Episode #104: The Easiest Way To Protect Your Toy Idea That Most People Overlook with Dan Harris
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Want to know how to protect your products and intellectual property when dealing with Chinese manufacturers? Dan Harris, a lawyer who specializes in International law, with a focus on China, gives you extremely detailed insider tips in today’s episode. I learned a lot and I know you will too.
Dan tells you why you should go with an NNN agreement versus a typical NDA when dealing with Chinese firms. He also gives great details about the most common mistakes American inventors and toy companies make when dealing with Chinese factories. He also shares how to avoid getting banned by Chinese manufacturers. Dan gives cultural insight into things Americans might find strange when dealing with foreign companies, like a difference between what the company will agree to verbally versus in a contract.
This is a truly informative episode with extremely valuable information so make sure you take notes if you’re planning on working with overseas factories.
EPISODE CLIFF NOTES
Learn how Chinese contract enforcement differs from the US [00:02:13]
Learn what provisions to include in a contract to make a Chinese manufacturer most likely to adhere to the terms [00:09:43]
Learn how to avoid having your case paralyzed in Chinese courts if you need to sue [00:13:40]
Find out why solid contracts are more important for small and mid-size toy companies than huge ones [00:14:16]
Learn how long it takes to make a manufacturing contract using a lawyer [00:16:16]
Learn the 5 most important points to include in a manufacturing contract with a Chinese company [00:17:37]
Learn whether it’s better to work with a broker (or “trading company”) or directly with a factory in China [00:22:26]
Find out how to protect your IP when working with foreign manufacturers [00:26:34]
Learn why an NNN is better than an NDA when working with Chinese companies [00:29:00]
Find out why American companies don’t usually sign mutual NDAs [00:38:56]
Learn one major contract pitfall that could prevent you from receiving your settlement even if you win a civil suit against a Chinese manufacturer [00:41:07]
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This episode is brought to you by www.thetoycoach.com
Learn more about and work with Harris Bricken by clicking here: harrisbricken.com/our-team/dan-harris/
Check out the China Law blog on LinkedIn here:
Follow Dan Harris on Twitter: @danharris
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EP 104 Dan Harris - FINAL
[00:00:00] Azhelle Wade: You were listening to making it in the toy industry episode number 104.
[00:00:04] Toy people you are in for a real treat today. Get ready to listen and learn with Dan Harris, a founding member of Harris Bricken law, an international law firm, where Dan mostly represents companies doing business in emerging market countries. Most of his time is spent helping American and European companies navigate Asia by working with the international lawyers at his firm setting up companies, overseas drafting, international contracts, protecting IP and overseeing NDA transactions.
[00:00:53] In addition, Dan writes and speaks extensively on international law with a focus on protecting foreign businesses in their overseas operations. He is also a prolific and widely followed blogger writing as the coauthor of the award winning China law blog. Today on the podcast, we are going to dive deep into conversations about US trademark law, the differences in the court system between China and the US. We're going to talk a little bit about patents, NDAs and NNN's it's a full and exciting conversation today toy people. Let's dive in.
[00:01:31] Hey there toy people, Azhelle Wade here and welcome back to another episode of the toy coach podcast, making it in the toy industry. This is a weekly podcast brought to you by thetoycoach.com. Dan, welcome to the show. Thank you so much for being here today. I cannot wait to dive into all of this IP Talk with you.
[00:01:50] Dan Harris: Thank you for having me.
[00:01:52] Azhelle Wade: I know you have a lot of experience in law, but I want you to talk about your experience working with toy companies. Can you share a little bit about what you have done?
[00:02:01] Dan Harris: Sure. Basically what I have done and what my law firm has done with toy companies is what we've done with a lot of different consumer product companies. We work with them on the manufacturing and IP protection side. Helping them with their contracts, with their suppliers in China, in other places in Asia as well, even Mexico lately and helping them protect their intellectual property in China and elsewhere around the world.
[00:02:34] Azhelle Wade: Okay, so there, you mentioned manufacturing contracts, and that's not actually a topic I've touched much on yet in the podcast. Can you talk a little bit about that? And what's the important of even having one of those for one of your clients?
[00:02:47] Dan Harris: Okay, sure. There are a lot of important reasons for having those, particularly with China because Americans tend to view the world as the United States. And they tend to think that the entire world's just like us, but the reality is our legal system is very very different from China's legal system. Now you've probably heard people say China doesn't have any laws. It's the wild west. They'll steal everything on and on and on. Some of that is true. Most of the time when people have trouble with their suppliers in China. And I know this is not going to make me popular here today, but it's usually their own fault because they essentially assume that doing business with China, buying . toys from China is the same as buying toys from Peoria, Illinois. It's not, it's very, very different. And the difference mostly stems from the different legal systems.
