Conflicts of interest in licensing agreements constitute one of the most common legal risks in transactions involving the transferring of industrial property rights. If the parties to a licensing agreement have overlapping or undisclosed interests, the performance of the agreement may be adversely affected, potentially resulting in disputes or even rendering the agreement invalid. The following article examines the current situation, legal concept, applicable legal framework, and preventive measures relating to conflicts of interest in licensing agreements, thereby assisting parties in managing legal risks and ensuring transparency throughout the negotiation and performance of such agreements.

I. Current situation concerning conflicts of interest in licensing agreements

In practice, many licensing agreements currently contain ambiguous provisions regarding the scope of licensed rights, royalty rates, or mechanisms for supervising the exploitation of industrial property rights. Such lack of transparency may enable one party to exploit its position or access to internal information to obtain disproportionate benefits, thereby leading  to conflicts of interest and disputes during contract performance.

In addition, the absence of independent oversight mechanisms and effective internal control procedures within many organizations contributes to the failure to detect conflicts of interest in a timely manner. If the parties fail to fully disclose their relevant interests or deliberately conceal material information, the transparency of the licensing agreement may be compromised, resulting in legal risks or prolonged disputes.

II. Concept of conflicts of interest in licensing agreements

1. What is a conflict of interest in a licensing agreement?

A conflict of interest in a licensing agreement refers to a situation in which a party involved in the negotiation, execution, or performance of the agreement has personal interests, related-party interests, or obligations owed to another person or entity that affect, or are capable of affecting, the objectivity, honesty, and fairness in the exercise of rights and performance of obligations under the agreement.

Such situations commonly arise when an individual or organization simultaneously represents multiple interests within the same licensing transaction, thereby creating a risk that personal interests or the interests of related parties will be prioritized over the legitimate interests of the contracting parties. If left unmanaged, conflicts of interest may result in disputes, financial losses, and adverse consequences affecting the validity or performance of the licensing agreement.

2. What are the common causes of conflicts of interest in licensing agreements?

Conflicts of interest may arise during the negotiation and performance of licensing agreements for various reasons, including:

  • Related-party interests among the contracting parties: In certain circumstances, the individual responsible for negotiating or executing a licensing agreement may simultaneously possess economic interests or ownership relationships with the other contracting party. Such circumstances may impair the individual's objectivity in decision-making, contrary to the principle of good faith and honesty prescribed in Clause 3, Article 3 of the Civil Code 2015.
  • Lack of transparency in the disclosure of information during contract formation: If one party fails to fully disclose material information, such as ownership of the industrial property object, the scope of licensed rights, or related interests, the other party may enter into the licensing agreement based on incomplete information. The obligation to provide truthful information during the pre-contractual stage is prescribed in Article 387 of the Civil Code 2015.
  • Unclear licensing provisions or inadequate mechanisms governing the exploitation of industrial property rights: If the agreement fails to clearly specify the scope of licensed rights, reporting obligations, or inspection mechanisms, overlapping interests may arise during performance. The essential contents of a licensing agreement are prescribed in Clause 1, Article 144 of the Law on Intellectual Property 2005, as amended and supplemented in 2009, 2019, 2022, and 2025 (hereinafter referred to as the "Law on Intellectual Property 2005, as amended").
  • Absence of internal control mechanisms for related-party transactions: In many enterprises, the failure to establish procedures governing the disclosure and review of related-party transactions increases the likelihood of conflicts of interest arising in licensing agreements.

3. What are the indicators that a conflict of interest exists in a licensing agreement?

  • The individual participating in the negotiation or execution of the agreement has a related interest with the other contracting party, such as ownership, managerial authority, or economic interests in the counterparty.
  • One party conceals or fails to disclose material information, including information concerning ownership of the industrial property object, the scope of licensed rights, or agreements relating to the exploitation of the licensed rights.
  • The contractual provisions are drafted in a manner that provides unusual benefits to one party, such as unreasonably low or high royalty rates, excessively broad licensing rights, or unfair exemption-of-liability clauses.
  • The agreement lacks appropriate control or supervisory mechanisms during its implementation, particularly if decisions concerning the licensing agreement are made without independent review or without compliance with internal approval procedures.

III. Legal provisions governing conflicts of interest in licensing agreements

1. What principles govern the conclusion and performance of licensing agreements to prevent conflicts of interest?

When entering into a licensing agreement, the parties must satisfy the legal requirements for contractual validity, including legal capacity of the contracting parties, voluntary intention, and a contractual purpose and content that neither violate prohibitory provisions of law nor contravene social ethics, as prescribed in Clause 1, Article 117 of the Civil Code 2015. Furthermore, the conclusion and performance of the agreement must comply with the principles of good faith, honesty, and cooperation, thereby preventing either party from exploiting its position or access to information to obtain unfair advantages, under Clause 3, Article 3 of the Civil Code.

