A quick glace through many different law blogs about China shows that there is a lot of talk about a NNN. Not only that, but many posts discuss how you shouldn’t use a NDA, but instead use a NNN. So the first question should be, what is a NNN?
Let’s start by saying what the acronym means. A NNN stands for a non-use, non-disclosure and non-circumvention agreement. This is an agreement signed between two parties, usually an owner of IP and a manufacturer. In contrast, a NDA is a non-disclosure agreement, which is also contained within a NNN. But his doesn’t mean much by itself. So in order to understand what an NNN is better, we should break down what each of the parts mean.
The first part of a NNN is non-use. Non-use means that the, in this case, Chinese company agrees to not use any of your ideas, concepts, or products in any way that is competitive with you. This is so important because it does not rely on vague property or intellectual property rights. Instead, it is controlled by simple contract law, which Chinese courts have a lot more experience dealing with. Essentially, this prevents a manufacturer from using the knowledge they have gained from you to make their own line of products that competes with yours at a lower price.
The second part of a NNN is a non-disclosure agreement. This is essentially the same as a normal NDA, except that it is formed from domestic law instead of the typical New York provisions that are found in the USA. The non-disclosure agreement prevents the domestic company from revealing your trade secrets to the public, which might cause competitors to pop up out of the woodwork. In China, this is the least important of the 3 N’s of the NNN. Usually, a Chinese company is not interested in disclosing your trade secrets to the public at large because they want to profit off of them themselves, instead of just getting the information out there. However, it is still important because it does prevent anyone from telling friends and family, who could then start a competing product line.
The last part of a NNN is a non-circumvention agreement. Every manufacturer knows that you are taking the product they make for you, slapping your own intellectual property on it, and then selling it to your customers for a higher price. What the non-circumvention agreement prevents is the domestic company from going behind your back to your customers. Many consumers would be very tempted to buy your product cheaper from the domestic producer instead of you. Perhaps not all of your customers would do so, but enough would that you would feel the sting.
Essentially, a NNN is just taking the traditional NDA and making the protections even stronger. This is needed because a NDA will not be able to adequately protect you from all of the possible dangers that you could face doing business abroad. I would recommend finding a local attorney who is at least familiar with NNN agreements and have them draft something before considering setting up any manufacturing agreements. Best of luck!