7 types of licensing contract disputes commonly found in Vietnam?

A licensing contract is a transaction in which a licensor grants a licensee the right to use the Industrial Property Rights (“IPRs”) such as trademark, tradename, inventions, industrial designs, etc., owned by the licensor under a certain set of conditions. Licensing contract is one of the most commonly used contracts in the field of Intellectual Property and there have been many disputes arising out of such contract.

Through this article, BLawyers Vietnam would like to present to readers about 7 common disputes on licensing contracts in Vietnam.

1. Disputes over the payment of the licensing price

In licensing contracts, there are two types of payment, which are lump sums and partial/ periodical. The dispute over the payment of licensing price normally arises from the partial/ periodical payment method. Because the licensee often invokes various reasons to refuse to make the payment during the performance of the contract.

For example: Dispute between K Investment and Trading Joint Stock Company (“Company K”) and T Joint Stock Company (“Company T”) under the judgment No. 01/2019/DS-ST dated 24 September 2019 of the People’s Court of Thua Thien Hue province. Accordingly, Company K and Company T signed a licensing contract dated 01 October 2011 with a 20-year term and Company T is responsible for paying Company K a royalty fee equivalent to 1% of the hotel’s room sales of each month. However, Company T did not pay as agreed. Therefore, Company K has brought a lawsuit for claiming Company T to pay the fee according to the minutes of debt reconciliation between two parties and the late payment interest.

Read more our series of contract laws:

Conflict of laws regarding contracts pursuant to Vietnamese laws and 4 conflict resolution principles

Force majeure event and 4 notes when drafting this clause in a contract

How to determine overdue payment interest, fine for breaching contract and compensation in commercial relation under Judicial Precedent No. 09/2016/AL?

Penalties for breach of contract, what is a legal penalty agreement?

2. Disputes over the exclusive licensing contract

There are 3 types of licensing contracts, including exclusive one, non-exclusive one, and sub-license one. An exclusive contract means that the licensee shall have the exclusive right to use the licensed IPRs. However, there are cases where, after signing an exclusive licensing contract, the licensee discovers that the licensor signed a licensing contract having the same licensed IPRs with another party or such licensed IPRs are being used by another third party. Therefore, the dispute arises because the licensor has not ensured the exclusive right as agreed in the contract.

3. Disputes over the termination of IPRs

Pursuant to the amended Law on Intellectual Property 2005 (“IPL”), the duration of the licensing contract depends on the term of protection of the IPRs of the licensor. However, the termination of the licensor’s IPRs shall be not due to the expiry of the statutory term of the protection certificate but comes from many reasons such as the licensor giving up IPRs, neither the licensor paying the fee for maintaining the validity or not extending the validity as prescribed or the licensor terminating operations, the licensor does not have the right to IPRs or the licensed IPRs does not meet the protection conditions at the time of granting the protection certificate, etc.

In many cases, the licensor does not notify the licensee in advance about this issue, leading to the damages of the licensee that is performing the licensing contract. From there, two parties have arisen disputes related to the termination of such a contract.

4. Disputes over the competence to sign the licensing contract

In fact, there are many cases that the person who has no competence to represent the licensor or exceeds the scope of representation (the “Non-Competence Person”) to sign a contract with the licensee. In this case, the licensee can bring a lawsuit requesting the termination or cancellation of this licensing contract. At the same time, the licensee and licensor can request the Non-Competent Person to pay damage (if any).

Of note, if falling one of the following cases, the licensor takes responsibility for performing the contract with the licensee even though the contract is concluded by the Non-Competent Person:

  1. Licensor has recognized the contract;
  2. Licensor knows without objection within a reasonable period of time;
  3. Licensor has fault leading to that the licensee does not know or cannot know about the person who has established or executed the contract, has no competence.

5. Disputes over the sub-license contract

The IPL provides that the licensee must not enter into a sub-license contract with a third party unless the licensor permits. However, there are cases where the licensee permits a third party to use the licensed IPRs without the licensor’s consent. Therefore, the licensor has the right to bring a lawsuit to the Court to request a third party must terminate using the licensed IPRs illegally and claim damages from the licensee (if any).

6. Disputes over the unilateral termination of the licensing contract

The term of licensing contract can last for 10 years. However, it is not always that the licensee can exploit the licensed IPRs proficiently when arising factors leading to the licensee cannot continue performing the licensing contract (e.g., unstable market, force majeure occurs, business losses, etc.,). The licensee normally requests the licensor to terminate the contract before expiry. Based on the contract and regulation of law, if the licensor recognizes that the licensee has no right to unilaterally terminate the contract, thus, the licensor shall not agree with this request, leading to disputes between the parties.

7. Disputes over controlling quality clauses

Pursuant to IPL, the licensor must not compel the licensee to buy all or a certain percentage of raw materials, components, or equipment from the licensor or a third party designated by the licensor unless it is for the purpose of ensuring the quality. However, the definition and criteria of “for the purpose of ensuring the quality” have not been mentioned by law. Therefore, in practice, there are cases where the licensor compels the licensee to buy materials from the licensor with an unfavorable price compared to the market price with the excuse that it is for the purpose of ensuring the quality, leading to disputes between the parties.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 24 March 2022

Writers: Thao Nguyen & Thu Tran

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