China is known for its manufacturing abilities and many great products are made there. However, it is a different country with different laws and a different culture. These differences can lead to real problems for US-based companies, especially small companies and startups that may not have the experience to manage these differences.
One area that is often overlooked until it is too late is IP. No, it’s unlikely China will steal your IP, but it is not uncommon for them to own your IP without your awareness and if your Chinese manufacturer designed your product for you, they almost certainly own the IP. That is, the drawings that enable the manufacturing are copyrighted in their name, not yours — after all, they did the design work on their nickel, so why shouldn’t they own it.
You may think that your patent will protect you, and maybe it will, or maybe it won’t. A patent gives you very specific rights that are enumerated in the claims — not the body of the patent. If even one element of a claim is missing, then the product does not violate the patent. It is not uncommon for patent owners to make a product that is not covered under the claims as one of these elements has gone away over the years. Even if the product is covered under a patent it is often easy to make small adjustments to a product so it does not violate the patent. Lastly, it can cost a lot of money to bring a patent suite — without a war chest, this may not be something your company can fund.
So why should you care if you own the IP? First, if you do not own your IP, your manufacturer can sell the product themselves. You have spent a lot of time, money and energy to make a market for your product. If you do not own your IP, then offering it for sales to the market at a lower cost then they sell to you, is all that is necessary to take the market away from you. Sales and marketing processes are notoriously easy to replicate.
How do you know if you own your IP? First, consult with your attorney. The contract should be explicit in enumerating that the drawings, patents and know-how belong to your company and can not be used for any other purpose than manufacturing product for you and they agree to keep these drawings confidential. Second, you should have all your drawings under a drawing control system and your manufacturer should be held to complying with these drawings. If you do not have all the drawings or don’t have a drawing control system you would be well advised to get these drawings and put a system in place before it is too late — if the drawings can’t be obtained for any reason, reverse engineering the product will take a lot of time and money — meanwhile, revenue is zero until they are reproduced.
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