[00:03:47] The biggest difference is that in the United States, If I were to say I'd like to buy those toys that are on your shelf behind you for $500. And if you said yes, and I gave you $500 and those toys were in bad condition, I might have a good argument for a refund of my $500. Because a court would look at that and say, well, everybody assumed that the toys were working and if they're not working you get your money back. In China it does not work that way.
[00:04:21] Basically, if it's not in the contract, it doesn't exist. And an example I always give it's not a toy, not quite a toy example, but it's such a good example I can't resist. Is a company came to us. They had ordered about a million dollars of North Carolina, blue t-shirts and they had gotten a sample from the Chinese company and the sample was North Carolina blue. But when they got the t-shirts, they were blue. They were not North Carolina blue. So instead of being able to sell them for 20 or $25, they unloaded them for four or $5.
[00:05:01] And they came to us, wanting us to pursue the Chinese company for the difference. And we basically told them we don't like your law. Because you don't have a contract that specifically said panting colour X, Y, Z pair of colors, probably out of luck. And in the United States, we would have taken that lawsuit and we would won it. Because the court would have said, yeah, everybody knew it was supposed to be North Carolina blue, even get got the sample, but it wasn't in the contract. And I can go on and on with these examples one on our own I won't, but I'll give you one more.
[00:05:42] Company comes to us. This was a long time ago, maybe 15 years ago, they had bought $3 or $4 million worth of laptop bags. And the laptop bags were not strong enough to hold a computer. So they said, would you talk to the factory for us? So we called the factory and said, look, what's going on here. These laptop bags are not strong enough to hold a computer and without missing a beat, the factory said, right if they had wanted laptop bags strong enough to hold a computer they should have bought our $4 bags, not our $2 bags. And they were right. That's the problem with China. They're the range of quality can range from a t-shirt that Whereas out after two washes where you pay 50 cents to a high quality, t-shirt where you're paying $25.
[00:06:37] And it's the same with toys. If you're not specific in a contract, you're completely relying on your factory and you have no real recourse.
[00:06:49] Azhelle Wade: At what volume should a company really consider building out this contract? Because it's not, it's more than just having a contract, you have to be prepared to actually fight with that contract in hand?
[00:07:01] Dan Harris: No, that's not correct..
[00:07:03] Azhelle Wade: Okay.
[00:07:03] Dan Harris: I'm going to jump over and talk about patents for a second. I think patents are tend to be overrated because people spend a lot of money on patents. And if you're not willing to spend the money to monitor and to Sue which is fabulously expensive then you probably shouldn't get the patent in the first place. A lot of people spend money on patents and then regret it. That's not true with the contracts with Chinese manufacturers and here's why, and the question you asked by the way is the perfect question, because it's the question I always get and I always get it from Americans. That's because Americans we're so used to being able to go to court and the courts being reliable.
[00:07:53] They're not as reliable in China, even though the world bank ranks China, number six in terms of enforcing contracts. And I mentioned that not because I believe China's six best country in the world for enforcing contracts, but it's not nearly as bad as people think it is. They think it's bad because they didn't have the right contracts. Here's why enforcement is not as important as people think there are really three reasons for having a contract. One is clarity. Are you and your Chinese supplier on the same page? I'm convinced that roughly 90% of problems between American and Chinese suppliers stem from confusion more than animosity.
[00:08:45] Even though Americans will always say, oh, they're trying to cheat me. Once we get involved, we look at the contract and we say, look, you know, I understand where they're coming from. We just have to try to resolve this. So it's good to have clarity. And the example I always give there is delivery dates. If you say to your toy manufacturer, can you get me my toys in 30 days? 99% of the time, they will say no problem. That's a Chinese cultural thing. You don't want to say no to people, you say no problem. Then when it comes time to write the contract, we'll put in their delivery within 30 days every day, that delivery is late.
[00:09:28] There'll be a 1% damage that is owed to our client. Probably 90% of the time the Chinese factory comes back and says, we can't sign this, we can't get it to you in 30 days. And our client will say, well, you told us you could. And the Chinese company will say, well, we can, but just not all the time, it really is a different way of thinking about it. So then what we do is we figure out what will they commit to. let's say it's 45 days. We put 45 days now, all of a sudden you've got the clarity. And it's interesting because people have said, well, are your clients irritated that it's now 45 days and not 30 days? I go, no, usually they're happy because the key isn't that it'd be 30 or 45 days.
[00:10:17] The key is that they be able to tell target or Walmart or whomever that I will get it to you in 60 days, right. Or want to be wrong. So there's the clarity aspect. The other important thing that Americans neglect, because we're spoiled with our court system is prevention. The goal is not to Sue and win a lawsuit against your Chinese supplier, because they're just like here. If you have to Sue, you've already lost. And you know, Clients come to us and they say, I want to Sue this company for 150,000. It's we say, do you really, I mean, it's usually just not worth it. So the real key to these contracts is prevention. So let's take that 30 day delivery option issue. In the contract we put in you owe us 1% for every day you're late.
