China Manufacturing Contracts — Penalty Clause Recommendation Tool
These questions establish the financial baseline for your liquidated damages figure. The goal is to anchor the amount to defensible, calculated numbers rather than arbitrary figures.
This establishes a defensible baseline for a fixed sum. It moves the number from 'arbitrary' to 'calculated.'
At minimum, the penalty should cover R&D costs plus a premium. Include design, engineering, tooling development, testing, and certification costs.
If the design is easily replicable and the brand is unknown, the damage from copying is immediate and total. If value is in the brand, copying the design is less catastrophic.
Courts and arbitrators care about lost profit, not just lost revenue. Margin-based calculations are more persuasive under the 30% rule.
A 6-month exclusivity window has a different damage profile than a 3-year moat. This affects whether you calculate one year or five years of lost revenue.
If the core product feeds a larger revenue stream (razor/blade model), unauthorized manufacturing destroys more value than unit economics suggest.
Liquidated damages clauses work alongside statutory IP protections. Chinese registrations strengthen your enforcement position. Without them, the LD clause may be your only lever.
Different markets represent different damage profiles and different enforcement realities.
If you've shopped this to multiple factories during quoting, the design is already more exposed.