Will NDA With Foreign Company Prevent Theft?

(c) Sasha Stim-Fogel

Dear Rich: I have a patent pending here in the states but I want a Chinese company to manufacture my product. Unfortunately, I don't have any intellectual rights overseas. Will a nondisclosure noncompete agreement keep a foreign company from stealing my idea? Neither a nondisclosure (NDA) or  a noncompete will keep anyone from stealing your idea whether in the U.S. or abroad. Agreements don't prevent wrongdoing, they merely establish the rules in the event wrongdoing occurs. An NDA is no different. For example, your NDA may establish the location of the lawsuit, whether the winner gets attorney fees, whether arbitration is mandatory, or the ease with which you can get an injunction.
Back in the U.S.S.A. NDAs enforced in the U.S. usually have a predictable outcome. But once you leave American jurisdiction, the results of enforcement are not as predictable and the costs of enforcement are far more expensive. That increases the odds that your NDA will be breached and that a foreign manufacturer will duplicate molds, copy packaging and send knockoffs out the backdoor and into countries in which you have no intellectual property rights.
Separating the good from the bad. Most foreign manufacturers rely on their credibility and trustworthiness to keep getting new business. So your first goal is to do your homework and try to figure out which ones are reliable and which ones are opportunists. The resources, below, may help you.
Protecting secret stuff only. Keep in mind that a nondisclosure will only protect against the disclosure of confidential information. Once your patent is published, it is no longer confidential. So the only thing your NDA can actually protect is confidential information regarding manufacture, sales and distribution, and know-how needed to produce and distribute the patented item. A noncompete is typically aimed at preventing ex-workers from competing against you and that's not likely to provide much benefit. However, some provisions, in conjunction with your NDA -- for example, an agreement that the manufacturer will not manufacture or distribute your product without your authorization -- can be crafted to deal with your specific situation. A lawyer's assistance may be required. In summary, get an attorney to make sure the agreement provides the best dispute-resolution procedures.
After you've found the best choice. Your lawyer may include provisions that will help you in a foreign deal. Here are some things to consider.

• Jurisdiction. The only way to get a foreign manufacturer into a U.S. court—unless the company does substantial business in the States—is to include a provision in the NDA that requires the manufacturer consent to U.S. jurisdiction. This may prove difficult to negotiate (and to enforce), as foreign manufacturers are often hesitant about submitting to the U.S. judicial system. 
• Choice of law. Every country has laws as to how contracts are interpreted. You would want the NDA to be interpreted according to U.S. law.
• Arbitration. Arbitration is similar to litigation but with less formality and expense. You’ll usually benefit by agreeing to have disputes arbitrated. Hopefully, the manufacturer will agree to arbitrate the matter in the United States. If not, there are three popular (though expensive) spots for international arbitration: London (the London Court of International Arbitration), Paris (the International Court of Arbitration of the International Chamber of Commerce), and Stockholm (the Arbitration Institute of the Stockholm Chamber of Commerce). Also, if possible, your agreement should award attorneys’ fees to the victor in the arbitration.

Resources. These resources may help you sort out manufacturers in foreign countries:

•  U.S. Department of Commerce (DOC) and the U.S. Small Business Administration (SBA) are interested in helping the sales of U.S. goods overseas. If an inventor has a track record and the possibility of actually placing a product in the market (or already has a product and is seeking to market it overseas), the DOC and SBA offer assistance. 
• Check out the Department of Commerce site at the International Trade Association (ITA) or the DOC’s export information. 
• National Trade Data Bank has the most extensive and detailed statistical information on trade in specific products and countries. It is not free, but you can enroll for a free guest subscription and try it out. 
• The Federation of International TradeAssociations (FITA) has a website with many links, leads, and statistics that can be helpful for international businesses.