Use of NNN Agreement to protect your IP and brand,when you decide to put order in an OEM factory
OEM manufacturing in China is a mature form for an IP owner as a buyer to find a Chinese factory as a manufacturer to manufacture products for the buyer by using designs, drawings, samples and other items of the buyer’s IP. Generally both parties would sign a Non-disclosure Agreement (“NDA”) to protect the buyer’s IP rights from being disclosed by the manufacturer. However, more and more litigation and arbitration cases arising out of manufacturing contract and NDA show that NDA is not sufficient for the buyer’s full protection.
NDA agreements normally focus on preventing information especially regarding IP from being disclosed to the public. However, some manufacturers still are able to infringe the buyer’s IP rights but in the mean time still abiding by the NDA. What the manufacturers do is to use the buyer’s IP right for the manufacturers’ own benefit rather than disclosure. In this scenario, a standard NDA is too narrow to protect the buyer’s IP rights.
A well drafted Non-use, Non-disclosure, Non-circumvention Agreement (“NNN Agreement) can solve such issue properly.
NNN Agreement is generally required to sign by wise buyers so as to fully protect their rights. Non-use means the manufacturers agree not to use the buyers’ IP or products in a way that competes with the buyers. Non-disclosure means the manufacturers shall not put the buyers’ IP in public. Non-circumvention means the manufacturers cannot sell products that manufactured with the buyers’ IP to the buyers’ customers.
Comparing with a NDA, NNN Agreement has a broader scope of protection to the buyers. The buyers are generally considered in a stronger transaction position so the manufacturers in most situations are willing to sign a NNN Agreement as long as it is not too unfair to the manufacturers.
There are certain aspects to consider in drafting a NNN Agreement such as validity, enforceable or not, disputes resolution clause, damage clause, etc. It is wise for a buyer to consult a lawyer prior to drafting/signing a NNN Agreement.