[00:11:16] That is very, very effective. In the Chinese court system and the Chinese companies know that, and they're making toys for 55 different companies and five of them have a contract. That's very clear that there will be problems if they're late with their deliveries. So when they fall behind on their deliveries, they're gonna make sure to give precedence to the five companies that have the contract and you will get your toys on time and the others will not. I call it the bike lock theory of Chinese law. It's not that the contract is perfect. It's not that the system is perfect. It's just that your contract is better than everybody else's, which is all your bike lock does for you as well.
[00:12:08] Azhelle Wade: So one is clarity. The second is prevention, third?
[00:12:13] Dan Harris: The third, what was your question? Enforcement.
[00:12:16] Azhelle Wade: Enforcement.
[00:12:18] Dan Harris: And that is, can I Sue and win? And it's important that you be able to Sue and win because if your Chinese supplier thanks you have no case they're not afraid of you. So one of the provisions we put in almost all of our contracts is what in the United States is called liquidated damages. And I hinted at that with this delivery issue, but we do it with quality also. So we will say if there's a 1% defect rate, we'd it. If there's an, it really varies with the product, even within the toy industry, but let's say 1% defect rate will eat it 5%. You need to replace the product more than 5%. We get a refund.
[00:13:07] And that it can be very effective because again, it's very clear in Chinese courts understand that, and then we'll put in there and if you sell our product, and this is where the IP aspect comes in, if you sell our product to anyone other than us, you almost $100,000. And that is a very important provision. It's incredibly powerful in Chinese courts. And American lawyers don't tend to know about this because in the United States, you don't really, those provisions can be complicated. Courts really look closely at them, but in China, If we have a provision saying if you steal our IP office a hundred thousand dollars and that a hundred thousand dollars is in the ballpark of what damages might be, right. You can go to a Chinese court and you can freeze up to a hundred thousand dollars in assets. Usually a bank account of the Chinese company and you can do that within a week or two and Chinese companies know this. So if you have that provision in your contract with them, they will not mess around with you unless they're really, really desperate.
[00:14:23] Azhelle Wade: So I have two questions to follow up with this. My first question is, does this contract have to be in English and in Chinese, like the other any sue?
[00:14:31] Dan Harris: Generally yes. And I'll go back to the three reasons for having a contract. One is clarity. You want it to be clear, clear you put it in their language to prevention again, they're going to look at it and you want them to look at it and say, whoa, this is not the toy company we want to make a late delivery to. And then three enforcement. You want to be able to flip around. And Sue them quickly in a Chinese court. And I'll explain why in a minute it should be a Chinese court and having a Chinese language contract helps. Okay. You take your English language contract with Chinese court.
[00:15:13] And some Chinese courts are so paralyzed by them that they will literally never hear your case. Wow. Because they just don't want to deal with it. Other times they'll bring in a translator, who's going to translate your contract. And I always say to our clients, you don't want to know what your contract says. After you've sued somebody. You want to know it before you've sued somebody, but back to your original question, which we get a lot and is a great question. That is how much should somebody be buying such that they need a contract. I'm going to surprise you by saying that companies like Mattel are in less need of a good contract. Then a mid-sized toy company.
[00:16:00] Azhelle Wade: Interesting.
[00:16:02] Dan Harris: And the reason I say that is because a company like Mattel might be buying $50 million worth of toy of one toy from a manufacturer, and they've been doing it for five years. Right. So let's say that Mattel gets a bad shipment. Is that supplier going to say, Hey, sorry that's life. No, they're going to say we will fix it. Why? Because it's Mattel, it's a $50 million client. Now, so on the high-end side, the high dollar side, the value even can start to decrease for certain things. Not necessarily for intellectual property, but for quality. Usually that's not that big an issue for the big toy companies, but at the same time if you're going to be buying $10,000 worth of toys at a time it's not worth it.
[00:16:58] It probably is not worth having a manufacturing contract because the cost of the manufacturing contract is, is getting near what the cost of your loss would be. If you get one bed. But he just said that sometimes it's interesting because we have some clients who say, okay, I get that. I'm only buying $25,000 at a time, but I'm going to be doing it every two weeks. And if I get a bad shipment, it costs me more than $25,000 because. Then I have to explain to target what happened or whatever. And so yes. I do want a contract, not so much to get my $25,000 back, but to prevent problems.
[00:17:44] Azhelle Wade: How long would it take to just build a manufacturing contract with your firm for example?
[00:17:49] Dan Harris: I think we're telling people 10 to 14 days and typically the way it works is we talk with the client. We figure out with them what they need, what sorts of provisions. And then we draft the contract in English. They review it, we revise it, we finalize it. Then we drafted in Chinese and then we have them send that dual language contract to their Chinese supplier rather than us doing it because That's just the way it's done culturally in China. And typically, I mean, there are various important elements to a manufacturing contract and we tell our clients, look, do not pay us our flat fee to draft this contract until both of us believe that the Chinese company is going to sign it.
