The law, passed by the National Assembly on November 22, 2006, includes seven chapters with 61 articles, dealing with objects of technology transfer; technologies encouraged for, restricted to, and prohibited from transfer; technology transfer agreements; technology transfer services (including technology transfer brokerage, appraisal, evaluation, assessment and promotion); measures for encouraging and boosting technology transfers; approval and registration of technology transfers; and handling disputes, claims, denouncements and breaches in technology transfers. It replaces Decree 11 detailing regulations on Technology Transfer dated February 2, 2005 (Decree 11). The law reflects commendable efforts from the legislature to encourage the transfer of advanced technologies into Vietnam. However, there remain some aspects which require clarification and guidance for sound implementation of the law.
Technology is defined as “solutions, processes and know-how, which may or may not be associated with tools and means, to turn resources into products.” This definition of “technology” under the law is both too broad and too narrow. It is too narrow because technology is not restricted to “solutions, processes and know-how” (used for “conversion of resources into products”). It is, however, too broad since not all “solutions, processes and know-how” (used for the “conversion of resources into products”) necessarily constitute “technologies”.
While one admits that it is difficult to define “technology,” using the conversion of “resources” into “products” as the criterion in the definition seems inappropriate. Most processes on earth, whether natural or man-made, involve the conversion of “resources” into “products.” Not all those processes should be regarded as “technology.” For example, the simple process of converting clay into pottery would likely fall within the “technology” concept under the current definition. By contrast, not all “technologies” are necessarily created for the “conversion” of “resources” into “products.” For example, medical scanning equipment would generally be considered “technology” but does not involve conversion of “resources” into “products.”
Without a workable definition of “technology”, compliance with the law encounters difficulties.
Technologies are classified under the law into technologies encouraged for transfer, technologies subject to transfer restrictions, and technologies prohibited from transfer. These categories of technologies introduce much vagueness and therefore need to be clarified in substantial detail. One assumes that all the relevant lists of technologies will be issued by the prime minister, although practice has indicated that no such list of technologies was issued in the past. Until the prime minister issues these lists, especially with respect to the list of technologies subject to conditional transfers, the law may not be well implemented.

Technology Transfer Agreement (TTA) forms of the TTA
The regulation on the form of the TTA has been broadened in the law as compared to Decree 11. TTAs can be agreed in a written contract, or other equivalent forms, such as telegram, telex, fax, data messages and other forms as permitted by law. The parties are also allowed to choose the language of the TTA. In the case where the TTA is required for transactions in Vietnam we assume where remittance of royalties or withholding tax payment is required), it must be signed in Vietnamese and a foreign language, both having equal validity.
Decree 11 currently provides that the term of a TTA shall be agreed between the contracting parties in line with the requirements and content of the transferred technology, however it shall be no longer than seven years from the effective date of the TTA. Article 15.2 of Decree 11 goes on to state that, in special cases where permitted by the authority in charge of the TTA registration, the term of a TTA can be extended, however in no event longer than 10 years.
Article 15.7 of the law implies that the parties to a TTA can agree on the term of the TTA, although this intent is not entirely clear. The rest of the law is silent on how long that term can last. The explanation of the enactment of the law submitted by the government to the legislature introduces no reason for the absence of the limited term of a TTA from the law. Meanwhile, Article 61 of the law vests in the government the right to provide guidelines to implement the law after passed. It is unclear whether or not the government intends to introduce a limit on the term of a TTA in regulations implementing the law. Investors hope that the government will allow parties the freedom to determine themselves the term of the TTA.

