NNN Agreements vs. NDA Agreements for China
Western-style non-disclosure agreements (NDAs) don’t work for protecting your IP from China. China-specific non-disclosure, non-compete, non-circumvent (NNN) agreements are vastly superior for safeguarding your IP. This post will explain what makes China-specific NNN agreements work so well at protecting IP and when to use them.
Someone on our China Law Blog Linkedin Group just posed a question about using non-disclosure agreements (NDAs) in China. My first thought was to refer them over to one of our posts on the subject, but then I realized we have not really written anything on them since 2006. That is far too long for something so important and so effective.
The Superiority of China NNN Agreements
We love NNN Agreements. They are fast, cheap, easy, telling, and effective. Let me explain.
When to Use a China NNN Agreement
If you are going to be revealing anything in China that you do not want dispersed into the public sphere, you should consider an NNN Agreement. If you are going to be showing your product, prototype or designs to a Chinese factory, you should consider an NNN Agreement. If you do not want your Chinese manufacturer competing with you with your products, you should consider an NNN Agreement.
The most important thing to know about using NNN Agreements is that they are far more effective when signed before you reveal the information than trying to get someone to sign one after they have the information you are trying to keep quiet. The other most important thing you need to know about NNN Agreements for China is that they should not be an NDA at all; they should be China-specific NNN Agreements because Western-style NDA agreements do not work for China and most of the time using one of those is worse than having nothing at all.
What Sets China NNN Agreements Apart?
NDA agreements prohibit your Chinese counterparty from disclosing your secrets. They do not stop them from competing with you or going around your back to your customers or clients or to anyone else. For these things — which are what is needed 99+ percent of the time in China, you need a China NNN Agreement.
Key Features of China-Specific NNN Agreements
China NNN Agreements (non-disclosure, non-compete, non-circumvent) are fast, cheap, and easy. Our China NNN lawyers will often put an attorneys’ fee provision and a provision regarding injunctive relief in our China NNN Agreements so that if the other side violates it, we will be able to act quickly to stop them from continuing to do so and we will get our attorneys’ fees in the process. Most importantly, we put in a finely tailored contract damages clause because Chinese companies know how quick and effective and deadly this clause can be and — more than anything else — it is this clause that will make your Chinese counterparty abide by your NNN Agreement.
Chinese Language NNN Agreements Are Key
We always do our China NNN Agreements in both English and Chinese. We make the Chinese version the official one, and the English version is just a translation for our clients. Making them in Chinese means that the Chinese courts will be able to better understand them and enforce them more quickly. It also takes away the other side’s argument that it did not know what it was signing.
Why China-Specific NNN Agreements Work
Well-crafted NNN Agreements are effective in China for two reasons. First, they greatly reduce the likelihood of your information being revealed. Chinese company owners are no different from anyone else and if they can help it they will seek to avoid a lawsuit where the odds have already been stacked against them. Second, the Chinese courts are familiar with China-specific NNN Agreements, and they usually will enforce them.
We also like how much we can learn from the reaction of Chinese companies to our China NNN Agreements. This is the “telling’ part I mentioned above. Putting a well-crafted, China-centric, Chinese language NNN Agreement in front of a Chinese company is telling because we have found that if a Chinese company refuses to sign one of our China NNN Agreements, it is probably not the Chinese company with which you want to do business.
The China lawyers at my law firm have drafted and put before Chinese companies well over a thousand China NNN Agreements and they’ve been signed more than 99 percent of the time. This tells us that those who refuse to sign a China NNN Agreement that we’ve drafted are doing so because they do not intend to abide by it, and they do not want to give our client a good opportunity to sue them for doing so. Unbelievably enough, we are also not aware of a Chinese company violating any of our NNN Agreements.
Conclusion
China-tailored NNN agreements are a critical tool for any business revealing confidential information or IP to a Chinese company. Their non-compete and non-circumvent provisions offer robust protection Western-style NDAs lack. Drafting them in Chinese and gauging reactions also provides key insights into prospective partners.
For IP protection in China, rely on NNN agreements over standard NDAs. And for an in-depth look at what should go into your China-specific NNN Agreement, check out our comprehensive post, China NNN Agreements.
