by Gregory Buhyoff and Dan Harris
Our lead Vietnam lawyer, Greg Buhyoff, wrote the below article for Intellectual Property Magazine earlier this year. I read it this weekend to better assist a China consumer goods company that is contemplating expanding from China to Vietnam. Though obviously about Vietnam (and not China), I have decided to run it on here because so many companies that are in China are also in Vietnam or at least thinking about going to Vietnam, but more importantly, because the tips it provides for protecting your brands in Vietnam apply with equal force to China.
Top Tips for Brand Owners Entering Vietnam
Leading global brand owners see the Association of Southeast Asian Nations (ASEAN) countries, including Vietnam, as a rapidly growing market for their goods and services, as well as a place to manufacture their goods. With a population of 93 million, a large percentage of which is under the age of 40, Vietnam was recently assigned “middle income status” by the Asia Development Bank, meaning that its increasingly brand-savvy consumers have more disposable income with which to purchase foreign goods and services. Meanwhile, with its relatively low labor costs and productive work force, Vietnam is attracting the interest of foreign companies seeking to diversify their manufacturing bases in Asia. Vietnam’s appeal as a trade and investment destination will only increase when the pending Trans Pacific Partnership (TPP), currently being negotiated, enters into force.
Foreign brand owners enter the Vietnamese market in different ways. Some brand owners sell their goods and/or services to the Vietnamese market pursuant to a sales contract, distributorship agreement or other cross-border transaction. Some establish a contract manufacturing relationship with a local factory to manufacture the brand owner’s goods for export. Others enter into a franchise arrangement with a local franchisee, or a trade mark license agreement with a local licensee. Still others establish a corporate presence in Vietnam by establishing a new Vietnamese company or by acquiring an existing Vietnamese company, then licensing the foreign brand owner’s trade mark and other intellectual property rights to their own local entity. Whatever business model you use, the following are some key issues brand owners should consider when entering the Vietnamese market.
Protecting Your Intellectual Property Rights
Vietnam joined the World Trade Organization (WTO) in 2007. As a WTO member, Vietnam is obligated to protect intellectual property rights such as trade marks, trade names, copyrights, patents, industrial designs and trade secrets. In so doing, Vietnam must comply with standards set forth in such major international conventions as the Trade Related Aspects of Intellectual Property Rights (TRIPs), the Paris Convention for the Protection of Industrial Property (Paris Convention) and the Berne Convention for the Protection of Literary and Artistic Works (Berne Convention). However, as a foreign brand owner you also should be aware of the special features of Vietnam’s domestic legal framework for protecting intellectual property rights and take into account certain corporate and regulatory considerations when entering the Vietnamese market.
Trade Mark Protection
Unlike some countries (such as the United States) where trade mark rights can be created simply by using a trade mark, trade mark rights in Vietnam arise only upon registration of a trade mark with Vietnam’s National Office of Intellectual Property (NOIP). Vietnam is a “first to file” jurisdiction, which means that the first party to file a trade mark application in Vietnam will typically be the one to whom the NOIP will issue a trade mark registration. For this reason, you should make every effort to register and maintain your trade marks in Vietnam.
Though any foreign company that does business in Vietnam should register its trade marks and other intellectual property rights in Vietnam, it should be noted that parallel imports and other “grey market” goods are not illegal in Vietnam. Therefore, your distributorship, contract manufacturing, franchising and other licensing agreements should specify the territory in which the goods may be sold and what may be done with surplus and defective production. This way, you will at least have a contractual remedy if you find that “grey market” goods from your manufacturing operations in other countries are being sold in Vietnam, or if overproduction from your Vietnam factory ends up being sold to the local market.
Like other members of the WTO, Vietnam recognizes that copyrights automatically arise at the moment a work is created. As copyright can be a basis for protecting the graphic components of a company’s branding scheme, you can use copyright as a supplemental basis for protecting your brand in Vietnam, just as in other countries. Though you do not need to register your copyrights in Vietnam for them to be protected in Vietnam, registration is recommended because it makes it much easier to prove copyright ownership if you need to take action against an infringer of your copyrights in a particular work.
Registering Your Intellectual Property Rights with Vietnamese Customs
To the north, Vietnam shares a border with China that is well known (in both directions) for its active trade in counterfeits and in other goods that infringe the intellectual property rights of foreign companies. The same is true of Vietnam’s borders with Cambodia and Laos. It will therefore typically make sense for you to ensure that you not only register your trade marks, copyrights and patents in Vietnam, but that you also register them in each of these three neighboring countries. Registering your intellectual property in all three countries will enhance your enforcement options by providing you with a legal basis for pursuing counterfeiters on both sides of the border. Registering your trade marks and other intellectual property rights with Vietnamese customs is an additional measure you can take to make it possible for you to stop infringing products from entering or exiting Vietnam.
