For businesses sharing confidential information or IP with Chinese companies, a China-tailored NNN agreement is very important. While we've covered this topic in the past, it's worth revisiting given its importance and effectiveness. Our article today will explain why non-disclosure, non-compete, non-circumvent (NNN) agreements are far superior for safeguarding intellectual property (IP) in China compared to standard NDAs.
1. Why an NNN agreement is more important?
While standard NDAs focus solely on prohibiting the disclosure of secrets, NNN agreements provide broader protections, including non-compete and non-circumvention clauses.
As many companies who have sourced or engaged in OEM in China have come to realize, the greater concern is not that their suppliers will disclose confidential information to third parties, but that the suppliers themselves might (directly or indirectly) use the confidential information obtained from their clients for production, or in some cases, attempt to bypass their clients and approach downstream distributors.
That's why these additional provisions are crucial in China, where protecting against competition and circumvention is often a top priority.
2. When does an NNN agreement is needed?
You probably need to use an NNN agreement while:
1) If you're about to share any information that you want to keep confidential;
2) If you're showing your product, prototype, or designs to a factory;
3) If you want to prevent your supplier from competing with you using your products。
3. Some key points to consider:
1) Hire a Bilingual Chinese Lawyer
Engage a Chinese lawyer who is fluent in English to draft your NNN AGREEMENT. This is important because you want to ensure the contract is effective in China. For more information on this, please refer to our previous posts.
2) Specify Breach of Contract Consequences
It is crucial to clearly define the consequences of a breach of contract in your NNN AGREEMENT. This actually applies not only to NNN AGREEMENTbut to any and all contracts. You need to inform the other party what they cannot do and more important: what the consequences will be if they violate the agreement. As lawyers often say, signing a contract without specifying the legal consequences for breaching of contract is all crap. It is very, very important to outline the consequences of a breach.
3) Define compensation carefully and include all possible losses and expenses
In the event of a breach, specify in detail the types of losses and expenses that the breaching party will be responsible for. In China, courts generally do not award legal fees to the prevailing party, so you should include legal fees, investigation costs, travel expenses, and other costs incurred while enforcing your rights in the compensation you may claim.
4) Choose Chinese Law and Jurisdiction
To ensure the smooth enforcement of the contract in China, choose Chinese law and jurisdiction. If you are signing a bilingual contract, ensure that the Chinese version prevails in case of discrepancies between the two texts. Again, for more information on this, please refer to our previous posts.
4. Supplier's attitude
What if your supplier is unwilling to sign the NNN AGREEMENT? My advice is simple: find another one. A supplier's attitude can be telling. While a willing supplier might not necessarily adhere to the agreement, a supplier who refuses to sign is unlikely to respect it. Sometimes suppliers may wish to negotiate modifications to the agreement, which in mine opinion, can indicate a serious approach to the agreementand commitment.
If you're interested in discussing the preparation of an NNN AGREEMENT(or other bilingual contract enforceable in China ) further, feel free to contact us at any time.
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