[00:18:40] So sometimes we'll get people who come to us and say, yeah, we've, you know, we've reached agreement on everything except you know, they want to charge us $5 per widget, and we want to pay three, but we want you to draft the contract because we think once they see it they'll change their minds. We're like no, we've got to get them to agree on the price. I mean, lawyers can't change that.
[00:19:04] Azhelle Wade: So what are the five main points to make sure you're covering and protecting yourself from in a manufacturing contract?
[00:19:11] Dan Harris: Okay. The five main points are intellectual property. You don't want them making your widgets, making your toys with your molds, with your tooling and going out and selling it on Alibaba for half or a third, what you're selling it for? So that's one. Two molds and tooling. What you don't want is a situation where they start giving you bad quality or late deliveries. And you say to them, I'm done with you. I'm moving to a new manufacturer and they go, that's great, but we're not giving you your $300,000 worth of molds and tooling back and you then have to go out and have to mate again.
[00:19:55] And for three or four months, you have no way to have your product. Right, right. A bad thing. So that's mold and tooling. Also quality is important. You want a spec sheet that lists out what you expect? No lad that's big in the toy industry. Stainless steel. What define it? You know, what, what percent does it have to be? You have to be incredibly specific. So back to the laptop bag example, if you're going to be buying laptop bags, you need to say this laptop bag has to have tensile strength of this. It has to be capable of holding 50 pounds without the handles breaking theirs, you cannot get too specific in these Chinese contracts, because remember if it's not in the contract, it doesn't really exist. Then you want delivery date. And that's basically, I think I listed five.
[00:20:54] Azhelle Wade: Yeah or maybe more. From what you're some of what you're describing to put into the manufacturing contract, this is actually making me want to ask you about nnn, which is how I found you. I was doing some nnn research and I found China blog. And then I researched, I was like, who wrote this? This was very good article. And I found you but I'm just curious if somebody. It's very small. Like I'm, I'm thinking of people that are ordering maybe 500 pieces, maybe a thousand pieces. Cause they're just starting and they do have some sort of intellectual property that they want to protect. Can they get an nnn agreement to protect them in some ways and, and maybe not extend to manufacturing agreement as when their company grows?
[00:21:34] Dan Harris: Yes a hundred percent. And we're asked that a lot. And it's interesting because. I actually love working with startup companies and smaller companies because I find it more challenge. Yeah. I have a friend who won't his law firm. They won't even take those clients because he wasn't like having to explain things. And you know, he wants to give the big companies, you know, all six or seven documents and IP protections that anyone could ever need, but I find it challenging to help someone figure out what's most important to them. when we take on a new client, who's manufacturing in China. There are a lot of things we can do for them. And. There are things we can do for them early on and later on. And one of the first things we offer up is doing a due diligence report on their manufacturer. And a lot of the time that's very cheap.
[00:22:38] We charge $1,500 for that. Okay. We come back with a five or eight page report on the manufacturer. We got really good at, at doing these quick. Because of PPE personal protective equipment we would have people say, I need a report on these five companies in eight hours and we'd line up people and we do all the reports. But what the reports tell you is they tell you whether you're dealing with a legitimate company or a scammer. And probably 30, it depends on the industry, but I would guess in the toy industry, probably 30 to 40% of the time that report alone tells our client do not use this manufacturer. Oh, wow. One thing that's really rife in the toy industry is fake manufacturers, brokers. A typical broker is, has a $300 a month office somewhere and an old computer worth about $150.
[00:23:48] Some of these. I mean, w we had a company come to us this, and it was a toy company probably about, only about six months ago. And they had sent a million dollar. Roughly to have toys, soldiers made in China. And six months later they had nothing in the factory had gone silent and they said, what can we do here? And the first thing we do in that circumstances, figure out who we're dealing with, because if it's a legitimate Chinese company, then the likelihood of our getting money back is a lot greater than if it's not.
[00:24:27] And we did research on the company and the company was a one person broker office. Wow. And it's like, that's, that's not a good situation. You also get with brokers, you get the situation, which we had probably 15 years ago, but it's still the best example is where a company that makes Christmas tree lights called us up and said, You know, it's already August. We don't have our lights. We're going to have big problems here. Would you help us with the factory? And we called up the factory and said, Hey, what's going on here? We're calling on behalf of XYZ company and they go, who are they?
[00:25:11] Azhelle Wade: What?
[00:25:12] Dan Harris: They didn't know who our client was. Our client thought they were dealing directly with the factory. They were dealing with a broker that out in the factory said, we're not going to give them anything because. Their broker owes us millions of dollars. Yes. So what, and this is not the best solution. Well, it was the best solution, but it's not a solution that's going to make people happy. What we ended up doing is we ended up negotiating with the factory to get the products right away and to do that our client had to pay about a million five more.
