Outsourcing Your Manufacturing? 4 Steps to Ensure Legal Protection

In an article published on our blog in July, we presented practical suggestions on how to manage a successful relationship with an overseas manufacturer. Such a relationship and the ability to maintain it are the keys to smooth operation of your company and avoiding unnecessary delays and losses. However, if your business model entails outsourcing manufacturing of your product to an overseas country, it will take more to protect your interests and secure your rights than just a well-managed relationship with the manufacturer. Taking well-thought-out actions to ensure legal protection of your ideas and products should become your top priority. In this blog, we will highlight four essential tools to achieve such protection. Because most American companies outsource to China, we will focus on the legal frameworks available for U.S. businesses who have relations with that country.

  1. Register Your IP Rights in the U.S.

You may have heard that the protection and enforcement of intellectual property rights in China is still raising concerns. However, such views are often exaggerated. While it may be true that laws concerning intellectual property in China may still be less developed than in the U.S., China has made considerable progress with regards to this issue in the last few years. Nevertheless, in order to ensure your IP rights and the protection of your original ideas, you need to start by registering your IP in the U.S.

For starters, you need a trademark, a logo, and a slogan. It is also important to register copyrights and patent your products and original ideas. The U.S. will most likely be the biggest market for your products anyway; so even if your intellectual property rights are violated in China, your products (and your position on the market) will be protected on American soil.

  1. Register Your Trademark in China

Why should you register your trademark in China if you’ve already done that in the U.S.? When it comes to trademark law, China is a first-to-file jurisdiction. This means that a person completely unrelated to your company can register your trademark and then threaten you with trademark infringement. Unfortunately, there are people who act in bad faith in each country and China is no exception. If someone registers your trademark before you, they can even try to seize your product. Registering your trademark in China should be, then, one of your priorities.

  1. Draft a Confidentiality Agreement to Protect Trade Secrets

Trade secrets are likely what gives your company the competitive edge. You can protect them by writing a confidentiality agreement. You need to ask your attorney to draft a Non-disclosure, Non-compete, Non-circumvent (NNN) agreement which you should then have translated into Chinese. Your manufacturer and other Chinese business partners should sign it so your trade secrets and know-how will then be protected under Chinese law.

Use Manufacturing Agreements

If you’re planning to outsource the manufacturing of your product to China, you should realize that a simple purchase order doesn’t offer you the protection and flexibility you are going to need. Instead, you need to use a manufacturing agreement. The three basic types are:

  • Original Equipment Manufacturing (OEM) – used when you buy a product that’s already manufactured by a factory. You specify the changes you want to be introduced to the product to customize it and you use your trademark and the logo.
  • Contract Manufacturing (CM) – used when you own an original product design and you order a factory to make a commercialized version of it suitable for mass production. In this scenario, even though you own all IP rights to your original design, you need to clearly specify in the agreement how your rights are affected by the design changes made by the factory.
  • Original Design Manufacturing (ODM) – used when you provide only basic guidelines for or drawing of your product, and a factory is responsible for coming up with the actual design for production. This agreement must be very clear in addressing complex issues with regards to intellectual property rights.

Unsure If Your IP Rights Are Protected? Contact Us!

The possibility of having your intellectual property rights violated is a risk that dissuades many from outsourcing the manufacturing of their product overseas. However, your ideas and your intellectual property can be protected thanks to the good use of all the legal frameworks provided by U.S. and international laws. If you are unsure how to use such a framework and enforce your rights, contact BRADFORD, LTD. Our lawyers will review your unique circumstances and advise you on the best possible solutions that will guarantee the protection of your ideas, design, and products.

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Bradford LTD specializes in IP protections and maximization for startups and small businesses. We also provide scaled legal services to our clients, including fractional legal counsel and value-based rates. From trademark, copyright and service mark protections to patent protection and outside inside counsel, we help position entrepreneurs and owners for long-term success.

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