1. What is know-how?

So, what exactly is this know-how, and how does it benefit businesses in Vietnam, especially tech-savvy ones?

Imagine you're opening a new restaurant. You might have the best recipes and a talented chef, but running a smooth operation takes more than just delicious food. You need know-how: understanding food costs, managing inventory, and keeping customers happy. Similarly, in tech, know-how can encompass:

Technical Expertise: Understanding the intricacies of software development, coding languages, and troubleshooting complex issues.
Market Savvy: Knowing your target audience, understanding industry trends, and crafting winning marketing strategies.
Operational Efficiency: Streamlining processes, managing teams, and ensuring seamless production and delivery.

Now, let's talk about the legal side of things. Vietnamese law recognizes know-how as an intellectual property right, just like patents or trademarks. This means you can contribute it to a business as part of your investment, just like bringing in cash or equipment. In Vietnamese law, know-how is commonly referred to as a "trade secret". As such, it has its own definition

23. Trade secret means information obtained from activities of financial or intellectual investment, which has not yet been disclosed and which is able to be used in business.

However, not all things are considered trade secrets or know-how, there are some cases in which it could not be called so, such as:

Personal identification secrets.
State management secrets.
National defense and security secrets.
Other confidential information unrelated to business.

In the event know-how is none of those above listed objects, congratulations, you are the owner of the trade secret. But wait, who can be considered the "owner" of such an intangible object? Under current IP Law in Vietnam, the owner of such property must be an organization or individual who has lawfully acquired such trade secret and kept it secret. A trade secret acquired by an employee or a performer of an assigned task during the performance of the hired job or assigned task shall be owned by the employer or the task assignor unless otherwise agreed by the parties.

Furthermore, a trade secret can only call itself a trade secret if it satisfies a certain law-mandated conditions, such as:

Not common knowledge and not easily obtained;
When used in business, it will give the holder of a business secret an advantage over someone who does not hold or use that business secret;
Be kept confidential by the owner using necessary measures so that the business secret is not disclosed and is not easily accessible.

As a result, your mother's "secret" recipe for her legendary spring roll would not likely be considered know-how. Another tough issue regarding this set of conditions is the fact that it can only be considered secretive if it is kept confidential using necessary measures. There has been no official guidance regarding this issue, but rather it must be considered on a case-to-case basis. But the important thing to note from this case is that there is a clear presence of the secrecy of the work, as it must be shown in contracts, documents, the ins and outs of the office, etc. This issue in practice is rarely the subject of litigation in Vietnam, therefore the lack of precedent is a huge difficulty in the event of a conflict.

2. How do you value know-how?

Trade secrets, the hidden gems of intellectual property, can be the engines of innovation and competitiveness for businesses in Vietnam. But unlike a shiny patent or a registered trademark, these valuable nuggets of know-how lack the legal framework of formal registration. So, how do you put a price tag on something invisible? Let's navigate the intricacies of trade secret valuation in Vietnam

Factors to Consider:

Economic Value: The core question. Quantify the financial impact of your trade secret on the business. This could involve increased revenue, reduced costs, or a competitive edge over rivals.
Uniqueness and Difficulty of Replication: Is your secret sauce one-of-a-kind? How hard would it be for someone to reverse engineer or independently develop it? The rarer and more complex, the higher the potential value.
Lead Time and Development Costs: Consider the time and resources invested in creating and refining your trade secret. The sweat and expertise poured into its development should be factored in.
Transferability and Legal Protection: Can your trade secret be easily transferred to another party? Are there legal measures in place to protect it from unauthorized disclosure or use? The ease of transfer and the strength of legal protection add to its worth.
Market Dynamics and Future Potential: How relevant is your trade secret to the current market? Does it have the potential to evolve and remain valuable in the future? Consider its ongoing relevance and adaptability.

Valuation Methods:

Once you've mapped out the factors, the dance of valuation begins. Several methods can be employed, each with its strengths and limitations:

Cost Approach: Calculate the total costs of development and refinement, including research, development, and any ongoing maintenance.
Income Approach: Estimate the future financial benefits generated by the trade secret, such as increased revenue or cost savings.
Market Approach: Compare your trade secret to similar assets that have been bought or sold in the market, adjusting for specific differences.
Discounted Cash Flow Analysis: Predict the future cash flows associated with the trade secret and discount them to arrive at a present-day value.

Seeking Professional Help:

Navigating the intricacies of trade secret valuation can be tricky. Consider seeking expert assistance from:

Intellectual Property Valuation Firms: They have the experience and tools to analyze your trade secrets and provide a comprehensive valuation report.
Legal Consultants: They can advise on the legal aspects of protecting and leveraging your trade secret, ensuring your valuation aligns with legal realities.
Financial Experts: They can assist with financial modeling and discounting techniques to arrive at a reliable value estimate.

