Can a Contract Manufacturer Help with Intellectual Property Protection in China?

August 06, 2015 by Mary-Kerstin Hassiotis

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Let me guess – you’ve designed a killer product that you want to manufacture in China, but you’re worried that a cheaper version of your product will appear on Alibaba in a month. Your concern is valid – we are talking about China, the world’s leading purveyor of counterfeit goods. Who wants to spend the R+D dollars to then have their intellectual property (IP) stolen in a flash? Taking your IP to China will prove much smoother (and less risky) if you partner with a contract manufacturer (CM) who has been around the block a few times.

East-West-Manufacturing-Intellectual-Property-Protection

So don’t fret. The short answer is yes – a CM can help with intellectual property protection in China. Here are 5 reasons why:

1. They Have Strong Supplier Relationships

CMs have an extensive database of suppliers (or their own facilities) and have spent years building trust and forging solid relationships. Before qualifying a new supplier, your CM should be investigating their customer base, history, financial strength, quality management capabilities, etc. Any propensity to steal or be careless with a customer’s IP will typically be exposed during the vendor qualification process.

2. They Source Strategically 

CMs know better than to put all their (your) eggs in one basket. Instead, they will source components from multiple factories to take advantage of each supplier’s expertise while also reducing the risk of any one facility getting their hands on your remarkable product design or stealing your trade secrets. This can go down to the employee level by not giving any one employee visibility to the entire process, therefore limiting the opportunity to steal IP. If your product is being made at a factory wholly owned by the CM, the CM then has the ownership leverage to protect your IP.

3. They Provide On-Site Resources

Your CM should have at least one local sourcing agent or engineer on site to oversee production and ensure there are no glaring IP issues. Note: Before launching production, it is also wise to visit the supplier yourself (if your CM allows) so you can have a personal interaction with supplier management and feel comfortable with your product being made there.

4. They Have Years of Experience

This is most likely not your CM’s first rodeo. They know what they are doing and are armed with the expertise you lack. Let them do their thing – that is what you are paying them for, after all. Trust that they can spot red flags like it’s their job (because it is).

5. They are Armed with Legal Know-How

 
Contracts

One benefit of using a CM is that they (not you) are drawing up contracts with suppliers. This is typically an NDA, non-circumvent, or another comparable type of agreement, which should include an IP protection clause. Similar terms are included on POs, and substantial penalties should be included for breaking the agreement. 

Patents / Trademarks / Copyrights

Your CM can advise you on the importance of protecting your IP by registering for patents and trademarks in your home country, as well as in China. Taking these precautions pre-production is crucial. Chinese courts will have your back if you followed formal procedures in advance. According to China Law Blog, “China has created a system for protecting IP, technology and trade secrets and that system works reasonably well. But it only works for companies that have taken steps in advance to protect themselves. Companies that take action only after the IP has been stolen face an impossible task in China.” The US-China Business Council also has some helpful tips for protecting IP in China.

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Now you can rest easy knowing that, if you chose your CM wisely, you should be in good hands. But do take this all with a grain of salt. “Made in China” comes with its risks, so educate yourself and take all necessary precautions when it comes to IP.

Check out these resources to help find the right CM:


FREE Guide: 7 Essential Questions to Ask When Choosing a  Strategic Manufacturing Partner

Posted by Mary-Kerstin Hassiotis

Mary-Kerstin, also known as MK, worked with East West Manufacturing for over 4 years before leaving to launch her own business. She joined the marketing team in 2015 as content writer after managing East West's international logistics for 2 years. She is a proud graduate of the University of Georgia.

Topics: Business, China, Manufacturing, Contract Manufacturing