Why Your NDA Does Not Work For China

Dan Harris Contributor

 

When heading off to China, foreign companies all too often make the mistake of trying to protect their IP from China by using a U.S.-style non-disclosure agreement (NDA). This is the first in a series of articles I will be writing on how to protect your IP from China with a China appropriate NNN (non-use, non-disclosure, non-circumvention) agreement. This article focuses on why U.S.-style NDA agreements do not work for China.

NDA agreements focus on protecting trade secrets. For a trade secret to be protectable property, the information must remain a secret. For this reason, NDA agreements focus on preventing disclosure of a trade secret to the public. U.S.-style NDA agreements therefore focus narrowly on preventing secret information from being revealed to the public. Since U.S. companies generally focus on maintaining their domestic intellectual property portfolio, they have a natural tendency to believe that they can rely on a single NDA agreement, written in English, subject to U.S. law, and exclusively enforceable in a U.S. city/state. But for the following two reasons, this kind of NDA is of no value in China.


First, the fundamental issue in China is not protection from disclosure to the general public. The Chinese company that steals your idea does not do so to reveal it to the general public. It steals your idea to use for its own benefit. This means that your contract with Chinese companies must make clear that whether the information provided is a secret or not, the Chinese factory agrees not to use the information in competition with you. Now that you know what is really required for China, you can see why the language in US-style NDA agreements is far removed from what is needed to protect your IP from China.


Second, the other fundamental problem with typical U.S.-style NDA agreements is that it they are not enforceable in China. Chinese law allows for protecting trade secrets and for contracts that provide NNN protections. But if such a contract is going to be effective in China it should be written in Chinese, governed by Chinese law, and exclusively enforceable in a Chinese court. See China Contracts That Work.