Remember:

There's no one-size-fits-all approach: The most appropriate valuation method depends on the specific characteristics of your trade secret and the intended purpose of the valuation.
Documentation is key: Clearly document the development process, economic impact, and any legal measures taken to protect your trade secret. This strengthens your valuation efforts.
Professional guidance is invaluable: Don't underestimate the importance of seeking expert advice to navigate the complexities of trade secret valuation in Vietnam.

By understanding the factors, methods, and resources available, you can unlock the true value of your trade secret, turning your invisible asset into a powerful driver of success in the Vietnamese market.

To understand easier, here is a case study, provided by the European Union Intellectual Property Helpdesk, otherwise known as Case Study 29

3. Case Study 29

The world of intellectual property (IP) often transcends physical boundaries, with intangible assets like know-how becoming the driving force behind innovation and competitiveness. While patents and trademarks offer visible forms of protection, valuing and negotiating for know-how contributions in joint ventures can be a complex dance, especially in emerging markets like Vietnam. The case of EcoClean and CleanTech, two companies on the precipice of forming a tech joint venture, serves as a poignant illustration of the challenges and intricacies of navigating this murky landscape.

EcoClean, a European company, possessed a revolutionary water and detergent-minimizing treatment system - their crown jewel, their unpatented "secret sauce." As they embarked on negotiations with CleanTech, a Vietnamese partner, the issue of valuing this know-how contribution became the proverbial elephant in the room. Unlike a tangible asset, EcoClean's expertise defied easy quantification. The conventional methods of valuation, often built upon readily available market data or registered IP rights, offered little guidance in this scenario.

CleanTech, eager to expedite the deal, proposed a minimal value for the know-how contribution, dismissing EcoClean's detailed cost calculations and IP valuation reports as superfluous. This discrepancy in perceived value raised immediate red flags. Was CleanTech merely interested in exploiting EcoClean's technology without fair compensation? Did they lack a genuine appreciation for the invisible power of know-how, the years of research and development embedded within that silent system?

EcoClean, unwilling to devalue its core asset, opted for a strategic timeout. They recognized the crucial role that due diligence plays in mitigating risks in joint ventures. A partner's understanding and respect for your IP can be a powerful indicator of their long-term commitment and shared vision. CleanTech's reluctance to sign a Non-Disclosure Agreement (NDA) further solidified EcoClean's doubts. An NDA, essentially a shield for sensitive information, should be a standard practice in any partnership involving significant know-how contributions. Its absence fueled speculation about CleanTech's true intentions, prompting EcoClean to question the very foundation of the proposed collaboration.

Walking away from a seemingly promising deal might seem counterintuitive, yet EcoClean understood the inherent value of protecting its IP. Their decision wasn't driven by short-term gains but by a long-term vision of finding a partner who recognized the true worth of their invisible asset. It wasn't just about valuing the technology; it was about recognizing the dedication, innovation, and intellectual capital invested in its creation.

This case study transcends the specific circumstances of EcoClean and CleanTech and offers valuable lessons for navigating the intricate world of know-how valuation in Vietnam's joint venture landscape. Here are some key takeaways:

Know your IP's worth: Don't underestimate the value of non-patentable expertise. Seek professional evaluation to quantify its tangible impact on revenue, cost reduction, or competitive advantage.
Due diligence is key: Scrutinize your potential partner's understanding and appreciation of your IP. Are they valuing it fairly? Do they have a proven track record of respecting and leveraging intangible assets?
NDAs are your friend: Protect your secrets before revealing them. A partner's reluctance to sign an NDA might speak volumes about their intentions and commitment to protecting your IP.
Walk away from bad deals: Don't compromise your IP for short-term gains. The right partner will recognize and invest in its true potential, fostering a mutually beneficial collaboration.

The case of EcoClean and CleanTech highlights the critical role of strategic decision-making in the face of uncertain valuations. It underscores the importance of recognizing the invisible power of know-how and protecting it with the same tenacity as any tangible asset. By navigating the murky waters of joint ventures with due diligence, informed valuation, and unwavering commitment to IP protection, both Vietnamese and international companies can unlock the true potential of collaboration and innovation, propelling their ventures toward sustainable success in the dynamic market landscape of Vietnam.

4. Conclusion

Valuing trade secrets in Vietnam, though an invisible dance, is far from impossible. Weighing its unique worth against economic impact, market dynamics, and future potential unlock its true power. Remember, meticulous documentation, expert guidance, and the right valuation method can transform your hidden gem into a shining beacon of innovation and competitiveness. So, embrace the complexities, value your secrets wisely, and watch them unlock a world of possibilities in the vibrant Vietnamese market.

If you need further explanation on this subject, please don't hesitate to contact us through email at lienhe@luatminhkhue.vn or phone number: +84986 386 648. Lawyer To Thi Phuong Dzung.