Beware the Online China NNN Agreement

Beware the Online China NNN Agreement

Your Intellectual Property Is at Risk with Online China NNN Agreements.

In China Contract Drafting Scams: From Bad to Much Worse, I wrote about fake Chinese lawyers and Chinese lawyers who American and European companies would hire and pay, only to have them take money from the Chinese company on the other side to draft an agreement that benefited the Chinese company but harmed the foreign one—in other words, total frauds.

I wrote that post in 2021 because I was seeing an alarming surge in scams that had left companies losing their valuable intellectual property, incurring significant financial losses, and facing irreparable damage.

I am writing today’s post on China NNN Agreements because if you are a foreign company considering doing business in or with China, you need to know why opting for a cheap, poorly drafted NNN Agreement is one of the biggest mistakes you could make.

Rising tensions between China and the West have fueled a surge in fake legal services, with unsuspecting Western companies often lured by unrealistically low prices. This bargain-basement approach nearly always backfires, resulting in stolen product designs, leaked confidential information, and even counterfeit products being sold under your brand.

This post aims to help you avoid these costly mistakes.

The Rise of Fake China Legal Services

Since COVID, we have seen an alarming increase in unscrupulous online “legal” service providers. Here are some red flags to watch for when evaluating legal services:

  • Extremely low prices for complex legal work
  • Lack of verifiable qualifications or licensing information
  • No guarantee of confidentiality
  • No (or fake) legal credentials listed, such as a law degree or bar association membership.
  • Inconsistent or non-existent online presence, making it difficult to verify their expertise.

These service providers present themselves as legitimate lawyers but may only be freelancers with no legal background or, worse, individuals hired by Chinese manufacturers to draft agreements that expose your IP to theft.

Our China lawyers have frequently had to inform foreign companies that their contracts are either completely useless or even worse than having no contract at all. Many of these companies believed that a cheap contract would be ‘better than nothing’ due to budget constraints.

They were wrong.

China NNN Agreements Are Your Greatest Risk

The NNN Agreement is usually the first contract foreign companies enter into with potential Chinese manufacturers, which often makes it the most critical agreement in protecting your intellectual property. At this early stage, the level of trust is typically low, and the risk of IP theft is at its highest. Despite this importance, we frequently see NNN Agreements drafted to favor the Chinese manufacturer, leading us to believe that the Chinese lawyer (or fake lawyer) who drafted it was influenced or paid by the Chinese manufacturer.

A poorly drafted China NNN Agreement can give your Chinese manufacturer almost unlimited freedom to misuse yourIP, making it crucial that this document be drafted by someone who is both truly on your side and who fully understands the nuances of Chinese law.

Alternatives to NNN Agreements That Provide Better Protection

In at least 50% of cases, when companies approach us seeking an NNN Agreement, they do not need one, or it is not the best solution for their specific circumstances. Other protections may offer substantially better security, including the following:

Registering a Trademark. In China or in the foreign company’s home country.

Customs Protection. Arranging with Chinese or home-country customs services to prevent unauthorized exports.

Due Diligence. Conducting due diligence on the Chinese company receiving your IP or money.

Patent or Copright Filing. Registering a patent or copyright in China or elsewhere to protect unique designs or inventions.

Product Development Agreement. Using an agreement that offers more tailored protections for the product development stage.

Nothing at All. Many times when companies come to us seeking to product their product or product design from China, there is simply no good way to do that, and we tell them this.

Choosing the right type of protection, based on your business needs and specific context, is essential for safeguarding your intellectual property. A well-crafted NNN Agreement—or an alternative approach—can make all the difference in mitigating risks when working with Chinese manufacturers. But if you offer to pay an online service provider to draft you an NNN Agreement, that is what they will do, even if you would be better off doing nothing or something else entirely.

China Legal Risks: Confidentiality and “Captured” Lawyers

A few weeks ago, I heard from someone I had previously advised to secure local Chinese counsel for a straightforward litigation matter. Their update was troubling: the person believed their Chinese attorney had disclosed confidential information to the opposing side, which was a Chinese State-Owned Enterprise. I hear similar stories all the time.

It’s critical to understand that Chinese lawyers are not bound by attorney-client privilege in the way that lawyers are in Western countries. Under Chinese law, all citizens and organizations must “support, assist, and cooperate with national intelligence efforts.” This means that your Chinese lawyer could be obligated to share your confidential information with the government or even with Chinese companies without any warning.

This vulnerability is particularly significant if your lawyer stands to personally benefit from disclosing your information—whether it’s tipping off another client about your patent or revealing sensitive contractual details.

Use a Trusted Law Firm for China NNN Agreements

Many online services and independent contractors offer low cost China NNN Agreement drafting services. However, relying on such sources can be a risky gamble.

To ensure your intellectual property is adequately protected, it’s crucial to engage an experienced American, British, Australian, or Canadian law firm with a proven track record in drafting China NNN Agreements. Avoid individuals advertising online as they almost invariably lack the necessary qualifications and/or are compromised by conflicts of interest or payments received by the Chinese company with which you are contracting.

The best way to protect yourself is to engage foreign lawyers bound by strict confidentiality rules. If Chinese co-counsel involvement is unavoidable, information should be shared on a need-to-know basis only. Make sure the lawyer you are hiring is actually licensed to practice law in a trustworthy jurisction. You can usually quickly determine this with the relevant attorney licensing agencies.

In The Critical Absence of Attorney-Client Confidentiality in China, we discussed some of the risks inherent in using a Chinese citizen as your lawyer and steps you can take to mitigate these risks. To mitigate the risk of confidentiality breaches, always ensure that your legal representatives are vetted thoroughly and prioritize engaging legal counsel bound by the attorney ethics rules of your home country or a country you trust.

Conclusion

Navigating China’s legal landscape has always been challenging, but rising tensions with the West have increased these risks. It’s more important than ever to use qualified, reputable legal help to safeguard your business. Low-cost services might seem like an attractive shortcut, but they will likely cost you far more in the long run. Protect your company and secure your IP by working with trusted professionals who understand the intricacies of Chinese law.