CIRCULAR No CIRCULAR No. 1254/1999/TT-BKHCNMT OF JULY 12, 1999 GUIDING THE IMPLEMENTATION OF THE GOVERNMENT�S DECREE No. 45/1998/ND-CP OF JULY 1 st , 1998 STIPULATING IN DETAIL THE TECHNOLOGY TRANSFER Pursuant to Decree No. 22-CP of May 22, 1993 of the Government on the tasks, powers and organizational structure of the Ministry of Science, Technology and Environment; Pursuant to Decree No. 45/1998/ND-CP of July 1 st , 1998 stipulating in detail the technology transfer; The Ministry of Science, Technology and Environment hereby guides the implementation of the Government�s Decree No. 45/1998/ND-CP of July 1 st , 1998 stipulating in detail the technology transfer (hereinafter referred to as Decree No. 45/1998 for short). 1. Interpretation of terms 1.1. The commercial domestic technology transfers between the contracting parties stipulated in Point c, Clause 2, Article 1 of Decree No. 45/1995 shall be understood as the transfer of technologies between the transferor and transferee in which the two parties are bound to their rights and obligations and to making payment. 1.2. Technical support and training contracts for the purpose of technology transfer, contracts called by the contracting parties as technology license contracts, and technical know-how license contracts are generally construed as technology transfer contracts and hereinafter are referred to as contracts for short. 1.3. Transfer of computer software in technology transfer The transfer of computer software stipulated in Clause 2, Article 4 of Decree No. 45/1998 means the transfer of computer software accompanied with other technological contents stipulated in Article 4 of Decree No. 45/1998 in order to enable the transferee to acquire the full technological capability to create products and services that meet the quality and socio-economic efficiency criteria determined in the contract. The computer software contents shall be clearly determined in the contract. The transfer of computer software to the transferee without any other accompanied technological contents shall comply with the provisions of copyright legislation. 1.4. The service of providing consultancy on technology management and/or business management stipulated in Point 4.b, Article 4 of Decree No. 45/1998 shall be understood as the sending of specialists to provide consultancy and/or information by the transferor to assist the transferee in managing the technology(ies) and/or business in order to achieve the objectives stated in the contract. When providing this service, the transferor shall neither directly manage the technologies nor directly manage business for the transferee. 1.5. The State capital stipulated in Decree No. 45/1998 shall be understood as the capital under the State�s management, which includes: a/ Capital allocated from the State budget. b/ Own capital of State enterprises. c/ Capital contributed by State enterprises to the companies (established under the Law on Companies). d/ Capital borrowed from foreign governments, international organizations, foreign banks and companies via the State Bank or under the State�s guaranty. e/ Aid from foreign governments, non-governmental organizations and international organizations for projects and construction works (including humanitarian aid), which is accounted into the State budget for management. f/ State capital in the form of the right to use land, water surface, workshops, equipment... 1.6. The net selling price (stipulated in Clause 9, Article 2 of Decree No. 45/1998) is guided in detail as follows: The net selling price is the total selling price of a product or service with the transferred technology being applied during the process of its creation, which is calculated according to the transferee�s sale invoices minus the following amounts (if such amounts are included in the selling price): - The special consumption tax, the value added tax. - Commercial discounts (namely commissions paid to sale agents). - Full expenses for the purchase of semi-finished products, parts, details and components from any supplying sources (understood as the purchase prices paid to the domestic independent supplier or the import prices including the costs of transport, insurance and tax). In cases where semi-finished products, parts, details and components are manufactured in Vietnam by a third party with the transferor�s technology (via the transferee) and the transferor does not receive any technology transfer fees from the third party, the transferor and transferee may agree not to subtract the expenses for the purchase of these semi-finished products, parts, details and components. - Expenses for packs (meaning the price of packs bought from to the suppliers). - Expenses for packing (meaning the costs of packing finished products for the purpose of transportation to the consumption place). - Expenses for transportation (meaning the costs of transportation of finished products to the consumption place). - Expenses for advertising by the transferee. Depending on the technology(ies) and the type of products made with the transferred technology(ies), semi-finished products, parts, details, components as well as the above-mentioned expenses shall be concretely determined in the contract. In cases where the transferee is a software designing, prospecting, and/or manufacturing enterprise which also provides other technical services, the net selling price is the selling price of products or the price of the provided service which is calculated according to the transferee�s invoices issued to its clients minus the special consumption tax and the value added tax (if these taxes are included in the sale invoices). 1.7. The payment price of a technology transfer stipulated in Clause 4, Article 2 of Decree No. 45/1998 shall be understood as the total sum of money to be paid by the transferee to the transferor and/or by the transferee to a third party designated by the transferor for the performance of the technology transfer contract. 2. Matters concerning the technology transfer contracts 2.1. Technology transfer with regard to investment projects that select technologies by mode of bidding: After a bidding is held to select the technology supplier, the technology transfer shall be conducted according to the stipulations in Decree No. 45/1998 and this Circular. 2.2. The contents of contracts stipulated in Article 11 of Decree No. 45/1998 are further specified as follows: The technology transfer includes: granting licenses to industrial property objects (if any), providing technological know-hows; providing technical documents; training; providing technical support and business management consultancy services. A contract may contain all of such contents, or simply one or several contents mentioned above. The details of each content are as follows: 2.2.1. The granting of licenses to industrial property objects (if any) shall comply with the provisions of industrial property legislation. 