Entering the Vietnamese Market – Threshold Considerations
Before attempting to do business in Vietnam, foreign brand owners should consult Vietnam’s WTO accession agreement to determine whether the commercial activity it intends to engage in is prohibited, “restricted,” “conditional” or otherwise limited. Foreign investment in certain sectors such as banking and telecommunications (including internet services), for example, are subject to restrictions. A foreign investor may be required to enter into a joint venture with a local Vietnamese entity and limit the size of its ownership in the parties’ joint venture enterprise. In other cases, there may be restrictions on the type of goods or services the foreign company may sell in Vietnam, or on the manner in which it sells them.
Once it is determined that your products or services can be sold in Vietnam, and you have identified a potential Vietnam-based customer, distributor, contract manufacturer, franchisee or licensee you should enter into a Non-Disclosure, Non-Use and Non-Circumvention (NNN”) agreement with the local party. Your NNN Agreement should prohibit the local party from disclosing or using, directly or indirectly, any confidential information, including trade secrets, which you may need to disclose to the local party while negotiating the potential business relationship. Such obligations should be drafted so as to survive the termination of negotiations and be restated in a formal agreement (preferably in Vietnamese) that results from the parties’ negotiations.
Licensing and Franchise Situations
A number of global brand owners license their trade marks to entities in Vietnam. For example, several major hotels and retail establishments operate under licensing schemes with foreign companies. Several prominent international brand owners sell their goods in Vietnam pursuant to franchise agreements with local entities.
Foreign brand owners that wish to enter into franchise arrangements must comply with Vietnam’s franchise legislation in all respects, which includes issuing a proper franchise disclosure document and complying with various registration requirements. It is also possible that the number of franchise outlets may be limited because of the “Economic Needs Test” (ENT) to which franchises and other retail establishments may be subject.
Whether a foreign brand owner enters into a franchise arrangement or simply licenses its trade marks to a Vietnamese entity, its trade marks must be registered with the NOIP, as noted above. In addition, a trade mark license agreement must be registered with the NOIP to be effective against third parties in Vietnam.
Establishing a Corporate Presence in Vietnam
Some foreign brand owners may wish to establish a corporate presence in Vietnam by, for example, establishing a wholly foreign owned entity or a joint venture entity. The foreign entity should decide which of its trade marks it wants to license to the Vietnamese entity, then make sure to register each of these marks and the licensing agreement with the NOIP.
The Vietnamese language uses a Latin alphabet, so many Vietnamese are familiar with the English language version of foreign brands. Because of this, registering a trade mark in the local language is less common in Vietnam than it is in, say, China. Nevertheless, if a trade mark has a meaning that is translatable into Vietnamese, or if the brand owner finds that a phonetically similar “Vietnamese version” of its trade mark is catching on with Vietnamese consumers, the brand owner should consider registering a Vietnamese translation or the phonetically similar “Vietnamese version” of its mark with the NOIP.
In some cases, the foreign brand owner may seek to acquire all or part of an existing Vietnamese entity. During the due diligence process, among other things, the foreign entity should determine what trade marks, copyrights and other intellectual property rights the target entity claims to own, and which such rights it actually owns. Special issues can arise in cases where the M&A transaction results in a Vietnamese corporate entity that is jointly owned by a foreign party and Vietnamese party, and both parties have trade marks and other intellectual property rights that the joint venture may wish to use. In such cases, the foreign party should consider which of its registered trade marks will be licensed to the Vietnamese entity, which of the Vietnamese partner’s marks should be used, if any, and whether, for example, it makes sense to contrive any new trade marks, which may include a “composite mark” comprised of each of the parties’ respective trade marks. The joint venture contract should specifically address these and other issues, including what will happen to the parties’ and joint venture’s trade marks when the joint venture is dissolved.
Ownership of Intellectual Property Rights as Between Employer and Employee
Though employers generally own the intellectual property rights created by employees within the scope of their employment in Vietnam, the issue should be properly managed to avoid various employer-employee disputes that can arise in this area. There is a standard labor contract employers must use when hiring Vietnamese employees, but this standard labor contract contains only the minimum provisions required by Vietnam’s labor law. It is best to supplement the standard labor contract by requiring each employee to sign an “ownership of intellectual property rights” or similar agreement which addresses ownership of intellectual property created by the employee within the scope of his or her employment. Special attention should be given to ownership of copyrightable works. Vietnamese law distinguishes between “economic rights” and “moral rights.” An employee who creates a copyrightable work may retain certain “moral rights” in that work which are not assignable. Though it is unclear whether moral rights can be waived, it is prudent to include a waiver provision in the ownership of intellectual property rights agreement. You should also include a provision obligating your employees to refrain from disclosing or using any of the employer’s confidential information.