Why Your NDA is WORSE Than Nothing for China

American and European companies constantly come to one of the China lawyers at my firm seeking to “shore up” their China IP protections. These are mostly companies that have been doing business in China or with China for months or years and have now decided they are doing well enough financially there to start paying to protect what they have. Let me start out by being clear: it is nearly always better to be late than never when it comes to protecting your IP, both regarding China and otherwise. But let me also be clear that it is also nearly always better to take action to protect your IP before you do anything with China at all.

Far too many of the foreign companies that come to my law firm seeking to “shore up” their China IP protections actually have no China IP protections at all in place. But they wrongly believe otherwise.

Many of these companies do not realize that unless they register their brand name as a trademark in China they are at real risk of losing their right to use their own brand name in China, even if just on their own product or packaging made in China for export elsewhere. See China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents, Part 1. Some of these companies think they’ve already protected their brand name from trademark “theft” in China, but our own trademark search reveals they have not. See China Trademarks. Register Them In China Not Madrid and China Trademark Registration: Keep it Real.

But by far the most common misbelief regarding China IP protection we encounter is the foreign company that believes its United States style NDA protects their IP in China when it most emphatically does not. See Why Your NDA Does Not Work For China. When I tell them that these NDAs do not provide any protection unless the China company that signed it has assets in the United States their response is almost invariably something along the lines of, “well it is at least better than our having nothing. My response to that is silence and then I say something positive and forward thinking, but ultimately noncommittal like, “well, fortunately, we can now start taking substantive action to protect your IP from China.”

But what I am thinking is, “wrong, your NDA is actually WORSE than nothing.” And here is why.

1. Your China counterpart knows the NDA it signed is worthless and your using that NDA tells it that neither you nor anybody working for you (within or outside your company) has even the most basic knowledge of what it takes to protect IP in China. In other words, you are ripe for the picking.
2. Your NDA is pretty much a free pass for your China counterpart to steal your IP with impunity and this is true for multiple reasons, though one reason usually stands out. Your NDA no doubt says all disputes will be resolved in an American court under United States law. Now let’s suppose your China counterpart steals your IP and you want to sue. You now must sue in a United States court and that means you have almost certainly cut off any possibility of recovering anything as against your China counterpart. For why this is the case, check out Enforcing Foreign Judgments In China — Let’s Sue Twice, Chinese Companies Can Say, “So Sue Me, Why Suing Chinese Companies In The US Is Usually A Waste Of Time, and Enforcing US Judgments in China. Not Yet.
3. If you had no NDA you could at least threaten to sue or actually sue your China counterpart in China for statutory trade secret or other potential IP violations. But your NDA agreement actually precludes that.

If you want to protect your IP from China you need an appropriate China NNN Agreement. It’s that simple.