Foreign governing law and jurisdiction
The parties are allowed to agree on foreign governing law, together with other terms and conditions which are not contrary to Vietnamese law. The question raised is, if a TTA is governed by foreign laws, can the parties agree on terms “contrary” to the law of Vietnam? If not, what is considered as “contrary to the law of Vietnam”?
Currently, Article 776 of the Civil Code 2005 provides that technology transfer between Vietnamese individuals or legal persons and foreign individuals or legal persons, as well as technology transfer from any foreign country into Vietnam (and from Vietnam to any foreign country) must comply with (i) provisions of the Civil Code 2005 and other legal documents of Vietnam concerning technology transfers; or (ii) a foreign law, if the application of such foreign law or the consequence of the application does not contradict “the basic principles of the law of Vietnam.” None of the Civil Code 2005, the law and other laws and regulations of Vietnam defines “the basic principles of the law of Vietnam,” to which the choice and application of foreign governing laws must not be contrary.
The law further provides that any disputes arising out of TTAs with a foreign party can be settled by either local or international competent arbitration or courts which the parties specifically choose; to the extent the foreign jurisdiction choice does not contradict “the basic principles of the law of Vietnam.”

Acceptance and approval of technology transfers
The law requires that “restricted” technology transfers be subject to acceptance by the technology management authority (the “Technology Authority”) before the TTA is entered into by the parties, and then approved after the TTA’s execution. “Restricted” technologies include, inter alia, “national interest”-related technologies (too broad, as this could potentially cover most transferred technologies) and technologies affecting human health or the environment. The two-phase acceptance and approval process under the law could cripple technology transfers into Vietnam. This introduces another layer of approval as compared to the current technology regulations. The Technology Authority has discretion to approve or refuse approving the TTA. The unlimited power under this provision potentially introduces uncertainty to technology investors. The implementing regulations should confine the Technology Authority to registering (not approving) conditional TTAs. It should only have the right to refuse approval/registration if the technology being transferred is prohibited in Vietnam.

Voluntary registration of technology transfers
The law provides the right (not obligation) of the parties to register on a voluntary basis with respect to non-conditional TTAs “in order to set the ground [for the parties] to enjoy incentives given in this law and other relevant laws.” This provision worries parties since they may understand that their enjoyment of the incentives under this law and other relevant laws will be dismissed or at least impaired if their TTAs are not registered, even though registration is voluntary.

Penalties for breach of TTAs and compensatory damages
Determining the sanction imposed on the party breaching the TTA may be problematic. According to the Civil Code 2005 (Articles 307 and 422), if the parties only agree in the TTA on the penalties for breach and fail to agree on compensatory damages, the non-breaching party can only bring a claim against the breaching party for the agreed penalties for breach. If the parties fail to agree upon the penalties for breach in the TTA but agree on the specific amount of compensatory damages, the non-breaching party can only claim against the breaching party for the agreed amount of the compensatory damages. Therefore, the parties to TTAs can agree with each other to cap the amount of penalties for breach and compensatory damages. In this context, the breaching party will not be liable for any penalties and/or compensatory damages other than the capped amount agreed in the TTA.
However, according to the Commercial Law (Article 301), the penalties for breach are limited to 8 per cent or less of the value of the portion of the contract that is breached. Regardless of whether the parties agree upon penalties for breach, the non-breaching party still has the right to concurrently claim against the breaching party for compensatory damages, which is “actual and direct” damage (including the “direct lost profits … it would have earned”) suffered by the non-breaching party. The amount of the compensatory damages cannot be capped by the parties in accordance with the Commercial Law, even though the parties have so agreed in the TTA. Therefore, it is necessary to clarify the discrepancy between the Civil Code 2005 and Commercial Law in terms of the penalties and compensatory damages for breach of TTAs to avoid disputes in the future about the applicable law. The new law is designed to promote a new wave of technology transfer into Vietnam.
To encourage technology investors, it is important that the parties enjoy maximum freedom to determine themselves the terms of technology transfer. Intervention from the state should be confined to restricting technologies on national security or public health grounds.
The law makes some important steps in this direction by allowing the parties to determine the form, and hopefully duration, of TTAs. Most pleasingly, the government has demonstrated its preparedness to consider and adopt recommendations from public and private stakeholders during the long drafting process. It is hoped that this consultative approach will continue during the drafting of implementing decrees to ensure that the law fulfills its goals of increasing technology transfer activities in Vietnam

Source: Vietnam Investment Review