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Path: Sourcing News & Advice
>> Import from
China Advice >> China manufacturing: How to hang
on to your molds

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China manufacturing: How to hang on to your molds

Posted: December 15, 2014

by Dan Harris

Every couple of months, someone calls or emails
one of our China lawyers for help in “getting their molds” back from their
Chinese manufacturer. Whenever a foreign company terminates its Chinese
manufacturer, it is at great risk of having the Chinese manufacturer keep the
foreign company’s molds. The Chinese manufacturer typically holds on to the
molds to extract money from the foreign company, but sometimes it does this
simply for revenge.

We have not once pursued any claims against a
Chinese manufacturer for the return of molds because none of the people who have
contacted us had contracts good enough on which to base a lawsuit. On the flip
side, our mold contracts have always worked so as to prevent the manufacturer
from even trying to hang on to our client’s molds.

How can you achieve that sort of
result?

The way to avoid having your Chinese
manufacturer run off with your molds is to make sure you require the manufacture
to sign (and
seal) a contract (preferably
in Chinese) that makes clear to whom the molds belong (to you) and what will
happen to the Chinese manufacturer (specific
damages) if it fails to return your molds to you. It is also critical that
your contract be written with a Chinese (civil) law system in mind and not a
U.S./British common law system.

Even better, you should, if possible, get a
deposit for your molds, which deposit you will return when your molds are
returned to you. If the Chinese manufacturer will not give you a deposit for
your molds, (most will not), put in a liquidated
damages provision that applies if your mold is not returned when specified.
That provision alone goes a long way towards taking away any incentive for your
Chinese manufacturer to hang on to your molds.

When we are retained to draft a stand-alone mold
agreement or when we put a mold provision in an OEM
Agreement, we usually start out by sending the following questionaire to our
client, which in turn is typically followed by a subsequent set of more specific
questions:

Please provide a 1-2 paragraph description of what you will be doing in
China that will be covered by this mold agreement. This is essential: we need
to know, in layman’s terms, what is going on

What kind of items will be the subject of the agreement: molds, tooling,
equipment?

Where will the tooling be located? One manufacturer? Numerous?

Do you have a direct relationship with the manufacturer, or are you
working with an intermediary (sourcing agent or similar)?

What agreements are now in place concerning the basic business
relationship with the various parties? If you have any written agreements,
please send them.

Does the tooling already exist?

What will be the source of the tooling? Will the manufacturer design and
manufacture the tooling? Will the manufacturer purchase from others? If yes,
under what kind of agreement? Will the tooling be contributed to the
manufacturer by the buyer? By the buyer’s agent? Some other entity?

What will be the method of payment for the tooling, and who will pay?

Who will design the tooling? In what form will the design be provided to
whoever will manufacture the tooling?

What do you think?

Dan
Harris is founder of the Harris & Moure law firm,
a boutique international law firm focusing on small and medium sized businesses
that operate internationally. China is the fastest growing area for the firm.
Dan writes ChinaLawBlog.com as a
source of China legal and business information.

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