On January 19, 2020, a 35-year-old man who had just come from China was diagnosed in suburban Seattle with the coronavirus. Within days of that event our law firm was representing companies seeking to buy large quantities of personal protective equipment (PPE) from China. It quickly became apparent these sourcing projects would require a panoply of China lawyers, paralegals, and business specialists to help clients who needed fast and decisive assistance in buying PPE, mostly from China.

We quickly assembled what we call our “PPE team.” The first thing our team needed to do was to decide exactly the sort of help our PPE-buying clients needed. Most of our PPE buyers are hospitals, hospital chains, and consortiums of hospital buyers, but we also are working with states, countries, charities, and brokers. What all have in common is the desire to get good product at anything approaching reasonable prices.

For most companies, our law firm’s highest and best use on PPE projects involving China is the following (per the template letter we send to those seeking our assistance):

Making sure the Chinese company proposing to sell the medical products is authorized by the Chinese government to export those medical products. This usually takes very little time. If we find the Chinese company is not authorized to export the products you are seeking to buy from it, we usually will go back to you and suggest you ask the company how it proposes to get you the products when it is not on the list of companies authorized to export those products from China. If we find that the Chinese company is authorized to export the medical products you seek, we will usually immediately move on to #2 below. These authorizations are a constantly moving target, and today China yet again further restricted the products that can be legally exported. See China Tightens Customs Checks for Medical Equipment Exports. Conducting a basic due diligence investigation on your potential sellers and providing you with a report on our findings. This investigation typically consists of our reviewing various Chinese government databases to confirm that the Chinese company from which you are seeking to buy PPE products actually exists and is licensed to sell what it is proposing to sell to you. These investigations also seek to determine whether the Chinese company is well capitalized, is in good standing with the Chinese government regarding fines and taxes, and is not involved in lawsuits that would make us doubt its reliability. We also look at the company’s ownership because that sometimes gives us additional good insight about the company. After we search the Chinese government databases, we do a quick internet search on the company in Chinese and in English to try to get information about its overall reputation. We then provide you with a 3-5 page report on our findings. Our typical turnaround time on these is 5-8 hours. Not surprisingly, we are finding that the better the company, the greater the likelihood the products will clear customs in China and in the importing country. Conducting searches to determine whether the products you will be buying can be imported into the particular country in which you will be importing them. We also provide high-level customs advice for products imported into the United States and the EU, and, in tandem with associated lawyers, we can usually provide this advice for other countries as well. Drafting purchase and sale agreements between you and your Chinese sellers. This includes our providing you with legal counsel regarding terms and payment issues, such things as letters of credit. Assisting you in securing capable QC assistance in China. It helps to have someone in the factory watching how your PPE is made and making sure that what is shipped is what you bought. There is no substitute for this step, even and especially in times like this.

We also often find ourselves consulting with these buyers regarding countries other than China that are selling smaller quantities of (but often better quality) PPE.

Though we have written extensively about sourcing PPE, we get many emails every day asking that we write more on this. The problem is that whatever we write today will almost certainly be outdated a week from now, but here goes. Before reading the below — which consists mostly of updates — I urge you to read our previous posts, all of which we have translated into Spanish because we are doing quite a lot of work with Spanish-speaking buyers as well, which is no surprise because we have long-standing offices in Spain and many of our US-based lawyers and paralegals are fluent in Spanish, as well.









Now for the latest on what is going on out there and what our PPE team is seeing and hearing.

The PPE market is a complete mess. Every day I wake up to at least 25 emails from someone claiming to have PPE (almost always masks), who I am 99.9% certain does not have anything more than a desire to do a PPE deal. These are people who say they can get KN95 masks for (let’s say) $4 each or N95 masks for $8 each. Virtually none of these people are connected with legitimate manufacturers of these products; they are brokers who think they might be able to score some masks if they are paid in advance to do so or crooks who intend to just take the money and run.

