft goes this way:
- The foreign party approaches a Chinese firm with new concept, but no engineering.Therefore it is still not ready for production. The design may not even have a sample.
- The foreign party asks the Chinese side to engineer the product.
- The Chinese manufacturer agrees as long as the product owner agrees to purchase later.
- Both sides are happy: the foreigner for the “free work”, the Chinese side for the new client. No one documents the development of the product.
- If the foreigner likes it they buy, if not they do not and move along to the next factory
Firstly, since the factory isn’t being paid, why should they care? Often times, little attention is paid to the product development. Delays will be common. Moreover, quality standards are not specified. Even if the product is finished IP issues still exist because the product change so much from the original design. This could lead to a point where the factory decides to produce the product for its own use rather than to sell to you.
If no OEM agreement is in place. Then no final price for the product will be set and the producer can exorbitant fees for the release of the design. Afterward, some manufacturers will secure the IP rights and register a trademark and copyright. When the foreign party then threatens to sue, the Chinese manufacturer points out the obvious. The foreign party has no registered IP in the product.
Get your contracts in order.