In addition, during the negotiation and contract formation stage, the parties are obliged to fully and truthfully disclose information relevant to the conclusion of the agreement in accordance with Clause 1, Article 387 of the Civil Code 2015. Such an obligation is particularly important with respect to information that may affect the other party's decision to enter into the agreement, including ownership of the industrial property object, the scope of the licensed rights, and any restrictions applicable to the licence.

For agreements concerning the transferring of industrial property rights, the essential contractual contents must comply with Clause 1, Article 144 of the Law on Intellectual Property 2005, as amended. These provisions are intended to ensure clarity and transparency in defining the rights and obligations of the parties throughout the negotiation and performance of the licensing agreement.

2. Does Vietnamese law require an independent oversight mechanism where a licensing agreement presents a high risk of conflicts of interest?

Article 167 of the Law on Enterprise 2020, as amended in 2025, governs the supervision of transactions between a company and its related persons. Under this provision, transactions likely to lead to conflicts of interest must be reviewed, approved in accordance with prescribed procedures, and accompanied by appropriate disclosure of relevant information. These requirements are intended to prevent individuals or organizations from exploiting managerial positions to conduct transactions that benefit themselves while causing detriment to the enterprise.

Furthermore, the principles of good faith, honesty, and transparency prescribed in Clause 3, Article 3 of the Civil Code 2015 require contracting parties to act objectively and honestly throughout the negotiation and performance of contractual obligations. In practice, many enterprises voluntarily establish internal control mechanisms or independent supervisory procedures, such as review by the board of directors, internal audit departments, or external legal counsel, to minimize the risk of conflicts of interest in licensing agreements.

3. If a licensing agreement contains an exemption-of-liability clause, can a party still be held liable for a conflict of interest?

The parties to a licensing agreement may agree upon exemption-of-liability clauses intended to limit liability for damages under specified circumstances. However, the inclusion of such clauses does not automatically exempt all conduct arising from conflicts of interest from legal liability.

  • Pursuant to Clause 2, Article 3 of the Civil Code 2015, the conclusion and performance of contracts must comply with the principles of good faith and honesty. Accordingly, neither party may abuse its contractual rights or position to obtain personal benefits at the expense of the other party.
  • Furthermore, Articles 13 and 360 of the Civil Code 2015 provide that a party shall take civil liability if it fails to perform or improperly performs its contractual obligations, thereby causing damage to the other party. Consequently, if a conflict of interest results in the intentional concealment of information, abuse of position, or other conduct causing damage to the counterparty, an exemption-of-liability clause may be held unenforceable or declared invalid to the extent that it conflicts with the law, under Clause 3, Article 3 and Point (c), Clause 1, Article 117 of the Civil Code 2015.

4. Measures to prevent conflicts of interest in licensing agreements

To minimize the risk of conflicts of interest arising in licensing agreements, the parties should prioritize transparency and clarity from the negotiation stage through contract execution.

  • The parties should fully disclose all relevant interests, including ownership relationships, management positions, or economic interests that may influence the decision-making process. Transparent disclosure enables the parties to accurately assess the conditions for entering into the agreement and prevents contractual decisions based on incomplete information.
  • Licensing agreements should contain clear and comprehensive provisions governing the scope of licensed rights, the obligations of each party, supervisory mechanisms, and liability in the case of contractual breach. Clearly drafted contractual provisions not only reduce the risk of overlapping interests but also establish a solid legal basis for resolving disputes should they arise.
  • Organizations and enterprises should establish internal control mechanisms for transactions likely to involve conflicts of interest, such as independent approval procedures, legal review processes, or consultation with specialized departments. Such measures facilitate the early detection of potential conflicts and ensure that licensing agreements are negotiated and performed in a transparent and legally compliant manner.

IV. Questions regarding conflicts of interest in licensing agreements

1. Does a conflict of interest render the entire licensing agreement invalid?

Pursuant to Article 122 of the Civil Code 2015, a civil transaction (including a contract) is invalid only if it fails to satisfy the conditions for validity prescribed in Clause 1, Article 117 of the Civil Code, namely: the contracting parties possess legal capacity, the parties enter into the transaction voluntarily, and the purpose and contents of the transaction neither violate prohibitory provisions of law nor contravene social ethics. Accordingly, if a conflict of interest does not impair the parties' free will or result in contractual terms that violate the law, the licensing agreement shall remain legally valid.

In case where a conflict of interest affects only a specific part of the agreement, Vietnamese law permits partial invalidity. Specifically, Article 130 of the Civil Code 2015 provides that if only a portion of a contract is invalid without affecting the validity of the remaining provisions, only the invalid portion shall cease to have legal effect, while the remaining provisions shall continue to be enforceable.