How can I be so sure? Because the companies making the real thing would do not need to reach out to a US law firm to sell their products; they have people lining out their (virtual) door begging to buy their products. I have gotten nearly a thousand of these emails in the past two months, and I have responded to three of them. One was from a US company that had recently pivoted to make face shields. The other was from a US company that just started making face masks. The third was from a close friend with serious connections in Mexico. The rest I ignore. Might there have been a diamond in those other approximately 997? I doubt it. All I know is that it would not have been worth the massive time required to sort them out.

Just to be clear: there are brokers who get real product for real buyers all around the world, and we have clients who have gotten real products from brokers. But I am pretty sure that every instance involving a brokered deal that went through the client knew the broker before the coronavirus began in Wuhan.

Brokers/sourcing agents have always made us nervous, even before the coronavirus. We wrote about this on December 26, 2019, which can be considered pre-coronavirus times. In that post, entitled, Sourcing Agents INCREASE Overseas Manufacturing Risks (Most of the Time) we opined as follows:

About all I can tell you here is that there are a ton of bad sourcing agents and a few great ones, and choosing a bad one will nearly always be far worse than choosing your overseas manufacturer yourself. So if you do decide you need a sourcing agent, choose a good one. A really good one.

It then quotes extensively from a Quality Inspection Blog article entitled Sourcing from China 101, Part 1: Do You Need a Sourcing Agent? that quotes me saying the following about sourcing agents:

I often describe China sourcing agents with the following: Ninety percent are crooks or incompetents, and most are both of these things. But ten percent are worth more than their weight in gold.

When it comes to PPE, I’d bump the number up to 98%. How then can you be sure you are dealing with the 2%? You cannot be sure unless you truly know the sourcing agent with which you are dealing. There are ways, though, to be sure you are not dealing with a reputable sourcing agent, and one of the biggest tells is when that agent tries to make you believe they are the manufacturer when they are not. But even sourcing agents you know and trust can increase your risk when buying PPE, especially if you do not know from exactly where your agent is getting the PPE.

I say this for two reasons. One, in the end, the chances of whatever PPE you buy being allowed to leave China and enter the country of its final destination will hinge on the actual manufacturer. Makes sense right? And two, most sourcing agents, whether good or bad, honest or dishonest, do not have much in the way of assets. As I mentioned above, one of the things we do for all our clients buying PPE from China is to conduct due diligence on their sellers. Sometimes the seller has been around since the 1970s and has $10 million in registered capital and a bunch of factories scattered throughout China. Other times, they’ve been around since 2016 and they have $1 million dollars in registered capital and one factory. But even the best and most honest sourcing agent rarely has more than $250,000 in registered capital and a few computers housed in a rented office. If you get bad product and need recourse, you are going to be much better positioned to go after a deep-pocket manufacturer than against a near judgment-proof sourcing agent.

But what can go wrong out there? Well, like everything.

The below email is a slightly revised version of what our PPE lawyers have been telling our clients who are looking to do brokered PPE deals:

The big risk is that we have no proof the broker has any relationship at all with the manufacturer. In a normal deal like this where the broker will never take possession of the goods, we would require confirmation of the relationship between the broker and the manufacturer. This would usually be either a copy of a contract or a written confirmation. Neither will want to reveal the price terms of their arrangement and that’s normal and fine. But it is important to know whether the factory: (1) has actually agreed to produce the quantity you want to order; (2) can and will provide the product according to the time frame required; and (3) will ship the product directly to you even though it is not getting payment directly from you. These sorts of things will reduce the risk of you showing up at the factory to have the factory tell you that they have no clue who you or the broker even are. Or, only slightly better, that they know who you are but your product will not be ready for six months.

In Faulty N95 Masks Hamper Hospitals on Coronavirus Front Line, the Wall Street Journal (Austen Hufford) today explained some of the things that can and have gone wrong for those trying to secure PPE from China: