Because it may be the most cost-effective place for your business to have products manufactured with a satisfactory level of craftsmanship, you may want to do business with a Chinese supplier.
If so, here are some suggestions on how you can do so and protect your intellectual property. Note that this is not intended to be an inclusive list.
1. Be careful about digital espionage! I have previously noted instances where the Chinese have installed key-logging software on visitors’ laptops which renders password protection useless and used Bluetooth and Wi-Fi connections to remotely access smartphones, tablets and laptops. I quoted a former counterintelligence official as stating, “If a company has significant intellectual property that the Chinese and Russians are interested in, and you go over there with mobile devices, your devices will get penetrated.” I quoted an official of McAfee, the computer security company, as stating that if any employee’s device was inspected at the Chinese border, it can never be plugged into that company’s network again. If you visit China, do not bring a laptop with your business’ trade secret and confidential data on it into that country. Consider if your communications with individuals in that country identify technologies that derive their economic value from not being generally known to other persons who can obtain economic value from their disclosure or use that the Chinese government may seek to acquire them and, therefore, limit those communications regarding those technologies. Also consider purchasing a phone for use in China while you’re there that you can toss when you return to the states. See http://markscounsel.com/protecting-your-i-p-while-abroad/
2. Be sure to protect your intellectual property rights in the U.S. U.S. Customs and Border Protection will detain and seize imported goods which violate intellectual property rights in the United States. For this to happen, your product must be the subject of a trademark that has been registered with the U.S. Patent and Trademark Office or of a copyright that has been registered with the U.S. Copyright Office. With regard to your trademark, this poses a dilemma as you cannot obtain a trademark registration for goods in the U.S. until goods bearing that trademark have actually been shipped in interstate commerce and if you are waiting for your Chinese supplier to manufacture those goods, then you will not be able to record your trademark with U.S. Customs until after you have engaged your Chinese supplier and it has commenced shipping goods to you. However, even at that point, you should still record that registered trademark with Customs as this will prevent the importation of unauthorized product bearing your trademark into the U.S. If your goods are computer software, games, literary works, musical compositions, dolls, toys, puzzles, craft kits, posters, photographs, or figurines, you can obtain a copyright registration in the U.S. covering those goods prior to their manufacture in China and as soon as you have firmed up your relationship with a Chinese vendor you should then record that copyright registration identifying the details of that vendor with U.S. Customs and Border Protection. This will bar the importation of unauthorized products infringing your copyrighted design. The Customs recordation fee is $190.00 per trademark registration class and $190.00 per copyright registration. You can also record your unregistered trade name with U.S. Customs as long as that name has been used for at least six months to identify a manufacturer or trader. Note that words or designs used as trademarks, whether or not registered in the U.S. Patent and Trademark Office, shall not be accepted for recordation as a trade name.
3. You should consider obtaining from your prospective vendor its business registration certificate and proof of its company’s paid up capital. This will give you an idea of how substantial its operations are and whether it can meet your requirements. Note that these documents will likely be in Chinese.
4. You should register your trademarks in China. The reason for this is not that a Chinese entity could register your mark in China without actually selling product there and then allege that they own the mark there and block your shipments to the U.S. See http://www.chinaeconomicreview.com/tesla-starts-offering-cars-china for an example of this. Here, you can register the English version of your mark and you can register the Chinese transliteration of your mark or your can choose a Chinese brand, i.e., a Chinese term that evokes the same commercial impression as your English brand. Here, see http://www.nytimes.com/2011/11/12/world/asia/picking-brand-names-in-china-is-a-business-itself.html?_r=0 Sometimes, transliterating your English mark is the way to go; the Chinese characters for Tide detergent literally mean “gets rid of dirt.” On the other hand, the most common definitions of the Chinese character pronounced as “bing,” as in the name of Microsoft’s search engine, is “virus” or “disease.” Call it BI-YING and the translation means “responds without fail.”
5. You should hire a broker to handle importation of your product into the U.S. He will facilitate getting your product through Customs. You should also retain a freight forwarder who will make sure that your product gets to the U.S. port of entry. For example, a freight forwarder can combine your shipment with another container shipment coming from China to save you money. You will also need to post a surety bond with Customs to make sure that any applicable customs charges are paid when the product enters a U.S. port of entry.
6. In addition, you need to make sure that your product complies with any U.S. marking and labeling requirements as well as any relevant consumer product regulations.
7. Terms relating to, but not limited to, the respective parties’ intellectual property rights, the delivery of product, the risk of loss, freight provisions, quality control, safety, payment for defective products, pricing, specifications, confidentiality, the arbitration of disputes, product liability insurance, and working conditions Pshould be attached to your purchase order or included in a separate contract referencing your purchase orders.
8. Finally, it helps to visit China to learn about your supplier and build a relationship, particularly, before you make the final payments on your order before the goods ship out. Alternatively, you can use a purchasing agent to look after your business in China.