China NNN Agreements: The Questions We Get

When our China lawyers are tasked with drafting a China NNN Agreement, they start by sending the client a tailored questionnaire. Then once they have the answers they draft the NNN Agreement in English (for the client) and in Chinese (the official version). Most of the time, our clients at that point take the NNN Agreement we have given them and send it to their Chinese counter-party where from there the negotiating begins, or not.

But every once in a while our clients ask us all sorts of questions about why we drafted the NNN Agreement as we did. Because China NNN Agreements are so different from Western-style NDA Agreements, they are rightly puzzled. See Why Your NDA is WORSE Than Nothing for China. Usually, we get these questions from in-house counsel for companies based in the United States, Great Britain, Canada, Israel or Australia (all common law countries). This is because China-centric contracts just don’t line up with standard common law contracts and common law lawyers sometimes have a tough time getting their head around this. For common law countries, think 20 page contracts filled with all sorts of boilerplate. For civil law countries like China (and Thailand and Vietnam and most other countries in the world), think 8 page contracts with virtually no boilerplate.

The below are the sort of questions we typically get regarding our China NNN Agreements, along with our typical answers.

1. Can we make this NNN agreement mutual?

We do not recommend making this NNN agreement mutual. If your China counter-party wants to protect its confidential information or its IP, it should propose its own agreement and we will then review and advise if we think it’s okay for you to sign that. We wrote your NNN Agreement to protect your interests and many of its provisions will make little or no legal sense if invoked by the Chinese side. In our experience, mutual agreements essentially render the NNN unenforceable and this is not what we want. If you are doing cooperation and joint product development agreements, then you need a separate product development agreement that deals with all of the issues. A simple NNN Agreement is not appropriate for this type of complex commercial arrangement.

2. Why does this NNN Agreement not contain a defined “purpose”? Would adding a defined purpose add or take anything away from it?

Anything you disclose to the Chinese side is covered under your NNN agreement and therefore a defined purpose is not necessary. The more specific we get regarding the purpose of the NNN, the more likely the agreement will be construed narrowly against you. For that reason, you do not want to put ANY information in the NNN Agreement itself that would suggest what is being covered.

3. Why are you calling for disputes to be resolved in a Chinese court and not via arbitration? 

This NNN Agreement will be enforced in China. In China, arbitration is effective in situations limited to matters concerning money damages. In cases involving intellectual property and other intangible assets the Chinese court system is a more effective forum. We write our China NNN Agreements to include many provisions that make the overall agreement provide maximum effectiveness within the Chinese court system. These provisions would be negated by applying it to a Chinese arbitration setting and this is even more true if the arbitration is in Hong Kong or Singapore or anywhere else outside China.

4. Why does this NNN Agreement not contain make clear that we are not entering into a partnership or a Joint Venture with the Chinese side or that this is the entire written agreement between the parties?

This agreement does not create a partnership or a joint venture between you and the Chinese side and it is not necessary to state this in the NNN. It is a general principle of Chinese law that matters not specifically raised by the terms of the applicable document are not deemed to be inserted into the contract and inserting these common law boilerplate sort of provisions is disfavored in China. An “Entire agreement” provision is a common law concept that is both unnecessary and disfavored under Chinese law. Along that line, we do not base our China NNN Agreements on the concept of secrecy. Our NNN Agreements are instead based on contract principles which allow coverage for even “secrets” that have been revealed and thus are no longer technically secrets — unlike in the West. Though this agreement provides that prior disclosed confidential information is covered, the best way to protect yourself if you have already disclosed confidential information  is to identify in writing what prior information is confidential so we can also include that in this agreement.

5. Why is there no provision regarding how to give notice?

Because it is not necessary to include a clause on notices for an NNN Agreement as these are meant to be used mostly just during the initial stages of discussions/negotiations. If you need to provide a notice to the Chinese side, we usually try to serve them at all addresses we can find, including to the Chinese company’s registered address which is already included in the NNN.

And there you have it.