VALUATION OF ASSETS IS INDUSTRIAL PROPERTY RIGHTS TO INVENTIONS IN CAPITAL CONTRIBUTION, PURCHASE, AND SALE OF SHARES
VALUATION OF ASSETS IS INDUSTRIAL PROPERTY RIGHTS TO INVENTIONS IN CAPITAL CONTRIBUTION, PURCHASE, AND SALE OF SHARES
Society is going through the industrial revolution 4.0 so information technology assets and intangible assets are gradually being appreciated. In which the property subject to intellectual property rights is an object that is prioritized by the subjects to be included in civil transactions in general and used as assets to contribute capital to enterprises. However, the law on capital contribution with intellectual property rights still has many obstacles, causing difficulties for entities, especially foreign investors. When contributing capital with intellectual property rights, the most important thing is to evaluate the value of property rights contributed to the business.
1. Overview of intellectual property rights and invention
a. Intellectual property rights
Intellectual property rights to copyright, industrial property rights, and rights toward plant varieties. They have some characteristics such as:
- No physical form, invisible, non-physical.
- Can be easily used independently by many different subjects in different spaces and times.
b. Invention
Technical solutions can be formed into physical products or exist under processes. An invention is granted a patent when it has 3 conditions: novelty, creative level, industrial applicability. If an invention is protected by a utility solution patent, there is no need for 3rd-conditions.
2. Contributing capital, buying and selling shares by means of protection of industrial property rights to inventions.
Vietnamese law has many provisions related to capital contribution with intellectual property, especially industrial property rights. In article 34 Enterprise Law 2020, intellectual property rights are one of the assets contributing to enterprise capital and can be valued in Viet Nam Dong.
a. About members
Industrial property rights to inventions are properly recognized and protected by the state. Therefore, the owner has the right to use and dispose of odd the property for personal purposes such as exchanging, exploiting utility, contributing capital to the enterprise, etc. The subject of capital contribution with industrial property rights must be the owner. That is, the capital contributing party must be granted a protection title by a competent State management agency for the invention that they want to contribute capital to and must not fall into the restricted transfer cases as prescribed law.
In addition, the capital contributing party must be the subjects who have the right to contribute capital, buy and sell shares according to Article 17 of the Enterprise Law 2020. This article does not refer to foreigners, so it can be understood that foreigners have the right to contribute completely capital to Vietnamese enterprises.
b. About object
Intellectual property rights in general and industrial property rights to inventions, in particular, are limited in terms of the national territory. An invention can only be protected in a single country because when registered, the invention will lose its novelty in another country, so it cannot be registered in that country. Vietnam has acceded to the Paris Convention for the Protection of Industrial property in 1949. The principle of protection under article 2 of this convention provides: “Nationals of any country of the Union shall, as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals; all without prejudice to the rights specially provided for by this Convention”. That is, foreigners enjoy the same rights to inventions as Vietnamese citizens. Therefore, a foreigner’s invention, like a Vietnamese citizen’s invention, must meet the conditions prescribed by Vietnamese law to be granted a protection title.
Article 93 of the Law on Intellectual Property of Vietnam stipulates that an invention patent is effective from the date of grant and lasts until the end of 20 years from the date of application. An invention that is contributed capital, bought and sold shares of an enterprise needs to remain within the scope of protection both in space and time. At the same time, when transferring industrial property rights to inventions, there are certain restrictive conditions specified in the intellectual property law and relevant legal documents.
3. Valuation of intellectual property in capital contribution, share purchase, and sale
To be able to contribute capital to the business, the assets need to be valued and converted into Vietnamese currency. The valuation will determine the value of the property to exchange, contribute capital, buy and sell shares corresponding to the amount of money that possession brings. The assets of intellectual property rights have great economic and spiritual value, so the correct determination of the value of intellectual property assets needs to be done accurately. The Vietnamese legal system on the valuation of intellectual property assets in general and inventions, in particular is still quite sketchy. A few new regulations are only mentioned in principle and do not explain this issue in detail.
There are 2 methods of valuing intellectual property, the quantitative method, and the qualitative method.
- Quantitative method is to evaluate rank and score intellectual property assets based on factors such as the degree and scope of influence of rights to each object of intellectual property and ability protection of these objects. This method is evaluated on the following aspects: assessing the rights of the object will be based on characteristics, protection term, protection status,…; assess the transferability of the object; business potential assessment. The disadvantage of this method depends a lot on the subjective assessment of the appraiser.
- Qualitative method based on measurement and data analysis to calculate the value of intellectual property objects into money.
According to this article, the asset valuation of intellectual property rights will be based on historical quantification. That intellectual property is valued, calculating the total costs incurred by a business to create and develop until receiving a protection title. This is also a method for valuing assets. However, it is not universally applicable because of the disadvantage of not valuing the future value of the invention. The property of industrial property rights is an intangible intellectual property of great future value. This method does not reflect the future value of intellectual property. Therefore, the value of the assets of intellectual property rights is the sum of the values from the past to the future, from the actual cost to the expected cost.
In particular, the income approach should be prioritized to apply when this method directly assesses the economic benefits that intellectual property brings from the process of forming, creating finished products to exploiting future uses. The methods have the disadvantage of not taking into account the future value of the IP assets from the incorrect valuation.
In summary, the current Vietnamese legal system has no documents explaining or detailing the valuation of assets that are intellectual property rights in general and industrial property rights in particular. capital, buying and selling shares. Valuation of capital contribution assets, especially assets subject to intellectual property rights, is not easy to come up with exact and specific numbers. Therefore, in order to minimize risks to the parties in the capital contribution transaction and the third party, the asset valuation needs to have ideas and coordination with competent people to agree on the price the most exactly.
The above is the advice of DHT Law Firm on the provisions of Vietnamese law related to the valuation of assets subject to intellectual property rights to contribute capital, buy and sell shares. If you have any questions or issues, please contact us to receive professional legal advice.