In clearing out emails the other day I came across an email conversation from many months ago between a China consultant whose client was having trouble getting its molds from its China factory and one of my firm’s China lawyers. The consultant’s client, an American company, had just assumed that the molds it was seeking belonged to them because they had paid for them (around $120,000).. Below is the conversation between this China consultant and one of my firm’s China attorneys.
China Consultant. It looks like I might need your help with something else as well. Any chance to get molds from a factory if the attached is all my client has? The factory basically said that it gave us a great deal and we have to pay $80,000 more on top of the $120,000 my client already paid if we want to remove the molds from their factory. I am the middle man and my customer wants to move these molds to their factory in the US because they are moving production back home.
China Lawyer: The China factory is going to say that the agreement [emailed to us] was for services and it owns the molds. We have dealt with these sort of issues many times and our goal when retained is to get the molds for an amount less than originally sought and for a savings that more than pays our legal fees. If the Chinese factory really wants the molds, our chances of getting them back for a good price are not good at all. But if the Chinese factory just wants money and if your client is willing to pay for the molds, we ought to be able to get them a considerably better deal.
If your client had a well-crafted China mold ownership agreement or mold ownership provision in any of their agreements with this factory, we’d be able to get them their molds for nothing or for a couple thousand dollars, and within a few weeks. Most likely, their manufacturer would never even have tried to hold on to them. But we cannot tell them that, at least not right now.
China Consultant: At this point, are you amazed by how many ways china factories screw over American companies?
China Attorney: At this point, nothing a China factory can do would amaze me. But yet I never cease to be amazed by how American companies do things in China without first running them by someone who knows what he or she is doing. Maybe it is just because I am a lawyer and so I know how little it would have cost this company to have done things right in the first place (far less than we will charge them now to try to get their molds back), but it is really the American company that troubles me here, not the Chinese one. Virtually any time you do not have a mold agreement with a Chinese factory and you tell them that you will cease manufacturing with them they hold onto the molds, usually just out of spite. This is why we put mold provisions (and penalties) in nearly every manufacturing agreement we write.
China Consultant: My client has decided it will be easier and less nerve-wracking and maybe even cheaper to just remake the molds, especially since they don’t need all of them.
China Attorney: I completely understand. Totally their call. Good luck to you both.
Source: China Law Blog