[00:25:53] Wow. I think would have gotten. Hmm. And so we basically cut out the broker. So yeah, it can be a problem and doing. If you're not going to have a contract, it becomes even more important to know who you're dealing with. So that's one item we do. Another item is an nnn agreement and that's tends to be preliminary it's before you show this factory, your toy design, you want to have some protections in place, and then the nnnn agreed. Does that for you and what I always tell companies, and this is very true in the toy industry is it's very difficult to stop everybody in the world from duplicating your product. Right. And our consumer goods clients. It happens to them all the time and it probably costs them five, roughly, you know, five or 10% in sales.
[00:26:51] That's bad, but that's sort of the cost of doing business. What's even worse is when your own manufacturer is competing with you. Because they've got all the tooling and everything. And then what they'll often do. Is, if you don't have a good contract and this has become way more common in just the last year or so you go to a Chinese manufacturer to have your toy made and, and you let's say you go to four of them and three of them are going to charge you 10 to $12 and a fourth one's going to charge you $7. And you're like, wow, this is great. I'm going to go with the fourth one. You, you go with the fourth one. You send them everything and all your designs and all that. And then you don't hear back from them.
[00:27:42] They've quoted you the $7 because they want your designs. They'll make more money making your product than making your product for themselves, then making it for you. And if you haven't protected yourself, you can't stop them. So we get these companies that come to us and say, you know, what do I do here? they've got my money for the tooling, for the, the molds. And they're making my products. What do I do? And we're like, there's nothing you can do other than try and find a new manufacturer as fast as you possibly can. Because you just lost your product. That happens. And what also happens is where a price is really a tough issue because our clients always say, well, I want to lock them in it's $7 per toy.
[00:28:27] And it's like, That's very difficult to do because their prices change. But what also happens though, is sometimes a company will be charging you $7 and then all of a sudden they'll come back and say, we're going to charge you $14. And then companies come to us and say, can they do that? And we go, yes, but let's see your contract and they don't have one, or it's a terrible contract and we go, wow, you've got a lot more to worry about than that $7 increase in price. They're increasing the price. Not because they want to make your toys, but because they want to drive you away because they're going to start making your toys for themselves.
[00:29:09] So that's really important to prevent. And there are two ways to do that. One is preventing your manufacturer from making your toy. And the other is registering your trademark because what I always say, if some other company's making your toy, right, that may cost you five or 10% in sale. But if some other company is making your toy and they can advertise it legally on Ali-Baba under your brand name, that's what causes companies to go under, because how can you compete with somebody who's selling your product at a third of the price?
[00:29:52] Azhelle Wade: Yeah, you can't,
[00:29:53] Dan Harris: in order to prevent anyone from making your toy with your brand name on it in China, you need a Chinese trademark and What happens to people who don't get Chinese trademarks is usually business crushing because take the company that wants to make your toy for themselves.
[00:30:13] And therefore they quoted you a ridiculously low price, right. That company starts making your toys. What it will also do is register your brand name in China. And by doing that, you now can not have your choice made in China because if you do so you'll be violating their trademark. And this happens all the time. There were these four companies in Europe that completely dominated an industry between the four of them. And between these four companies, they had, let's say 95% of the industry, a company in China that used to make this product for, I think at least two of these four companies had the brilliant idea of registering the trademarks of all four companies in China. And they did that. And then they said to those four companies, we're not going to make this product for you any more. And within about three months that Chinese company had 50% of the industry in the world.
[00:31:21] Azhelle Wade: So you want to protect your trademark if you've invested significant money in building up the value of that trademark, it's the brand that they're buying essentially.
[00:31:29] Dan Harris: Right. And the thing is usually when people come to us to have their toys made manufactured in China, they've already spent $1,500 getting a trademark on it in the United States. It may be on Kickstarter. It may be that they have other toys and this is their first one that's going to be made in China. So they've built up a brand name, the brand name for many of these companies is the most valuable thing they have. Now, what we're seeing is a lot of them are getting kicked out of China, essentially because they can't manufacture there anymore.
[00:32:07] Azhelle Wade: Why?
[00:32:08] Dan Harris: Well, here's an example of why. Many years ago, a coat company came to us, wanting to Sue someone who had seized about $5 million worth of their coats at the Chinese border, so that they wouldn't leave China. They said, they've seized our coats.. We want you to Sue them and we're like, okay, but why did they seize the coats they go? I don't know. So we talked with Chinese customs and they seize the coats and I'm going to make up the name of the company. Let's call it Smith brothers. Okay.
[00:32:41] That's a milk delivery service, but that's why it popped into my head. Okay. So Smith brothers coats, a competitor company went off and registered Smith brothers as their own trademark for coats in China. In China. And then by doing that, they were able to seize the us companies, Smith brothers coats, because those coats. Clearly violated the Chinese company, Smith brothers trademark. And so what we have to tell those people who call us and I mean, talk about giving them bad news. We say, look, you don't want to Sue this company. You want us to negotiate a deal with them to get your coats released.
