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Licensing of trademarks in Vietnam and legal risks

I. Legal provisions on licensing of trademarks

1. Definition of the trademark

As provided in Clause 16, Article 4 of Intellectual Property Law 2005, amended and revised in 2009 (hereinafter referred to as “IP Law 2005”), a trademark is defined as follow: “A trademark is a sign used to distinguish goods or services of different organizations, individuals”. From this definition, it can be seen that the most important function of a trademark is to distinguish goods or services. Besides, the trademark also provides information about the origin of products. Hence, individuals and organizations have an opportunity to reach customers and expand markets. Therefore, by using the trademark, consumers can identify the products of the business, so that the business can create a competitive advantage in the market.

According to the above definition, although a trademark is any sign used to distinguish goods or services, one of the conditions for a trademark to be protected in Vietnam is visible. Therefore, signs which are not identifiable by eyes such as sounds or tastes have not been considered for protection in Vietnam under the current law. However, apart from the protection of "traditional" trademarks such as images, words, etc., many businesses still need to apply for protection of "non-traditional" trademarks, which are visual signs. Currently, many countries around the world, such as the United States, as well as many signed Agreements relating to the protection of intellectual property rights, have provisions on trademark protection such as sounds, tastes, ... Therefore, the law on intellectual property needs to have amendments and supplements related to the protection of these "non-traditional" trademarks to comply with international regulations as well as meet the needs of trademark owners.

2. Licensing of the trademark under Vietnamese law

a. Definition and benefits of trademark licensing

As mentioned in Clause 1, Article 141 of  IP Law 2005, “Licensing of an industrial property object means permission by the owner of such industrial property object for another organization or individual to use the industrial property object within the scope of the owner's right”. The trademark is one of the objects of industrial property, therefore, licensing of a trademark is also defined as permission by the trademark owner for another organization or individual to use the trademark within the scope of owner’s rights.

We know that the licensing of a trademark not only brings commercial benefits to the licensor but also provides opportunities and benefits for the licensee. First, for the licensor, the licensing of the trademark is one of the forms of exploitation of industrial property rights of the owner because the owner will receive a material benefit for the licensing. Besides, by licensing trademark under the licensing contract, the licensor has the opportunity to access new markets, attract a large number of consumers to make them aware of their products. Especially, it is not always that the trademark owner can exploit the trademark effectively, so by negotiating a licensing agreement, the owner can avoid the case of compulsory termination of the validity of a trademark protection title, and also receive a license transfer fee paid by the licensee. 

Furthermore, the licensing also brings benefits to the licensee. Now, we know that in some cases, licensing of trademarks is part of franchise contracts. Meanwhile, most of these franchises come from large domestic and foreign corporations whose products have had certain development and recognition in the market. By franchising includes the licensing of the trademark, the franchisee is allowed to trade in goods and services on the trademarks, technologies and business methods widely on the market. Moreover, this can help them save resources, time for the creative, developing process of a trademark, and bring this trademark to the consumer market.

b. Restrictions on licensing of trademarks

Although the licensing of the trademark is considered to be an agreement between the parties, the law on intellectual property still contains provisions of restriction of licensing of the trademark as follow:
Firstly, the right to use a collective mark is not transferred to organizations and individuals that are not members of the owner of the collective mark. This means that the law only restricts licensing of trademarks that are collective marks and also restricts the transfer of such trademark to entities who are not members of that organization. However, members of the organization are still allowed to license the collective mark to each other.

Second, the licensee may not make a sub-license contract with a third party, unless it is so permitted by the licensor. This means that in many cases, even if the two parties have signed up an exclusive contract on the licensing of a trademark, the licensee who wishes to transfer the trademark to the third party must have the permission of the licensor.

In addition, the law also stipulates that on goods or goods packages, instructions in which goods are manufactured under a licensing contract must be written by licensee.

3. Provisions on trademark licensing contracts

When licensing of a trademark, the parties must make a written contract as mentioned in Clause 2, Article 141 of IP Law 2005. According to the scope of rights, the current Intellectual Property Law divided into two types of contracts. Those are exclusive contracts and non-exclusive contracts. The difference between these two types of contracts is the scope of licensing of trademarks and the rights to make the trademark license contracts to a third party. In addition, the law also mentions another type of licensing contract when the licensor in this contract is the licensee in the original licensing contract, this contract is the industrial property object sub-license contract.

The registration of trademark licensing contracts is something to pay attention to. As prescribed in Clause 2, Article 148 of on IP Law 2005, the validity of contract depends on the agreement of both parties, which means that the trademark license contract is not required to be registered at a competent state authority, but shall be legally effective as against a third party upon registration with the state administrative body for industrial property rights. However, the third party is not defined by the law on intellectual property. Can we understand the third party as the supplier, government officials, customers or other entities?  Understanding the concept of a third party helps the licensor and the licensee carry out the procedures for registration of the licensing contract properly, otherwise, it will lead to the case even though the procedure is not compulsory, the contract only becomes effective, you still have to register. Because in fact, the licensing of the trademark is not only related to the parties to the contract but also other entities.

As specified in Clause 1, Article 144 of  IP Law 2005, a trademark licensing contract includes basic contents such as name and address of the parties, type of contract, the scope of the license, licensing price, so on. Besides, an industrial property object license contract must not have provisions that unreasonably restrict the right of the licensee, otherwise, if terms appear in the contract, they shall be automatically invalid. These restricted provisions are stipulated in Clause 2, Article 144 of  IP Law 2005 as follows:

Firstly, the restricted provision relates to compel the licensee to transfer free of charge to the licensor improvements of the industrial property object made by the licensee or the right of industrial property registration, industrial property rights to such improvements. 