2.2.2. Technological know-hows must meet the requirements prescribed in Clause 5, Article 2 of Decree No. 45/1998, the name and concrete result of the application of the technological secrets should be clearly stated. 2.2.3. Technical documents include designs, processes, formulas, quality control norms, tables, charts, instructions, guidelines, drawings, computer software, etc, demonstrating the contents of the transferred technology. The list of transferred technical documents is included in Clause 4.1 of the contract form). The titles of documents to be transferred must be listed in detail in the contract 2.2.4. Training: Training must be aimed to assist the transferee in firmly grasping and mastering the technology(ies) within a prescribed period of time. In the training program the numbers of workers and technicians to be trained, subject areas and contents of training, training duration and venue, must be specified. The contracting parties should take the initiative in making proposals and negotiating to adjust the contents of this program suitable to their own conditions. The contract must contain specific provisions on the training as guided in Clause 4,2, Article 4 of the contract form. The contract should also clearly specify commitments by the parties to achieve the training objectives, for example: commitment to qualifications and skills the trainees will acquire after the completion of the training program. At the end of the training program the transferor must examine the training quality and present each trainee a certificate on completion of the training program. The contract should specify expenses for each training item such as tuition fee, costs of trainers� and trainees� accommodation and travel and other related expenses (if any). 2.2.5. Technical support and business management consultancy services For the construction of projects and production establishments, technical assistance must be provided by the transferor according to the timetable agreed upon by the two parties. However, special attention should be paid to the three main phases: a/ The phase before the test operation or production; b/ The phase of test operation and production; c/ The phase of official operation and production. The technical support must be concretely stipulated in the contract or its appendix. For such support and consultancy services as selection of technology, renewal of technology, research, analysis, assessment, pre-feasibility and feasibility studies, technology management consultancy, business and production management consultancy, provision of services to collect, process and supply information on technologies, natural resources and environment, etc, the contract should clearly specify the tasks and duties of each specialist as well as the result of each service.. Expenses should be clearly stated for each item of technical support such as the number of specialists, their working period, salaries, allowances, travel, meals and accommodation and other expenses� 2.2.6. The two parties should clearly determine in their contract those technical services, raw materials, supplies, semi-finished products, machinery and equipment that meet the price and quality requirements and can be supplied by the Vietnamese side 2.2.7. The time and tempo of the technology transfer, the places where each part of the technology and equipment is supplied should be clearly determined and suitable to the construction, production and business tempo. The measures and forms of handling of mistakes in the supply of the technology should be defined in the contract. 2.2.8. Commitments to guaranty and warranty. a/ The transferor pledges to: - The technological level and the product quality satisfying the technical norms set in the contract (the percentage of defective products, the waste level of raw materials and supplies...). - The criteria on designing, manufacturing, installation and operation of equipment, which the transferor (or the sub-contractor) has the responsibility to comply with. - Its liability for violations of the industrial property right by a third party. b/ The transferee pledges to strictly follow the transferor�s instructions. c/ Other commitments by the two parties so as to ensure that no mistake is made in the technology transfer, to respect mutual interests in securing confidentiality, competitiveness, safety, and to ensure hygienic and environmental standards during the effective term of the contract. d/ Commitment to warranty: The technological contents to be warranted and the warranty duration should be clearly stated. If different technological contents have different warranty durations, the warranty duration for each technological content must be clearly specified. 2.2.9. The contract must contain provisions defining the legal and material responsibilities of the two parties if they fail to fulfill their commitments made in the contract. If the transferee has complied with the transferor�s instructions but the technology, the product or service fails to meet the set criteria, the transferor must investigate and explain the cause of any mistake, take remedy actions and pay compensation for the damage caused to the transferee. 2.2.10. The formulation and application of measures to prevent the impact of the technology(ies) on the environment and laborers should be clearly determined in the contract (on the content, degree, specific measures and scope of responsibility), including both the already known impact and the impact that might be discovered in the future. The transferor shall have the responsibility to inform the transferee of any bans and/or restrictions currently applicable around the world to the products and transferred technology(ies) (particularly pharmaceuticals, chemicals, foodstuff...). 2.3. Provisions not allowed to be included in the contract stipulated in Article 13 of Decree No. 45/1998 are further clarified as follows: 2.3.1. Clause 3, Article 13 of Decree No. 45/1998 is construed that the contract must not contain any provisions directly or indirectly restricting the export of products (under contracts) turned out by the transferee, unless these provisions are proved to protect the legitimate interests of the transferor. 