Drafting a Manufacturing Agreement in China

Jane LambertJane Lambert

12 July 2010

A UK inventor developed a new leisure product that he wished to market in Europe and North America. Mass production was quite complex requiring a large number of specialist technologies and skills not only for the product itself but also for its packaging, As he had no manufacturing facilities of his own, he instructed a newly formed local company to outsource the manufacturing, packaging and distribution of the product.  That company contacted a consortium of plastics, electronics, packaging and freight companies  and instructed me to draft its contracts with both the manufacturers and the inventor.

The contract with the inventor had to take account of the contracts with the manufacturers and vice versa. The concerns for the inventor were quality control, delivery and safeguarding his intellectual property. He had patent protection in the UK and USA but not in China,  In order to secure his revenue stream, he and indeed my client, they had to be sure that copies of the product would not be made by the contractors or otherwise and somehow  find their way into my client’s main markets. The manufacturers, on the other hand, needed sufficient information and assistance to set up production lines and the assurance of sufficient revenues to amortize their costs and make a profit.

I first compiled a checklist taking the client through all the risks that they had identified plus one or two others such as product liability and intellectual property claims and asking for instructions. That required a lot of conferences or meetings, emails and telephone calls. Nowadays I compile an electronic form to elicit exactly the right information and thus and save time. Working over Christmas and the New Year I settled contracts that minimized my client’s exposure and secured its revenues but met the concerns of both parties. To compensate for the absence of IP protection in China I drafted some contractual terms and provided some enforcement machinery.

I have drafted contracts of this kind for UK clients wishing to manufacture in China for over 25 years but this work has become an increasingly imp9ortant part of my practice in the last few years. In September 2006 I chaired a seminar in Liverpool on IP protection in China in conjunction with Kirwans, the IP Centre of Excellence for the North and the Liverpool Inventors Club  which was attended by the commercial attaches of the Chinese embassy, representatives of the Chinese business community in the UK, British exporters to China and the Liverpool Chinese community.