Secondly, the licensor directly or indirectly restricts the licensee to the right to export goods or services produced or provided under a trademark licensing contract to territories where the licensee does not have the right to own trademark or to have the exclusive right to import such goods or services.
Furthermore, the licensor compels the licensee to buy all or a certain percentage of materials, components or equipment from the licensor or a third party designated by the licensor not to ensure the quality of goods produced or services provided by the licensee.

Finally, prohibiting the licensee from complaining about or initiating lawsuits with regard to the validity of the industrial property rights or the licensor's right to license.

The final provision is to prohibit the licensee from complaining about or initiating lawsuits with regard to the validity of the industrial property rights or the licensor's right to license.

The current law offers a series of provisions that prohibit the provision of unreasonable restrictions on rights to protect the licensee's rights such as the right to appeal, the right to export goods and services, so on; and also to limit the exclusive rights of the owner in the process of licensing of trademarks.

II. Realities of licensing of trademarks in Vietnam and legal risks

1. Realities of licensing of trademarks in Vietnam

Until this moment, inventions, trademarks, and industrial designs are the main objects of industrial property object licensing contracts in Vietnam. According to statistics, during the years, the total number of trademark licensing contracts registered at the National Office of Intellectual Property of Vietnam is higher than that of other industrial property objects licensing contracts. An invention has a term of protection of twenty years but cannot be extended or the term of protection of industrial designs is five years and is renewed only twice, meanwhile, the certificate of trademark registration is valid within ten years and can be extended that do not restrict the number of renewals, this leads to great economic benefits of the exploitation of trademark rights. This may be the reason for the increase in the number of registration of trademark licensing contracts.

Based on statistics by the National Office of Intellectual Property in 2019, there are more than 200 applications for trademark licensing contracts. Furthermore, each trademark licensing agreement may include many trademarks transferred by the licensor. In addition to the new registered licensing contracts, every year, owners also register to renew this contract to continue using that trademark. However, licensing the trademark contract is not required to register, therefore, in fact, if we only base on the statistics shown by the National Office of Intellectual Property, the exact number of licensing contracts cannot be determined.
 
On the other hand, when parties have transferred the right to use the trademark, as mentioned above, contracts must show the price for the licensing because this is considered a compulsory term in the contract. The current law does not offer any provisions regarding the ceiling price, floor price or provisions on transfer prices. Hence, the parties will be free to agree on a price, provided that the licensing contract shows this term. Currently, in registered trademark licensing contracts, the price for licensing is mostly 0 VND; 1 USD; or a certain percentage of the total settled revenue or the settled production value of the licensee for the previous year of the transferee.

2. Legal risks

Firstly, the terms of the contract are invalid because the content of the contract has provisions that unreasonably restrict the right of the licensee. As mentioned above, parties have not entitled to agree on provisions that unreasonably restrict the right in trademark licensing contracts as specified in Clause 2, Article 144 of the IP Law 2005. If a contract restricts the rights of the licensee, this provision automatically becomes invalid. Consequently, the signed contract becomes partially invalid, but this will not affect the remaining provisions of the contract, so the contract is still legally valid and the remaining provisions in the contract are still a binding force to the parties. Therefore, the parties need to consider and discuss the terms of the contract to limit the scope of the invalid contract as well as maximize the benefits of the parties.

In addition, trademark licensing contracts may be invalid. If the licensor transfers the right to use a collective mark to an individual or organization that is not a member of the trademark owner, the trademark licensing contract will be invalid because it is impossible to perform the subject matter of the contract (as prescribed Article 408 of the Civil Code 2015). Besides, if the licensee transfers the right to use the trademark to a third party without the licensor's consent, this contract – the sub-license contract will be invalid because this content is contrary to the law.

Moreover, the trademark licensing contract may be invalid when the trademark has not been registered for protection. Under the law, industrial property rights to a trademark shall be established on the basis of a decision of the competent State body to grant a protection title and only the owner can license his/her trademark. Therefore, if a trademark registration certificate has not yet been issued, the owner is not to be established, so he/she is not allowed to have any transactions that this transaction requires the ownership. An organization or individual wishing to enter into the trademark licensing contract must require the licensor to prove the ownership of the goods or services before making the contract. If the parties still make the trademark licensing contract when the licensor has not an owner yet, this contract may be invalid.

When entering into any contracting relationships, it is difficult to avoid disputes. Disputes over contracts of licensing of industrial property rights, including trademarks, are mentioned in Clause 3, Section IA of Joint Circular No.02/2008 / TTLT -TANDTC-VKSNDTC-BVHTT & DL-BKH & CN-BTP. In fact, this dispute often arises when one party or all parties commit acts in violation of the matters such as payment obligations, the scope and duration of licensing, and guarantee of business under the trademark, and so on.

In conclusion, the licensing of trademarks is not a strange concept anymore and plays an important role in the economic development in Vietnam. Intellectual property law has regulations and they are consistent with international agreements and meet the requirements of the economy. But additional, there are still many problems related to this activity, especially regulations that are unclear and not really suitable for exercising the right to license the trademark. Therefore, it is necessary to have regulations and policies suitable to the development as well as reduce the burden of administrative procedures for this activity.
 
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