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Tips for negotiating licensing deals in China

Many businesses look to licensing deals with Chinese companies as a low-cost way to enter the Asian market. However, while an agreement to license your product in China can provide many benefits there are a few important differences between the U.S. and China that come into play.

If a business is considering a licensing deal in China, here are a few tips to keep in mind during negotiations:

Register any applicable trademarks, patents, and copyrights

Ensure the intellectual property assets your licensee in China would be allowed to use are registered in China. Ideally, have your company and counsel do the registration work, to avoid any issues that might arise from having the licensee register for you.

Know what type of entity you are dealing with

Over the last several years, it has become more and more common for Chinese firms to offer American businesses an ownership stake in the company in exchange for a licensing deal. However, in some cases, such a stake cannot actually be granted.

Wait to sign the Letter of Agreement

Unlike in the United States, the Chinese legal system can enforce a Letter of Agreement (LOA) or Memorandum of Understanding (MOU) as a valid contract if it is signed by both parties. Do not sign one of these documents until you can have it reviewed by counsel. Alternatively, you may be able to include language in the letter making it unenforceable.

These are just a few of the important considerations in a U.S./China licensing deal. An attorney well-versed in the interplay between laws in China and the United States can provide guidance on individual deals.

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