Hello all. This week we’re exploring issues with technology transfer in Vietnam. Just in case you’re not familiar with the term, technology transfer refers to the process of conveying results stemming from scientific and technological research to the market place and to wider society, along with associated skills and procedures.
This can come in the form of transfers from inventors to companies who mass produce, market, and sell their invention or it could be a cross-border transfer of technology from a manufacturer in the United States necessary to build and operate a manufacturing plant in Vietnam. There are many possible permutations of technology transfer possible and in Vietnam, the National Assembly has issued laws relevant to the contracting and registration of such transfers.
As I am a corporate and commercial specialist, technology transfer issues are somewhat outside of my area of expertise. As such I turned to our TMT lawyers and found Mr. Ly Nghia Dzung willing to assist me in exploring the most relevant legal issues in this field. The rest of this blog consists of his experience and his analysis of the 2017 technology transfer laws exploring the most relevant developments from that legislation.
Issues of technology transfer contracts in Vietnam
As per my experience in registering technology transfer agreements since 2015 under the 2006 Technology Transfer Law and the amendment thereof in July 2019 (the effective date of the 2017 Technology Transfer Law) I dealt primarily with the Long An province authorities. The Department of Science and Technology at the Long An province mainly examined the contents of the technology transfer agreement for consistency with the required contents in accordance with the laws, and I was not required to amend any content of the filed technology transfer agreement during such registration procedure, therefore, it was unclear if the Departments of Science and Technology at other provinces or the Ministry of Science and Technology made any different or stricter requirements on the contents of the technology transfer agreement.
The 2017 law
There are some major changes in the required contents of the technology transfer agreement between the 2017 Technology Transfer Law and the 2006 Technology Transfer Law.
Registration of transfer
An independent technology transfer agreement or a technology transfer section in an investment project, capital contribution in the form of technology, franchise, transfer of IP rights, or purchase and sale of machinery and equipment which are attached to the transferred technology in any one of the following cases (i) technology transfer from abroad into Vietnam, (ii) offshore technology transfer, or (iii) domestic technology transfer using State-owned capital or State budget, except for cases where a certificate of registration on results of scientific and technological tasks has been granted is subject to technology transfer registration. This is complicated, however, as it is not compulsory to register under Article 6.1 of Decree No. 133/2008/ND-CP. As the law is still relatively new to enforcement we aren’t sure yet how this contradiction will be played out by the authorities. For surety, we recommend registering the transfer if there is any question as to whether it falls under the above categories.
Language of transfer contracts
The contractual parties in a technology transfer agreement can freely agree to the language used in the agreement according to Article 22 of the 2017 Technology Transfer Law, specifically, it is not required to have a technology transfer agreement in Vietnamese in addition to other language versions as previously prescribed under the 2006 Technology Transfer Law. This does not obviate the need to translate the agreement into Vietnamese, however, as the application dossier for registration of technology transfer requires a certified Vietnamese translation of the technology transfer agreement where there is no written agreement in Vietnamese.
Identifying the relevant authority for registration
The relevant authority over the registration of a specific technology transfer is determined by the case of independent technology transfer and other forms under the laws or the case of technology transfer through an investment project, i.e.:
- For technology transfers attached to an investment project that must be authorized by the National Assembly, the Prime minister, or a central ministry or agency, the Ministry of Science and Technology will grant the certificate of registration on technology transfer, and the Department of Science and Technology at the province level will grant the certificate of registration on technology transfers for investment projects within the other cases.
- For technology transfer independent of investment projects and other forms under the law, the Department of Science and Technology at the province level will handle the domestic technology transfer which uses State-owned capital or State budget and those transfers that are registered voluntarily. Other cases will be handled by the Ministry of Science and Technology.
Although the Ministry of Science and Technology allows application for registration of technology transfer in person, by post, or via online portal at the Public Service Portal it remains quite inconvenient for local traders to carry out registration procedures at the Ministry of Science and Technology.
Effective date of transfer contracts
The effective date of a technology transfer agreement where the technology transfer is subject to registration is set from the issuance date of a certificate of registration on technology transfer, not the effective date as may agreed by the contractual parties or the signing date of a technology transfer agreement. Similarly, the effective date in case of extension, modification, or supplementation is valid from the issuance date of the certificate of registration on extension, modification, or supplementation of the contents of a technology transfer. This provision seems to violate the principle of freedom of contract between the parties. It is an irrational interference of the State agencies into commercial transactions of traders which may cause risks for the contractual parties in relation to the conclusion and performance of such an agreement.
In comparison to the 2006 Technology Transfer Law, the 2017 Technology Transfer Law has (i) clearer provisions, (ii) mechanisms to manage and limit the transfer price in performance of a technology transfer agreement by asking the technology transfer price to be audited and implemented in accordance with the laws of taxation and price for:
- technology transfer between the parties with which one or more parties have State-owned capital,
- technology transfer between the parent company and its subsidiary,
- technology transfer between the related parties in accordance with laws of taxation, and
(iii) more specific provisions on the technologies encouraged, limited, and prohibited for transfer to promote the transfer of advanced and high-tech technologies from abroad into Vietnam and prevent or eliminate the transfer of obsolete technologies or technologies that adversely affect socio-economic, national defense, security, environment, and human health.
For many instances of technology transfer in Vietnam, then, the issue of registration is vital. The government, apparently, wants to monitor the movement of ideas and technologies within its territory–thus the registration requirements–despite the fact that registration adds an extra step in the investment process. A point worth noting for anyone seeking to conduct investment activities in the country.
This registration requirement is especially tricky for acquiring parties as technology transfer may not necessarily come up under the IP due diligence. To ensure proper closing of any M&A deal, it is necessary to ensure that any technology transfer requirements are satisfied. Thus, registration should be added to deal to-do lists.
Luckily, for Vietnamese inventors, scientists, and developers the domestic transfer of technology between Vietnamese citizens and Vietnamese companies does not require registration. Only cross-border transfers and those involving State assets must be registered. Why the government feels it has to monitor such transactions evades me, but they do, and thus investors and businesses moving technology and know-how in Vietnam must be wary of the registration requirement.
If you have any questions regarding technology feel free to contact your lawyer at Indochine Counsel or get in touch with our TMT team. If you want to get in touch with Dzung–the lawyer who contributed today’s post–you can find his contact information here.