[00:33:29] Azhelle Wade: But is it even about the getting the coats releasers about regaining their trademark? I mean, yeah, those coats, but then they can't produce any other coats under that name. Right?
[00:33:37] Dan Harris: In China. Yeah. And then we tell them, you need to go to Vietnam now.
[00:33:41] Azhelle Wade: Oh my gosh. You know.
[00:33:44] Dan Harris: Because you are blocked in china.
[00:33:45] Azhelle Wade: You're reminding me. I did see. So there was this toy that got fed to me on a Facebook ad and it was called stair slide. And I thought it was cool. And I got curious about the safety of it. Right? So I started researching it to learn about like, how did they pass safety testing with this thing? In my research, I went on their site and I had found that apparently they were dealing with a lot of knockoffs. And they were like invalid. Like they weren't functioning, they were poorly done and people were getting ripped off. And so they had this like whole passage at the bottom of their, their website saying , we, you know, stair slide is a Kickstarter. We don't sell from anywhere, but this location, if any other company tells you that they're making stair slide, that's not us. They just have all these knots. Everywhere and coming from China apparently and not selling the same product, not even the same quality product.
[00:34:33] Dan Harris: Right. That's common. I don't know what happened to stair slide, but that sort of thing causes businesses to go under. Because people are not going to go to your website and read that. Yes, people are just going to say, wow, I just read in the paper some kid was badly injured from a stair slide. Beg that newspaper does to explain that it's not your stair slide.
[00:34:57] Azhelle Wade: Are you able, like when something gets stopped in the U S border, if like, if it's coming from China to the U S and then you have the trademark in the U S will it get stopped here?
[00:35:06] Dan Harris: Yes, it might.
[00:35:07] Azhelle Wade: It might, why?
[00:35:09] Dan Harris: Because here's the issue. Take Nike, for example. I'm going to exaggerate slightly here probably has five people sitting in every major customs office in the United States. And Nike has given lessons to every customs office in the United States on how to spot fake Nike's. And so my guess is us customs seizes, a lot of fake Nike's, but if you're selling a toy and there's somebody in China That is selling that same toy with your, I put in quotes your, because it's not yours. If you don't register your brand name, but it's not yours. If you haven't registered in China, if they're selling that same toy with your brand name on Ali Baba and selling it one at a time.
[00:35:59] You customs might catch one out of 500, but that's not going to help you. And what you talk about with that stair slide, it's very common. We represent a very good size toy company and they had a problem. With one of their toys, which was stuffed not in the United States, but in England, they were being shipped to England. And they were stuffed with rags and things that smelled of gasoline, we're turning the toys to our client and to the stores. And it was a very bad situation. However, it was a good situation in that we were able to get Ali-Baba to take down everything. We were able to talk with British customs and get them to be on the alert for it, et cetera, because they had done all of the preparatory work.
[00:36:56] So now to bring it all back full circle, generally, it's always going to be more important to protect your IP than to protect a $10,000 shipment. And the way you protect your IP is with an NNN agreement that protects the design and with a trademark, which protects your brand name. And usually if you have to choose between the two of them, the trademarks, the most valuable. Because once someone can sell your product with your name.
[00:37:24] Azhelle Wade: Yeah. Now I just have a few more questions. I want to go back to NDAs. Okay. NDAs toy companies often use them or some form of an NDA to have inventor sign before they submit their idea concepts for review. So my listeners have a problem with NDAs that are only protecting the receiver and not the submitter. Can you explain why that happens? Why that is?
[00:37:50] Dan Harris: Okay. Yes. And right now we're talking, I'm going to presume that we're talking about NDAs between let's say an American toy company and an American inventor.
[00:38:00] Azhelle Wade: Oh, let's say American toy company, but they could not be an American inventor. That's a good one. Yeah.
[00:38:05] Dan Harris: That's true. Okay. So American toy company and an American or foreign inventor, legally, it doesn't matter whether they're an American or foreign inventor. The law in the U S will be the same. I'm going to use Nike, I know they're not a toy company as an example, because they're kind of famous for this. They're also in the Northwest where I am. If I go to Nike and say, I've got these great shoes .Nike is going to make me sign an NDA and they won't sign one. Why won't Nike sign an NDA? Because Nike already has 10,000 shoe designs and they don't want me to Sue them because I claimed that I had my shoe designed before they did or something like that. That's why big companies tend to be very reluctant to sign. What's called a mutual NDA.
[00:39:00] It's not ridiculous. It's not unfair, but it can be very scary because if that big company does take your toy design and you have to Sue them, it really is David versus Goliath. Right. But it can be done. I mean, we sued a big kitchen appliance company on behalf of an artist. Wow. They basically wanted her to paint their appliances and she's a very good artist and they didn't like what she was going to charge. So they then went off and hired a not so good artist to do basically the same thing.
[00:39:41] Azhelle Wade: Like to copy her style?
