An FDI beverage brand franchises 12 outlets to a Vietnamese partner, handing over all drink formulas, the operations manual and staff training processes. Two years later the franchisee falls behind on fees, the agreement is terminated, yet the outlets stay open under a slightly different name with a nearly identical menu. The investor asks: is the know-how already handed over still protected, and which points should the contract have locked down from the start?
Governing legal framework
The first layer is the Intellectual Property Law (consolidated text 67/VBHN-VPQH of 2026): Article 4(23) defines a trade secret as information obtained from financial or intellectual investment, not yet disclosed and usable in business; Article 84 sets three protection conditions — it is not common knowledge or easily obtainable, it gives its holder a business advantage, and the owner keeps it confidential by necessary measures. The second layer is the franchise contract under the Commercial Law 36/2005 (Articles 284 to 291) and Decree 35/2006/ND-CP as amended by Decree 120/2011/ND-CP: know-how is the transferred subject matter, and the franchisee confidentiality duty and scope of use are set by contract. Unlawful disclosure or use of a secret is an infringement act under Article 127 of the IP Law.
Applying the rules in practice
The fatal weakness in franchising is that the franchisor hands the secret over itself: if the contract does not identify which parts are secret, does not attach a concrete confidentiality duty and does not regulate post-termination consequences, the counterparty will attack the third Article 84 condition — necessary secrecy measures — arguing the owner itself never treated the information as secret. The sound approach is to tier information before handover: keep core formulas as premixes or via designated suppliers, mark operations manuals page by page, grant system access per named account and revoke it on termination. Every handover needs a signed inventory, so the scope of the secret can be proven in litigation later.
In practice, a former franchisee that keeps using the know-how hides behind the argument that the information has become its staff professional skill. The line courts look at is the system specific documents and processes — quantified formulas, operating standards, supplier data — not a bartender general craft. The post-termination clause should therefore state expressly: stop using all system materials, return or certifiably destroy manuals, refrain from opening a similar business using the same processes within a reasonable time and territory, with pre-estimated damages to ease the burden of proof in a dispute.
Recommended sequence of actions
- Inventory the system secrets before signing: formulas, manuals, supplier data, software — mark each group confidential.
- Draft a dedicated confidentiality clause: scope of use, no copying, duties flowing down to the franchisee staff, post-termination consequences.
- Hand over against a signed inventory, grant named-user system access and audit outlet use periodically.
- On termination: recover materials and accounts within a fixed deadline, verify copy destruction, and monitor the market for outlets reusing the process.
FAQs
How are formulas and processes protected when franchising a brand?
Through two locks. The statutory lock: formulas and processes meeting Article 84 of the IP Law are protected as trade secrets even after handover to the franchisee, provided the franchisor applied secrecy measures — confidential marking, access control and inventoried handover. The contract lock: a confidentiality clause in the franchise agreement identifying which materials are secret, banning copying and limiting use to the franchise system. Without the contract layer, proving the secrecy condition in a dispute becomes very hard.
What happens if the franchisee discloses the secrets?
Disclosure to third parties or use outside the franchise scope infringes the trade secret under Article 127 of the IP Law and breaches the franchise agreement at the same time. The franchisor may demand cessation, claim damages under the Civil Code, rely on any pre-agreed damages amount in the contract, and terminate the franchise where the breach falls within the listed termination events. If the leaker is the franchisee employee, primary liability still rests on the franchisee under its undertaken management duty.
After the agreement ends, may they keep using the know-how?
No. The duties of confidentiality and non-use of system know-how do not end with the agreement: on expiry or termination the franchisee must stop using the formulas and processes, return or destroy the materials against a record, and remove system signage. Continuing to trade on the same process is handled as trade-secret infringement under Article 127 and breach of post-contract duties; general skills staff accumulated on their own cannot be restrained, so the clause must be aimed precisely at the specific documents and processes.
