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How to protect your designs and tooling when sourcing in China.

In middle 2008, we received an enquiry from a new client based in Australia who was referred to us by another client of us. This company has been sourcing construction sewage products in China for about 2 years through a China-based trading company. While the original samples approved were of the required standard, the quality of subsequent shipments has been a disaster for them. After this client’s several attempts to raise the quality issues and get a rectification, the trading company suddenly stopped returning emails or phone calls.
The client preferred not to continue dealing with this company but would like to regain possession of the patterns and dies that they have paid for. After many phone calls, we finally reached the contact at this trading company but he refused to return the dies and said that in the previous dealings, they have spent a lot of money in providing replacements and fixing dies – they have been losing money. They also said in order to return the dies, our client needed to pay to cover their costs first and the cost they claimed to have occurred was SIX times as high as the cost of the dies and patterns itself.

You can imagine the ending of this story: our client decided not to the retrieve the dies which had cost them thousands of dollars.

If you are buying custom-made products from China which requires your investments on the tooling, have you wondered whether your suppliers will protect your design, the tools are being maintained regularly, and you are retrieved the tools any time you want?
If those questions are important to you, it means you need to sign a non-disclosure agreement (NDA) with your suppliers prior to supplying them with your drawings, designs, or samples. In our experiences, a complete NDA should at least include below clauses:

• Intellectual Property Protection: All your Intellectual Property such as products, product designs, technical drawings, assembly instructions, product samples, logos, trade marks and all other information in relation to the product or product designs should not be used to make products for any other company or individual without your express written authorization.

• Confidentiality: The supplier should keep your Confidential Information in strict confidence. "Confidential Information" includes your names and details, the intellectual property mentioned above, and any other non-public information concerning your products, product designs you're your business. This is an important clause as it will keep your competitors from knowing your source of procurement.

• Product & Product Design Protection. None of the products, product samples, or moulds/tooling/dies provided by or made for your company should be possessed or used by any other companies, or shown to or given as samples, or displaced in any showroom or tradeshow without your authorization. I am sure you have heard stories of factories showing their clients’ product designs on the tradeshows to thousands of visitors. This is great to promote their capabilities, but bad for the customers who own the design.

• Ownership of Dies & Tooling. All moulds/tooling/dies you have paid for should never be used for producing products for any other company or individual. If the tooling/moulds/dies are lost or broken while in the factory’s possession, they should be replaced or fixed by the factory at their cost.

• Return of Properties. At any other time that you so requests, the factory shall immediately turn over to you all properties and all Confidential Information. All tooling/moulds/dies should be in good condition and prove usable when returned.

However, even with a NDA in place, you may never be able to catch your supplier breaking the clauses while you are located from the other side of globes. That's make other two things rather important:
Find a quality supplier who has a good track record of treating their customer’s designs with confidence and are very professional.

Keep evaluating your supplier and keep an eye on the situation whenever possible, for example when you are visiting the suppliers. If you can’t make frequent overseas trip, you can consider appointing a sourcing firm like us who are
If you want to find out more about the Non-Disclosure terms we have with the suppliers we deal with, feel free to contact us.

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