An FDI parts maker fears its local machining workshop will, after a few years of cooperation, master the whole process and open a rival plant with the very product it learned — a scenario that already happened to two competitors in the same industrial park. The board considers splitting the process into four steps across four workshops, but production objects that transport, quality inspection and defect rates will rise. The question is whether the measure has real legal value, and whether the operating price is worth it.
Direct legal basis
No rule prescribes step-splitting, but the measure maps directly onto the protection conditions in Article 84 of the IP Law (consolidated text 67/VBHN-VPQH 2026): a secret is protected where the whole is not easily obtainable and the owner applies necessary secrecy measures. When no single workshop holds the entire process, what each keeps is only a fragment — even if leaked, the harm and the chance of reassembling a complete process drop sharply, and the fragmented structure itself is strong evidence of secrecy measures in a dispute. Relations with each workshop remain processing contracts under the Civil Code 2015 and the Commercial Law 36/2005, where confidentiality and no-use-outside-the-order duties must be written per workshop. If a workshop assembles collected fragments to manufacture a competing product itself, that conduct is still actionable under Article 127 and Article 45(3) of the Competition Law 23/2018/QH14.
Key application points
Effective fragmentation is not mechanical equal splitting, but separation at knowledge choke points: the step holding quality-deciding parameters — mixing ratios, calibration values, special treatment sequences — stays inside the company own plant or at the most trusted workshop under the tightest control; ordinary mechanical steps go outside. Information discipline accompanies it: each workshop receives only its own step drawings with necessary tolerances, never the master documentation; inter-step workpieces carry coded markings so the next workshop cannot reverse-engineer the original design. On cost, the company must count fully: inter-workshop transport, multi-point quality inspection, inter-step inventory, coordination defect rates — the total surcharge is usually acceptable where secret value is high and product life is long, and not worth it where the product is simple or about to be replaced by a new generation.
Processing contracts in a fragmentation model need four clauses beyond the ordinary contract: a ban on the workshop contacting or exchanging information with other workshops in the company chain; a ban on taking similar-product processing for third parties using accessed information and tooling; a duty to return or destroy drawings and dedicated tooling at each order end; and a right to spot-audit document storage at the workshop. The practical point to accept is that fragmentation reduces rather than eliminates risk: a workshop can still master its own step and serve a rival at exactly that step, so the company still needs the confidentiality-agreement layer and market monitoring as in any outsourcing model. Fragmentation is a loss-reduction measure, not a legal substitute.
Safe-handling checklist
- Identify the process knowledge choke points and decide which steps stay in-house and which go out.
- Design information discipline: per-step drawings, coded markings on workpieces, no master documentation at workshops.
- Add the four fragmentation clauses to processing contracts: no cross-contact, no third-party use of information, document recall, audit rights.
- Recompute the total fragmentation cost yearly against the product remaining secret value to decide whether to keep or re-consolidate.
FAQs
How do we stop a machining workshop from learning the whole process and becoming a competitor?
Prevent with three combined layers: split the steps so no workshop holds the full process — keeping the parameter-deciding step inside the company own plant; document discipline — each workshop receives only its step drawings, never the master file; and a processing contract with confidentiality, a ban on third-party use of the information, and sanctions. If a workshop still assembles fragments to compete itself, the conduct is actionable under Article 127 of the IP Law and Article 45(3) of the Competition Law 23/2018, and the fragmentation structure itself evidences the Article 84 secrecy measures.
Is step-splitting cost-feasible?
Conditionally feasible, and the hidden costs must be counted in full: inter-workshop transport, multi-point quality checks, inter-step work-in-progress inventory and coordination defect rates. The model pays off where secret value is high, product life is long and volume is large enough to dilute the surcharge; it does not pay off for simple products, products nearing end of life, or where the decisive step already sits in the company own plant. The smart approach is selective fragmentation — splitting only the sensitive steps — rather than dividing the whole process evenly.
What extra clauses does the contract need?
Beyond ordinary processing terms, add: an inventory of documents and drawings handed over per step, marked confidential; a ban on exchanging information with other workshops in the chain and on using information and tooling for third-party orders; a duty to return or destroy documents when cooperation ends; a right to audit document storage at the workshop; and pre-agreed damages for self-manufacturing a competing product with accessed information. These clauses turn fragmentation from an operating arrangement into a protection system with evidentiary value in a dispute.
This article has been quality-reviewed by the FLAW AI Legal Council