[00:39:41] Dan Harris: They would claim that it wasn't copied. Just because you're big doesn't mean you can get away with everything. Now, you started talking about NDAs. I thought you were going to ask a different question, which is, I thought you were going to tell me, which is also very common that a lot of American toy companies give an NDA in American NDA to their Chinese manufacturer, thinking that it's going to help them.
[00:40:03] Azhelle Wade: Oh, interesting. Okay, now go ahead.
[00:40:05] Dan Harris: It's not going to help you, the fact it's worse. Most of the time, it's worse than having nothing at all.
[00:40:11] Azhelle Wade: What are key differences, an American NDA and a NNN?
[00:40:15] Dan Harris: The biggest difference is an American NDA is going to say that if I have a pro, if you steal my. IP, I Sue you in Boston or in New York or in Tumo Iowa. The problem with that is, in fact, that's, I believe it's today's blog post on the China law blog on why it often makes no sense to Sue Chinese companies in the United States and cutting right to the point. The reason is because Well, I'll give you the most recent example, a lawyer from Boston called us wanting to Sue under a contract. No, they had sued in Boston and won, and then they wanted us to take that Boston judgment to China and collect on it. And we're like, we can't do that. China does not enforce us judgments.
[00:41:09] And then she said, well, can I Sue them again? And I'm like, no, you can't Sue them again. Because China does enforce contracts. And the contract said, you have to Sue them in Boston. And you did that and you won, you made the choice. So, and Chinese companies know this, they know that a contract that says the lawsuit will be in the United States is worthless for 99% of Chinese company. Because they have no assets in the United States. So you you've basically by giving them that NDA you've given them completely free rein you don't even have the advantage of Chinese law outside the contract. You might be able to Sue them for trade secret violation under Chinese law, but you don't even have that anymore.
[00:41:57] Azhelle Wade: Interesting. Oh, wow. That's a good, that was not what I was going to ask, but very clear. Don't do NDA. So back to NDAs, do you believe inventors should request NDAs from anyone else before disclosing their ideas? So let's say any consultant that they work with, any artists, they hire any, you know, small, like not if they're not showing it to a large toy company, but they're showing it to people to help them develop the idea.
[00:42:22] Dan Harris: Generally yes.. One thing I will add though, is the best protection of all is silence. So you talked about that stair slide and they were on Kickstarter. Yeah. Put your product and your brand name on Kickstarter, and there's a good chance. Your brand name and your product will be sold from China before you've even raised enough money to have it made yourself. So a lot of times it's, you should keep as much quiet as possible until you have protections in place. And a lot of times when it's early in the game, you got. It doesn't really make sense to have too many protections in place because your product might change. What we always say is, and I'm going to give a China example.
[00:43:12] And this is another reason why it's good to do due diligence on the Chinese company because good Chinese companies are much less likely to steal your IP than bad ones. But if you go to 10 bad Chinese companies with your design and you have all 10 of them sign a really good NNN agreement. Yeah, I cannot tell you that your design won't get stolen because once a 10 bad companies and bad companies are more likely to violate a contract, if you go to three good companies and make them sign in a NNN you're better off. So the more people you tell the greater the risk is, but if you're going to tell people, you should have an NDA and place. Yeah. And they're not that hard in the United States. Yeah.
[00:44:02] Azhelle Wade: Yeah. How do you define like the, the big thing here is the public disclosure versus like a private disclosure. There might be some people who, you know, maybe they have their own agreement that you have to sign and you're comfortable with it and, you know, them, whatever. But how do you define that difference between public and private disclosure of your ideas with like a consultant and then public being is posting on Facebook public, is posting in a private Facebook group public, is posting on Kickstarter public? Like how do you define public disclosure? Okay. Why?
[00:44:39] Dan Harris: Because what I do is the examples you gave me. If I'm going to give my design, let's say I'm using a sourcing agent. A really good one and there are plenty of those. There are plenty of really bad ones too, but let's say I'm using a good sourcing agent who I've worked with before. What do I put in the contract? I don't say you can't disclose it publicly. What I would say is you can not disclose this to anyone without my prior written permission.. Or I might say you can disclose it to these you know, up to five Chinese manufacturers that, you know, have the capability of making my toy. You want to limit it with specifics now, you know, at the beginning of this podcast, I talked about how in China, if it's not in the contract, it doesn't exist in the United States.
[00:45:40] That's not true. So even a mediocre NDA agreement could very well provide you with good protection. That is you're always better off being specifics because if you're going into court and you're suing your consultant, and actually we had a large fast food company. That consulted with us and they did Sue their consultant who, who they put in charge of making furniture of all things in China for really botching it. And that furniture got out and everybody has it. But what you can do is. I mean, if you're going to go to court and the contract says, you can only tell these four people and the consultant clearly told five other people, that's a really easy, good lawsuit.
