Dealing with Third Parties

• Pages: 6-6

Another common way trade secrets are disclosed is during

business dealings or negotiations with third parties, whether

it be potential partners, suppliers, contractors, licensees, or

customers. Your trade secrets protection policy should address

the protocol to be followed when dealing with third parties.

Generally, you should insist that both parties sign a mutual

non-disclosure agreement before any discussions begin

or documents are transferred. Aer the negotiations have

reached a certain stage, both parties should enter into

a Memorandum of Understanding (MOU) outlining the

structure of the deal, what information will be shared, and

the respective non-disclosure obligations of both parties.

Finally, once an agreement has been reached, the nal

agreement should identify who owns what information,

what information was exchanged, and the respective non-

disclosure obligations of both parties. Explaining that it is

your policy to have a non-disclosure agreement in place

before negotiations begin is a good way to demonstrate

your professionalism and respect for your counterparts’

intellectual property rights. Having a non-disclosure

agreement already draed also helps to minimise the issue

so that you can move forward with your negotiations.

While some of your service providers, for example, your

lawyers or IT server providers might be forced by their

profession to keep information they come in contact

with condential, however, it is advisable to sign an NDA

agreement detailing what protective measures should

be taken and what damages apply in case of any leaks.

Further, if these service providers have access to your

trade secrets, it should be clear to them that the content

information is a trade secret and thus the protection

measures should apply. For example, information is clearly

marked as condential.

The need to know rule mentioned in the previous step can

be also applied in dealings with third parties. The trade

secret should be shared to those service providers that

need the information to perform their job, for example, your

IP agent has to be familiar with your patent specications

in order to manage your IP registration in China.

Many foreign-invested small and medium-sized

enterprises operating in China nd it dicult to insist on

a pre-negotiation non-disclosure agreement when dealing

with Chinese parties. Chinese parties oen claim that such

requests are “hostile” or “unnecessary”, and a handshake

between friends should be enough. This together with

the unpalatable prospect of losing a potential business

opportunity because of what appears to be a rather minor

issue, particularly for a small start-up business, oen

leads many SMEs to move forward with negotiations

without a non-disclosure agreement in place. However,

this may prove costly when the other party starts using

the information to compete against you. When confronted

with such a scenario, it is important to know before

you enter negotiations how far you are willing to skirt

protections of your trade secrets and when to walk away.

Try to develop the relationship and get to know who you

are dealing with to see if they respect your IP rights. The

party that refuses a reasonable request for a mutual non-

disclosure agreement is also the party that is most likely

to misappropriate your trade secrets and use them to

compete against you.

Expert tip

Non-disclosur e agreements are becomi ng more

commonplace in C hina as IP awareness is rising

amongst the general business community. A

party th at refuses to sign an NDA should be

approached w ith suspicion, as they co uld be

likely to infringe your IP r ights in the future.

Finally, being business savvy can go a long way to protecting

your trade secrets in such a situation. For example, if the

Chinese party in such negotiations requests to see your

designs, you can request that they view them at your

business premises or send them only rough sketches which

just give a general idea but which are not detailed enough

to be reduced to practice.

Even aer an agreement is signed, it is important to make

sure you continue to monitor your partners, suppliers or

licensees to make sure they are complying with your trade

secrets protection policy. You may wish to negotiate the right

to make unannounced visits and to conduct periodic audits

in your agreement.

4. Step 4: Dealing with Third Parties

Protecting your Trade Secrets in China

6