What is a NNN agreement?
An effective NNN agreement is used to protect your confidentiality from manufacturers in China, including non-disclosure, non-use, and non-circumvention. The following picture is our template for our client:
NNN vs NDA
The difference between NNN and NDA is that NNN requires more strict and comprehensive confidentiality.
Most suppliers (receiving parties) have no motivation to disclose your confidential information, but they will perhaps use your ideas to sell the same products to your customers. Thus, we need the NNN agreement to require that they shall NOT use your information and don’t go around you or help others do so.
However, if the supplier was NOT a Chinese manufacturer (e.g., distributor, consultant), they will unlikely use the info. In this case, NNN is too strict and unfair for them to sign, and NDA will be more appropriate.
8 Key terms of an enforceable NNN agreement:
Definition
The agreement should define clearly what kind of information (such as drafts, designs, specifications, dates, etc.) should be/ not be protected.
Term
The term of confidentiality is NOT equivalent to the term of the agreement. Mostly, confidentiality will continue to be effective even after the expiration of the agreement.
Non-disclosure, non-use, and non-circumvention
In most cases, the factory will not disclose confidential info, but it is possible to use it to produce same/ similar products, and then sell them to the customers. So it is necessary to ensure that the factory does not use the information for their own benefit (Non-Use) and does not bypass you to deal directly/ indirectly with your clients or customers (Non-Circumvention).
Joint liabilities
the receiving party should ask their subcontractors to obey the NNN, otherwise, the receiving party should pay for damage where the subcontractor breaks the NNN.
Product improvement
The disclosing party should have IP ownership of the product improvement, regardless of who contributes.
Breath of contract
the breaching party should bear the liquidated damage and legal fees.
Applicable law
Chinese law is a priority if you plan to enforce the agreement in China.
Jurisdiction
It is better to choose a court or arbitration institute (click here for the list of arbitrations in China) in China. The reason is quite simply that the factory is located in China.
4 steps to sign an effective NNN:
Collect required info
Please provide us with the information of both parties and brief your business project.
Draft and amend
Draft a customized agreement based on your situation, and revise it if necessary.
Background check
Check the receiving party’s background to avoid scammer or potential disputes.
Review signature and seal
Review if their signature and seal are correct, to make such the agreement enter into effect.
When is the NNN agreement invalid?
The NNN agreement will become effective when both parties sign it, but it does not mean that it will be invalid.
Once you sell or advertise your new design publicly, NNN or NDA might be INVALID, because that info are NOT confidential anymore.
Also, you can’t stop 3rd parties from using the info since they are NOT a contracting party. To stop them, applying for a patent in China (know more about patent fees in China) is necessary if your design is unique.
If you don’t have enough budget to apply for patents, you may restate the non-use clause again in the manufacturing agreement when you decide to place orders with the Chinese factory.
Besides NNN agreements, what should you do to protect your IP?
- Filing a patent (know more about PCT national phase in China), design, or trademark against any 3rd party.
- Signing a manufacturing agreement with a non-use clause again when you decide to place an order, so that you can still protect your unique product even if it was disclosed.
Feel free to contact us if you are preparing to sign NNN/ NDA agreement with the Chinses factory.