[00:46:31] If you've got a contract that says you can not reveal it public. And they revealed it in a private Facebook group and we will tell our clients, okay, first thing we have to do is figure out whether a private Facebook group is public or not. And you know, that'll cost five or $10,000 in legal fees. And when we come back to you, we're not going to have a clear cut answer, meaning the first client can say he told these three people and they're not on the list of four. And we go, yes, that's a winner. The second one, we go, well, we could bring this lawsuit, but it's not clear whether we're going to win or not.
[00:47:10] A lot of things that people think are simple are far more complicated than they realize. Even something like us trademarks people go off and register a trademark and think that because they've got it, that they're fine. But they aren't necessarily. And in fact, us trademarks are in many respects, more complicated than Chinese trademarks because in China, if I have a toy and I call in my brand name is Smith brothers and I register Smith brothers in the toy category of China's trademark.
[00:47:45] There's a 99.99% chance. Everything's fine. If I do that in the United States, somebody could still flip around and Sue me for violating their trademark. And so an example I always give is we had a company come to us and they made water bottles and that our brand name was very, very similar to a huge international water company. We told them, look, we don't think you should use this brand name on your water bottle. And he said, well, I, I think that's both my products completely different than theirs. And we're like, well you might have an argument. We don't think you do, but if you get sued, they're going to crush you. And he goes, they're never going to Sue me.
[00:48:32] And he wrote them a letter saying, you know, can I use this on my water bottle? And they didn't even bother responding to him. And then when he started advertising his water bottle, they told him they were going to Sue him unless he stopped. And he said, what should I do? I said, well, you need to hire somebody in your state. He was in a Midwest state to defend that lawsuit. And I said, that's going to cost you $200,000. Easy. And he goes, I don't have that kind of money. And I felt like saying, right, I'm not chosen that brand name. And he spent all this money building up the brand name. So the, it can be very common things, but law is, can seem simple, but it's complicated the more you know about it. That's true with intellectual property.
[00:49:18] Azhelle Wade: Oh, thanks for all the great stories today, Dan, those are all good lessons for us to learn from.
[00:49:24] Dan Harris: I hope so.
[00:49:25] Azhelle Wade: Before you go, is there anything you want to share? Where can people reach out to you and work with you if they want to learn more about you and your company?
[00:49:33] Dan Harris: Go to our website, harrisbricken.com and check out China law blog, because if you're buying from China, there's a lot of good information there. And a lot of that information is true for a lot of other countries as well. Not necessarily a hundred percent true. Although a lot of countries like Vietnam have very similar legal systems to China, but even if you are having your products made in Mexico. The big picture issues are always going to be the same, which is you want to get good quality product and you want to protect your IP.
[00:50:08] Azhelle Wade: Right. Thanks so much for being here today. This was a really informative episode. I know people are going to love it. So I appreciate you coming on the show today, Dan. I really do.
[00:50:16] Dan Harris: And I appreciate you are having me.
[00:50:17] Azhelle Wade: Take care.
[00:50:18] Dan Harris: Thank you.
[00:50:19] Azhelle Wade: Well toy people there you have it. My conversation with Dan Harris from Harris Bricken law, I hope you learned a lot from today's episode. It was a really insightful in-depth valuable conversation, where we got examples and lessons to help us work with our Chinese factories, better, more effectively protect our IP and understand what we should be having in manufacturing contracts. In today's episode, we covered manufacturing contracts. Why you want to have one, what it should include and at what purchase amount they'll actually be the most valuable to you.
[00:50:57] We also covered NNN, which are non-disclosure non-use and non-circumvention agreements that you can utilize with your Chinese factory to protect the design of your product. And we covered trademarks, which can protect your product from being counterfeited. As we discussed in last week's episodes. So if you didn't hear last week's episode, head over to episode 1 0 3, because it pairs perfectly with today's episode. And finally, we talked about NDAs. I snuck in a few questions for all of you toy inventors out there to answer how you should feel when signing an NDA. That is really a one way NDA between you and a toy company. I know we've talked about this.
[00:51:47] I've talked about this in lives, and I've talked about this here on the podcast, but I understand hearing that kind of advice come directly from a lawyer, we'll hold a different kind of weight in your mind. And I hope it makes your decision to sign NDA agreements clearer when you're going out there to pitch your ideas. For all my entrepreneurs out there. I hope this episode inspires you to protect your intellectual property or IP as we referred to it in the show today, before you put it out in the public and we learned today that you can do that a variety of ways, not just with patents, but also with trade marks.
[00:52:26] Today's listener spotlight comes from Tmomma15. Tmomma says, what an amazing show I've been seeking help and insight for my product for some time, this podcast has given me clear next steps for my prototype. Thank you Tmomma for that lovely written review and that beautiful rating. If you love this podcast and you haven't already left a review, what are you waiting for? My phone lights up whenever a new review comes in and seeing that this podcast has a positive impact on you as you develop and pitch your toy ideas puts a huge smile on my face. As always thank you so much for being here with me today. I know there are a ton of podcasts out there and it means the world to me that you tune into this one.
[00:53:14] Until next week, I'll see you later toy people.
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