Furthermore, when a conflict of interest results in a breach of contractual obligations and causes damage, the breaching party may be liable for compensation under Articles 360 and 419 of the Civil Code 2015. Alternatively, commercial remedies under Article 292 of the Commercial Law 2005 may be imposed, including compulsory performance, contractual sanctions, compensation for damages, suspension of contract performance, termination of contract performance, or cancellation of the contract.

2. What should the affected party do first upon discovering a conflict of interest in a licensing agreement?

Upon discovering a conflict of interest in a licensing agreement, the affected party should first verify the relevant facts and collect evidence to clarify the nature of the conflict and assess its impact on the parties' contractual rights and obligations. It is an essential step in determining whether the conduct constitutes a breach of contract or has caused actual damage.

Once preliminary grounds have been established, the affected party should notify the other party in writing of the existence of the conflict of interest and request an explanation or appropriate remedial measures. Such notification demonstrates good faith in the performance of contractual obligations, in accordance with Clause 3, Article 3 of the Civil Code 2015, while also establishing a legal basis for dispute resolution should the issue remain unresolved.

3. Is a party liable for concealing a conflict of interest in a licensing agreement?

From a civil law perspective, the concealment of material information may constitute fraudulent misrepresentation during contract formation if it causes the other party to misunderstand the nature of the transaction. According to Article 127 of the Civil Code 2015, the deceived party is entitled to request the Court to declare the transaction invalid and to claim compensation for damages. In addition, if such conduct constitutes a breach of contractual obligations or causes damage, the breaching party must compensate the injured party in accordance with Article 360 of the Civil Code 2015 and may also be subject to commercial remedies prescribed under Article 292 of the Commercial Law 2005.

In case a party intentionally conceals a conflict of interest in order to obtain an unfair advantage for the purpose of unlawfully appropriating property or obtaining illicit gains, such conduct may constitute a criminal offence if all statutory elements are satisfied. For example, when the concealment induces the other party to transfer assets, make payments, or pay licensing royalties that are subsequently misappropriated, the conduct may constitute the offence of Fraudulent Appropriation of Property under Article 174 of the Criminal Code 2015, as amended and supplemented in 2017 and 2025.

4. Can a licensing agreement be amended to remedy a conflict of interest?

The parties may amend a licensing agreement to address a conflict of interest, provided that such amendment is made voluntarily and with the mutual consent of all relevant parties. According to Clause 1, Article 421 of the Civil Code 2015, the parties are entitled to agree on amendments or supplements to the contractual terms during the performance of the contract, provided that such amendments do not violate prohibitory provisions of law or contravene social ethics.

In practice, once indications of a conflict of interest are identified, the parties commonly review contractual provisions that may create an imbalance in their respective rights and obligations, and subsequently agree to amend such provisions through an addendum or a formal contract amendment. 

Proactively amending the agreement not only helps eliminate or mitigate conflicts of interest but also contributes to maintaining the validity of the licensing agreement and reducing the likelihood of future legal disputes, particularly in long-term licensing arrangements or transactions involving multiple parties.

5. Does a third party have the right to request the cancellation of a licensing agreement due to a conflict of interest?

As a general rule, a third party does not have the right to request the cancellation of a licensing agreement solely as a conflict of interest exists, since a contract constitutes a binding agreement exclusively between the contracting parties.

Pursuant to Article 385 of the Civil Code 2015, a contract is an agreement between parties establishing, modifying, or terminating civil rights and obligations. Accordingly, the rights and obligations arising from the contract primarily belong to the contracting parties, and the right to request cancellation or termination of the agreement generally rests with those parties.

However, if the negotiation or performance of a licensing agreement involving a conflict of interest directly infringes upon the lawful rights and interests of a third party, the affected third party may initiate legal proceedings to protect such rights. According to Article 186 of the Civil Procedure Code 2015, individuals, agencies, and organizations are entitled to institute legal proceedings if they believe that their lawful rights and interests have been infringed. In such circumstances, the Court may examine the validity of the licensing agreement, including determining whether grounds exist for declaring the transaction invalid under applicable civil law.

V. Why should you seek legal advice from NPLaw regarding conflicts of interest in licensing agreements?

Where a conflict of interest arises in a licensing agreement, obtaining legal advice at an early stage enables businesses to identify legal risks promptly and adopt appropriate solutions. NPLaw's team of experienced lawyers possesses extensive expertise in commercial contracts and intellectual property law, providing professional assistance in assessing the legality of contractual provisions and evaluating potential dispute risks. Our lawyers can also advise on negotiation strategies, contract amendments, and appropriate legal measures to safeguard clients' lawful rights and interests. Through such professional support, businesses can minimize legal risks, reduce costs, and ensure the stable and efficient exploitation of licensed rights.

The information provided above is for reference purposes only. Should you require detailed legal advice tailored to your specific circumstances, please contact NPLaw Firm for prompt professional assistance.