We are often contacted by inventors and designers who have great prototypes or ideas, but lack the resources to go into full scale production. Often an option for those in this position is setting up a Licencing Agreement or finding a manufacturing partner. Unfortunately, like most things in Chinese Business, this isn’t as simply as one might hope.

If you are thinking that licensing your IP or partnering with a Chinese supplier is a feasible option for your product to reach its potential, then read on, for I am going to give you some major points for licensing your prototype/product in China:

1. Finding a Suitable Partner – Not surprisingly, ensuring you deal with a suitable manufacturing licencee requires the same first step as the importing process – Research & Tender. Making sure that your partner is trustworthy, well established, certified, offering fair market price for your IP, and has good service levels can ensure an easier ride through negotiations.

2. Setting up the Relationship – As I am sure I have mentioned before, Chinese business is all about relationships. When partnering with a Chinese manufacturer or dealing with such an important issue as IP licensing, it it important to remember that these things can’t be rushed. If you are looking at doing it on your own, be prepared for a few trips to China all atleast many months of phone calls and emails. In Chinese culture, often the most important moments of negotiating aren’t on a conference call, but in the 5th or 6th course of a 13 course banquette put on by your Chinese host! Before you even begin doing up a contract, it is important to get to know and build a relationship with your Chinese partner, because that is exactly what they will be looking to do with you.

3. Rules of Engagement: The License Agreement – When implementing your agreement, remember the key word for your Chinese supplier is PRACTICALITY. Knowing what is practical and workable for your Chinese supplier, and implementing that into your agreement is the best way for getting favourable results. Using an Australian or foreign created agreement will often be problematic for a Chinese supplier, and can greatly affect the likelihood that they will sign it. This is where building a relationship with your supplier first, shows its true importance. Having a relationship established, where you have a good understanding of your partners motives and needs, will best serve you when it comes to negotiating your Licensing Agreement.

4. Effective Collection of Payment – Collecting royalies for your IP can take many forms and in some cases can open new doors or opportunities. The most standard form is a percentage of the products sold or a fixed price per item. Arrangements such as monthly or yearly retainers can be difficult for manufacturers to agree too, for they have no different gauge of the potential income. An alternative, and one often sometimes taken by inventors with low capital who wish to sell to there own market, is to have the licensing compensation include receiving the product itself. For many, this can deliver their dream of selling to their own market (e.g. Australia) where significant profits can be made.

The process of licensing or off-shore partnering under you own steam can be long and intensive, even with an IP Protection specialist on board. Saying that, it is possible, however, the process can be shortened and the risk reduce simply by utilizing the support of experienced professionals.

If you would like to know more about the process on Licensing & Royalties in China, please feel free to contact us.