2.3.2. Clause 4, Article 13 of Decree No. 45/1998 is construed that the transferee may continue to conduct research in and develop the transferred technology or procure similar technologies from other sources; in cases where products made by the transferee bear the trademark of the transferor, the two parties may agree in their contract that the application of the technology research and development results to products that bear the transferor�s trademark must be consented by the transferor. 2.3.3. Clause 5, Article 13 of Decree No. 45/1998 is construed that the contract must not contain any provisions forcing the transferee to unconditionally transfer without any charge to the transferor the following: a/ The right to use the results of the technological modifications or innovations created by the transferee. b/ The right to lodge applications for the protection of the industrial property right, the right to have monopoly use of the technological modifications or innovations created by the transferee and/or the right to transfer them to a third party. 2.3.4. Forbidding the transferee to continue using the transferred technology(ies) after the expiry of the contract, which is stipulated in Clause 7, Article 13 of Decree No. 45/1998, is construed that the transferee is forbidden to continue using the technology(ies) for the production and consumption of products. In cases where technologies are transferred into Vietnam under contracts that are subject to approval as stipulated in Clause 1 and Clause 2, Article 32 of Decree No. 45/1998, if the parties agree that the transferee shall not continue to use the transferred technology(ies) after the expiry of the contract, they must justify the reasonability of such agreement. The approving agency shall consider the reasonability of the agreement before giving its approval. 2.4. During the effective time of the contract, if one of the two parties makes a modification or innovation related to the transferred technology(ies), it shall have the responsibility to inform the other party of such modification or innovation. The transfer of modifications and innovations shall be made on the principles of equality and mutual benefit. 2.5. In cases where either party wishes to transfer its rights and obligations specified in the contract to a third party, it must seek the written consent from the other party as well as the approval from the contract-approving agency (for contracts subject to approval). 2.6. Time limit for keeping the technological secrets: If the contract does not prescribe the time limit for keeping the technological secrets, such time limit shall be the contract�s term. The two parties may agree upon a time limit for keeping secrets which may be longer than the contract�s term but not exceed the time when the technology(ies) is(are) publicized. 2.7. Time limit for the technological transfer and term of the technological transfer contracts of foreign investment projects in Vietnam. Throughout the implementation process of an investment project, if a need for constant technological renewal arises, the technological transfer may be effected through several technological transfer contracts provided that the term of each contract must not exceed seven or 10 years as stipulated in Article 15 of Decree No. 45/1998. 2.8. The contractual term: The term of a contract stipulated in Clause 1, Article 15 of Decree No. 1998 shall be agreed upon by the contracting parties but must not exceed seven years. For contracts that satisfy the conditions set in Appendix 1 of this Circular, the parties may agree on a longer contractual term which must, however, not exceed 10 years. For contracts that are subject to approval and have a term of less than seven years (or less than 10 years for contracts that satisfy the conditions set in Appendix 1 of this Circular) the contracting parties may apply for an extension of their contractual term provided that the total of the contract�s initial term and its extended time shall not exceed seven years (or 10 years for contracts that satisfy the conditions set in Appendix 1 of this Circular) and they must obtain the approval from the contract-approving agency. The time limit for transferring the right to use industrial property objects shall comply with the provisions of the industrial property legislation. 2.9. Form of technological transfer contracts is guided in Appendix 6 of this Circular. This contract form can be generally used for different contents of technological transfer. Depending on the concrete technological transfer contents, a contract may contain all or several parts of the contract form. However, a contract must contain all principal contents stipulated in Article 11 of Decree No. 45/1998. 3. Prices and payment in the technological transfer 3.1. Prices. The price of payment for the technological transfer shall be negotiated between the two parties on the principles of equality and mutual benefit and in accordance with Clause 3 and Clause 4, Article 23 of Decree No. 45./1998. The price of payment for a transferred technology shall depend on the following factors: - The technological advancedness and newness. - The technological contents, the importance of the technology for the entire business and production operation of the transferee. - The technology monopoly, the scope of the transferee�s right to the transferred technology (whether or not the transferee has a monopoly over the transferred technology or the right to transfer it to a third party). - The quality of products, the percentage of products for export. - The transferee�s net profits as a result of the application of the technology during the contract�s term. - Economic, technical and social benefits brought about by the application of the technology, the possibility of expanding the application of such technology to other domestic business and production establishments, the possibility of achieving the national development goals, creating jobs, promoting export or accelerating the growth of other sectors. 3.2. Value of technologies as capital contribution 3.2.1. If the entire value of the transferred technology(ies) is used as capital contribution (through the contract), it shall be calculated in a certain sum of money. After the transferor has fulfilled its obligations prescribed in the contract, the two parties shall have to make a report on the contract acceptance. A report on the acceptance of the contract under which capital contribution is made with the value of the technology(ies) must be unanimously certified by the transferee�s managing board and only since then shall the transferor enjoy a profit corresponding to its contributed capital and receive no other payments f

Circular 1254/1999/TT-BKHCNM