Vietnam - Legal Overview - Technology Transfer

The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.

This summary is, necessarily, selective and is no substitute for detailed legal advice.

This Section is necessarily selective and does not attempt to do more than highlight some important issues.

1. The Law on Foreign Investment expressly permits contributions to the capital of foreign invested enterprises to be made by means of the contribution of :

"patents, technical know-how, technological processes and technical services."

In practice, contributions to capital sought to be made in this way by a foreign party often encounter difficulties and delays. This primary difficulty is often valuation which will require the approval of the authorities in Vietnam.

2. Technology Transfer, including by way of contribution to an investment project, must

- enhance technological standards and production efficiency and improve the quality of products or be capable of developing new products.

- not be detrimental to the safety of production.

- make rational use of energy, natural resources and manpower.

- not adversely affect the environment.

3. Technology Transfer is broadly defined. It includes the transfer through the purchase, sale or supply of:
- technical know-how;

- technical options and procedures;

- preliminary design and technical design documents;

- formulae, drawings, graphs, diagrams and charts; and

- other technical parameters or professional knowledge.

It will include also the following forms of consultancy or support services

- technical support;

- selection of technology;

- instructions for the installation of equipment;

- trial operations;

- research, analysis, evaluation, pre-feasibility and feasibility studies of investment projects and technology innovation projects;

- consultation in relation to technology management, Organisation and operation of production and technology processes;

- training and improvement of the professional, technical and managerial qualifications of administrators, technicians and other workers;

- support services in relation to the collection, processing and supply of information on markets, technology, law, resources and the environment.

4. Very many investors in Vietnam support their investment by entering into a technical assistance agreement with the foreign invested enterprise. In view of the wide definition of what is covered by technology transfer, it will be appreciated that technical assistance agreements are likely to be contracts for technology transfer and, therefore, subject to the restrictions and conditions that are outlined below.

5. Technology Transfer contracts must contain:

- the technical and economic value of each item of technology to be transferred;

- the results expected to be achieved following completion of the transfer- economically, technically and socially;

- detail of the intellectual property concerned and describing how it may be protected;

- the schedule and place(s) of transfer;

- detail of payments to be made, including, where different items are being transferred, a breakdown of the fee between the various items;

- undertakings as to quality, reliability, duration, confidentiality, environmental and occupational safety;
- details of training.

6. Technology transfer contracts must not contain

- provisions which compel the transferee to buy or to receive from the transferor materials, machinery, intermediate products or unskilled labour;

- provisions restricting the export markets of the transferee;

- provisions prohibiting the transferee from developing the technology transferred or obtaining similar technology from other sources;

- provisions prohibiting the transferee from utilising the technology freely once the licence has expired (this does not apply to trademarks).

7. There are legal restrictions on the price that can be charged: the price is often low and restricted further by reference to what has been agreed in previous transactions by other investors.

8. An investor needs to be aware that it is not usually possible to exhibit prescribed forms of trademark licence agreement or technical assistance agreement to a joint venture agreement submitted to the SCCI for approval and to make approval of these exhibits a condition to the making of financial contributions. A mechanism for obtaining approval in principle does exist and it is often useful to begin the negotiation of these ancillary contracts at the time when a joint venture begins to be negotiated.

9. An investor needs also to be aware that a licence of trademarks can not be granted unless the marks have been registered in Vietnam. Registration of marks can be time consuming and the process should be begun at as early a stage as possible.

10. Fees and royalties are subject to withholding tax at ten or fifteen per cent depending on the length of the contract. Grossing up clauses have been disallowed in the past.

11. Trade and service marks are capable of registration in Vietnam as are what are described as "industrial property rights", which include "inventions, utility solutions, industrial designs, trademarks and the right to use an appellation of origin." Copyright is also able to be protected through recent legislation.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".