Ho Chi Minh City, 15 January 2025
Under the prevailing laws and regulations of Vietnam, an entrepreneur is enabled to capitalize their contribution in a company’s charter capital with intellectual property rights (“IPRs”) which are protected in Vietnam, i.e., the contributor shall have the protection title from the competent authority. Therefore, the owner of a valid patent for invention (“Patent”) in Vietnam can capitalize his/her Patent rights into equity in a company.
This article will discuss certain remarkable issues and offer practical tips for entrepreneurs’ reference in such case.
Evaluation of Patent Value
Remarkable Issues:
Evaluation of Patent value is required to determine the contribution of the Patent owner to a company’s charter capital. Such evaluation can be performed either:
- By all the company’s contributors through relevant agreement, or
- By an IPRs evaluation service provider.
However, the first option may carry some potential risks. In particular, if the evaluation is unreasonable, there may be discrepancies between the evaluated Patent value and the arm’s length value, the contributors shall be jointly liable for such difference, as well as for any loss and damages of third parties (if any).
Commonly, various methods under the following three (3) approachescan be used for evaluation of Patent value:
(i) Cost-based approaches;
(ii) Market-based approaches; and
(iii) Income-based approaches.
Practical Tips:
It is strongly recommended that the evaluation of Patent value should be performed by an IPRs evaluation service provider to mitigate the mentioned risks.
In addition, contributors should consult with experts and an IPRs evaluation service provider to agree with each other and with the service provider on the method under the three (3) mentioned approaches to be used for evaluation of the Patent value.
Duration of the Patent and Payment of Annuity Fees
Remarkable Issues:
As stipulated, a Patent shall be valid from the granting date until the end of twenty (20) yearsas from the filing date of the Patent application, non-extendable, provided that annuity fees are paid in due course. Failure to pay such annuity fees will result in the Patent being abolished.
In practice, the Patent can still be exploited by the company after the expiration of the protected period. However, such exploitation by the company can be completed by other parties, if any, due to expiration of its protected exclusive rights. This means the Patent value as evaluated may be reduced to some extent.
Practical Tips:
In order to ensure that the Patent rights used for capitalization of the company’s equity are valid during its prescribed protection period, the responsibility for paying annuity fees in due course shall be expressly specified in the capital contribution agreement. For example, the contributor who uses Patent rights for capital contribution shall take such responsibility as a condition for maintaining his/her capital contribution in the company.
Scenarios for exploiting the Patent after its expiration should be anticipated by contributors, so that they can include provisions for dealing with capital contribution involving Patent rights, for example, re-evaluation thereof, if necessary.
Registration of Patent Assignment Agreement
Remarkable Issues:
Assignment of ownership for the Patent from its owner to the company is required to complete his/her capital contribution. Such assignment shall be performed under a Patent Assignment Agreement (“PAA”), which is required to be duly registered with the Intellectual Property Office of Viet Nam (“IP Viet Nam”).
As stipulated, and in the straightforward case, it may take about 2-3 months to complete the PAA registration with IP Viet Nam. However, in practice, it may take longer.
Meanwhile, the capital contribution to a company is required to be completed within a period of ninety (90) days from the date of issuance of the Enterprise Registration Certificate (“ERC”), excluding the duration of conducting administrative procedures for conversion of ownership. Failure to complete the capital contribution within the prescribed deadline exposes the company to potential penalties.
Practical Tips:
The PAA should be concluded, and an application for registration thereof should be submitted to IP Viet Nam as soon as possible upon the ERC being granted.
Conclusion
“Entrepreneurs should thoroughly evaluate the strategic and financial implications of capitalizing Patent rights into equity in Vietnam. Proper preparation and careful planning will help mitigate risks as to the procedures as well as disputes among contributors.”
We hope this article provides valuable insights and serves as a helpful reference for entrepreneurs navigating this process.
