Protecting IP ownership and rights in China: 5 things employers need to know
The People’s Republic of China (PRC) has emerged as a global powerhouse, attracting innovative businesses from around the world. However, a significant concern that employers face when hiring and operating in China is protecting their intellectual property rights (IPR).
IP rights in China are complex and, if you fail to protect your company’s IP ownership, it can lead to costly legal disputes, loss of market share, and damage to your brand’s reputation. Read our essential guide to IP protection and IP ownership in China. (Note: This post is for informational purposes, and isn’t intended to provide legal advice. Consult a legal expert with further questions about protecting your IP.)
1. US-style NDAs are not enforceable in China
Enforcing a US-style non-disclosure agreement (NDA) in China can present complications for foreign companies. China's legal system may loosely interpret non-disclosure, leaving you unprotected. Moreover, NDAs won’t shield you from employees or business associates using your ideas to create cheaper or counterfeit versions of your product, which is a widespread issue in China. Because of this and other reasons, US-style NDAs do not protect all of your IP interests in China.
2. Use an NNN agreement to protect your Chinese IP
Non-disclosure/non-use/non-circumvention agreements (NNNs or NNNAs) should be used for intellectual property protection in China instead of NDAs as a more all-encompassing document to protect trade secrets, proprietary information, and confidential information. NNNs enforce the confidentiality of the information and also protect employers from “behind the back” tactics where someone might use your information to create a cheaper version of your product or aid a competitor.
If written in accordance with Chinese intellectual property law, NNNs can protect:
- Trade secrets and proprietary information, including manufacturing processes, formulas, designs, and technology unique to your company
- Financial information, including confidential financial statements and budgets
- Customer information, such as contact information and purchasing history
- Employee information, such as salaries, job duties, and performance evaluations
- Intellectual property, which can include design patents, trademarks, copyrights, and other types of intellectual property that are owned by your company
- The use of your ideas or information to compete against you
NNNs also prevent other parties from creating similar products to circumvent you on the market.
3. All IP contracts should be specific to China
Legal documents, such as NNNs, should be written in Standard Chinese. This prevents disputes due to mistranslations. Furthermore, if your IP is violated and you need to bring the issue to arbitration or court, translation can slow down the process—and, in that case, there’s no guarantee that the NNN will be interpreted as intended.
If there are bilingual versions of the contract (meaning both English and Chinese copies), the meaning should be completely consistent across the documents. Using a bilingual lawyer and/or a law firm with expertise in Chinese laws can be helpful in drafting these dual documents.
Moreover, all contracts should be specific to Chinese laws to avoid complications if disputes arise due to IP infringement. NNN violations should be pursued solely in Chinese courts. (Obtaining a foreign judgment for NNN violations might even mean you’d be unable to enforce it in Chinese courts, so tread carefully.)
China's evolving legal landscape makes it essential for employers to have a comprehensive understanding of how to safeguard their IP ownership—after all, your company’s intellectual property is your competitive edge. You want to ensure that others can’t claim ownership of, or profit from your company’s inventions, designs, trademarks, copyrights, and trade secrets.
4. China has other legal protections for IP
Patent protection
Patents grant exclusive rights to inventors, protecting their new inventions or technological solutions. In China, patent applications can be filed with the State Intellectual Property Office (SIPO). Under Chinese patent law, patents can be granted for invention patents or utility models:
- Invention patents are suitable for more complex or innovative inventions and last for 20 years.
- Utility models are applicable to small improvements on current designs and last for 10 years.
Inventions created by employees during their normal duties are considered service invention creations, and the right to apply for a patent belongs to the employer. For non-service inventions, the right to apply for a patent belongs to the inventor.
Copyrights
Copyright protection extends to literary, musical, audiovisual, and other artistic works. In China, creative works are automatically protected upon creation, but employers can seek additional protection by registering their works with the National Copyright Administration.
China is also a member of the Berne Convention, which offers protection of works and the rights of their authors for many member countries—if someone creates a work in a member country like China, then their copyright holds in the other 195 member countries, too.
Trademark protection
Trademarks distinguish and identify goods or services, ensuring consumer recognition and trust. Trademark infringement can cause you to lose control of your brand and its perception.
Employers can file trademark applications with the Chinese trademark office, the China National Intellectual Property Administration (CNIPA). Chinese trademark law follows a first-to-file system for trademark registration. That means that the first entity to register a Chinese trademark typically has priority regardless of prior use. Therefore, it’s essential to file Chinese trademarks quickly.
5. Contractors own the copyright to their work unless you override this in a written agreement
Copyright automatically reverts to the creator, unless the creator completes the work for their employer during their normal line of duties. However, copyrights may not be enforceable or owned by you if an employment relationship doesn’t exist—for example, if you’ll be using a contractor. So how can employers protect their copyrights when working with Chinese freelancers?
Under Chinese law, contractors’ inventions belong to them unless there is a written contract outlining that ownership goes to the client. Such a contract should include:
- Any background IP owned by each party (employer and contractor) before entering into the work arrangement
- Rules for IP generated during and within the work arrangement, including clear rules about ownership
- Rules for IP that may be generated after the work arrangement ends
Frequently asked questions about IP law in China
Why is Chinese intellectual property protection so important?
It’s important to protect your intellectual property regardless of where you’re operating in the world. Losing control of your IP can cause huge competitive losses. However, it’s particularly essential to be mindful of Chinese IP because, according to a 2023 report from the Office of the US Trade Representative, China leads the world for counterfeit, pirated, and otherwise infringing products.
E-commerce platforms like WeChat, Aliexpress (from Alibaba), and Baidu Wangpan are huge for counterfeit goods. There are also in-person Chinese markets that are hotbeds for such counterfeit products.
Who should sign an NNN in China?
You might want to use an NNN in China when:
- An invention, business idea, financial information, customer information, or other sensitive company information is being presented to a potential partner, investor, employee, or contractor.
- A new product or technology is being shown to a prospective buyer.
- Access to proprietary or confidential information is given to employees or contractors.
- You're engaging with a new manufacturer, factory, supplier, or producer in China.
What do NNNs cover?
Non-use/non-disclosure/non-circumvention agreements cover:
- Non-use: The other party can't use your ideas or information to compete against your organization.
- Non-disclosure: The other party must maintain confidentiality; this covers the same obligations as a US-style NDA.
- Non-circumvention: The other party can’t create similar products to circumvent you and sell to your potential customers.
What is the difference between NNNs and NDAs?
While NNNs and NDAs are both legal contracts designed to protect confidential information and trade secrets, they serve different purposes. NDAs focus on the protection of confidential information and restriction of its disclosure to third parties. For example, if an employee signed an NDA, it would prevent them from sharing private information with the public.
NNNs, on the other hand, protect confidential information as well as non-use and non-circumvention. They not only safeguard confidential information but also prevent other parties from using disclosed information to compete or from circumventing the relationship.
What protections are there for companies using manufacturers in China?
If you have a Chinese manufacturer convert your rough designs into commercial products, there are some precautions you’ll want to take. First, use a Product Design and Development Agreement or Commissioned Processing Contract, which outlines who owns the IP and designs. If your products require custom molds, make sure you retain all control and ownership over them.
You can also have the manufacturer sign an NNN so they don’t leak your designs to competitors or use the information to circumvent you and create similar products without you.
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Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
