China’s legal system is still coming into its own, evolving out of a communist system which has only recently taken issues of Intellectual Property Rights (IPR) seriously. China has a world class production base at favorable pricing. Combine this with a rapidly growing economy and changing society where many are willing to do whatever is necessary to make a buck, and the resulting China marketplace (from a security standpoint) is full of indiscretions ranging from innocent reverse engineering to blatant knock-offs. Not only Chinese manufacturers but also unscrupulous competitors in your home country may try to take your designs and “knock them off” in China Luckily, there are affordable and effective ways to protect your IP.
It is a good idea to sign a letter of confidentiality/exclusivity. However, even with a signed document in place, confirmation of wrongdoing and enforcement are both difficult. Therefore, don’t rely solely on a legal document. There are additional precautions that should be followed:
Own the Tooling Outright! Any funny business and tooling is extracted from vendor. Trademark your brand in China, even if there are no plans to sell the products in the PRC. Having done this, the court system is on your side should you face infringement by a supplier. But you have to play by the rules of the Chinese trademark system and that means having your brand registered in advance as China is a “first to register” rather than “first to market” system. Have buyer’s representatives frequently visit production site to keep an eye on the situation.
If there is sensitive information in the design, on the product or in its packaging that you do not wish to disclose to the Chinese supplier for security reasons, then you may consider having a third-party assembly center like the one at PassageMaker conduct final assembly/ packaging. In this fashion, IP and other sensitive information (branding, bar coding, shipping details, final pricing and even they buyer’s name) can be kept secure. Under the PassageMaker “Black Box” assembly system, the components from the Chinese sub-suppliers can be shipped to our Assembly/Inspection center in China where we perform final assembly and final packaging under US management but at local labor rates. In this fashion the PassageMaker client has total transparency over the supply chain, but sub suppliers are kept in the dark. In addition to protecting IP, shipping costs are reduced through freight consolidation and quality control issues are dealt with on-the-spot before goods are shipped out of China.
Visit here to review PassageMaker founder Mike Bellamy’s interview about “Black Box” IP protection.
“Black Box” service details and pricing can be found here.
Luckily, IP registration of brands and designs is inexpensive and straightforward. Contact PassageMaker to be put in touch with reputable English speaking, China based law firms if you need legal assistance.
Review the Tool & Die Steward service to see how an independent 3rd party can look after your tooling between production runs at the factory.