The Criminal Code 2015, as amended and supplemented in 2017 (hereinafter called as “Criminal Code”) came into force on January 01, 2018. In the history of the formation and development of Vietnamese criminal laws, this is the first time Criminal Code has promulgated regulations on criminal liability of “corporate legal entities” for certain crimes, including crimes related to intellectual property rights (IPRs). This clearly demonstrates the views of the Government on the handling and prevention of crimes in the current situation, meeting the requirements of socio-economic development of the country in the new period.
I. Criminal liability of corporate legal entities
1. Reasonings for criminal liability of corporate legal entities
Traditionally speaking, crimes, in terms of objectivity, are acts of human beings that are of considerable danger to the society; on the subjective side, is the perception, consciousness and subjective attitude (the factor of faults) of the offender towards his/ her behavior. Thus, Vietnamese criminal laws did only apply to individuals (natural persons). Corporates created and operated by individuals, thus, in general sense, could not and never have faults.
Criminal liability of corporate legal entities was first mentioned in the UK in 1915 and in the USA in 1983. Currently, criminal liability of corporate legal entities has been stipulated in legal system of 119 countries, including Japan, China, the UK, France, the USA, Canada, Australia, Netherland, Portugal, Finland, Belgium, Switzerland, Spain, Slovakia, Hungaria, Lavia, Estonia, Croatia, etc. and 06 ASEAN countries including Singapore, Malaysia, Thailand, Phillipines, Indonesia and Cambodia. China sharing certain similarities with Vietnamese legal systems has also stipulated criminal liability for corporate legal entities.
The practical reasons for the provision of criminal liability of corporate legal entities may include but are not limited to:
– Firstly, to overcome the shortcomings in the current practice of dealing with violations of corporate legal entities, especially violations that have serious consequences for the economy, environment and public health. Indeed, many violations are committed in the name of legal entities, to shirk responsibility. Typical examples of corporate infringers are the Hung Nghiep Formosa Ha Tinh Ferro-Steel Company Limited, which destroyed the marine environment of Vietnam, by discharging toxic wastes and VN Pharma Company imported counterfeit H – Capita 500mg Caplet for cancer treatment, threatening the lives of people using pharmaceuticals.
– Secondly, the mechanism for sanctioning administrative violations applicable to corporate legal persons in violation is inadequate or ineffective.
Many studies have shown that administrative sanctions under Law on Sanctioning Administrative Violations are insufficient because it just allows the competent authorities to impose maximum penalties on the infringer not more than two billion VND, while the consequence of the violations is much more than that. With the current level of punishment, many enterprises may accept fines for further violations. Moreover, despite procedures for the application of administrative sanctions are in a timely and speedy manner, there is a lack of professionalism and transparency in verifying violations caused by corporate legal entities and the level of sanction applicable to corporate legal entities.
– Thirdly, the compensation mechanism under civil law still exits a certain bar when the victim is required to prove the extent of damages and if the lawsuit is initiated, the victim would also be required to pay a pretty large amount of litigation fee. This causes many obstacles to plaintiffs in claiming compensation against acts of violations. Whereas, if a corporate legal entity is the subject of a crime, proving the crime and the extent of the damages caused by the offense shall belong to competent authorities with a strict prosecution procedure.
– Fourthly, changing the policy of criminal handling of commercial legal entities is an essential requirement in line with the trend of international integration. The addition of criminal liability for commercial legal entities demonstrates Vietnam’s commitment to the implementation of its international commitments under conventions to which Vietnam is a signatory.
2. Type of legal entities for criminal liability
In Vietnam, due to characteristics of the Government and the current economic, political and social conditions, the scope of the legal entities subject to criminal liability is defined as follows:
Firstly, state agencies, political and socio-political organizations, units of the armed forces, and professional associations are not the subject of crimes. Because these are organizations and legal entities that use the State budget for their activities. While the main penalty for a legal entity is monetary fines and suspension of activity; additional penalties such as confiscation of property, prohibition or restriction of operation … are not applicable and/or make no sense to these subjects. In addition, these organizations are less likely to engage in economic activities, thus, the chance for them to commit criminal offenses in economic and environmental fields is pretty low.
– Secondly, only corporate legal entities are subject to criminal liability. That is only corporate legal entities that conduct commercial business are subject to criminal liability under Criminal Code 2015, as amended and supplemented in 2017. This reflects the caution of lawmakers when legal entities for the first time have become subject of criminal liability. At the same time, it also reflects the situation of legal entities in this period mainly in the fields of economy, environment, money laundering and terrorist financing.
3. Conditions for a corporate legal entity to bear criminal responsibility (Article 75.1 of Criminal Code)
Adapting regulations and practice of other countries, Vietnamese lawmakers have stipulated 04 following conditions for a corporate legal entity to be responsible for criminal liability under Article 75 of Criminal Code (03 first conditions are specialized for corporates only, the remaining is for both corporates and personal entities):
– The criminal offence is committed in the name of corporate legal entity
– The criminal offence is committed in the interests of the corporate legal entity
– The criminal offence is under instructions or approval of the corporate legal entity
– The time limit for criminal prosecution specified in Clause 2 and Clause 3 Article 27 of Criminal Code has not expired.
4. Possible sentences imposed against corporate legal entities
Criminal Code 2015 as amended and supplemented in 2017 prescribes two main kinds of sentences, with particulars:
+ Primary sentences: Article 33.1 stipulates:
“Primary sentences include: a) Fine; b) Suspension of operation; c) Permanent shutdown”.
+ Additional sentences: Articles 33.2 stipulates:
“Additional sentences include: a) Prohibition from operating in certain fields; b) Prohibition from raising capital; c) Fine if no administrative penalties are imposed”.
Article 33.3 of Criminal Code stipulates: “The corporate legal entity shall incur only one primary sentence for a criminal offence committed and possibly one or more additional sentence”.
The main key feature is that lawmakers focus on the primary purpose of corporate entities which are gaining profit. At the same time, although the penalties provided by Criminal Code for corporate legal entities have already been defined as penalties for corporate legal entities in Law on sanctioning administrative violations in 2012 and many other statutory instruments, these forms of handling are not sufficiently deterrent and effective for corporates conducting acts of administrative violations. Therefore, in the light of the types of penalties provided by Criminal Code, the highest state coercion, will contribute significantly to the process of preventing corporate legal entities from committing offences.
II. Criminal liability of corporate legal entities regarding IPRs in Vietnam
In Vietnam, a corporate legal entity is subject to the following crimes regarding IPRs:
– Infringement of copyrights and related rights (Article 225 of Criminal Code); and
– Infringement of industrial property rights (Article 226 of Criminal Code).
1. Infringement of copyrights and related rights (Article 225 of Criminal Code)
The act of infringement is intentional conducting the following without permission of owners of copyright and related rights:
(i) Reproducing works, video recordings, audio recordings; or
(ii) Distributing to the public copies of works, video recordings, audio recordings.
The act of infringement must be made in the event of intentional reproduction or distribution to the public copies of works, video recordings, and audio recordings.
According to the provisions of Article 21 of Decree No. 22/2018/ND-CP “The right to reproduce works as stipulated in Article 80.1.c of Law on Intellectual Property is the right of the owner of the exclusive right to perform or permit others make copies of works by any means or form, including the making of copies in electronic form”.
This new regulation does not limit the form of copy of a work (any form of archive: temporary or permanent), which is different from Decree 100/2006/ND-CP when “temporary copies” do not fall under the exclusive right of the copyright owner, so the act of creating a temporary copy is not considered to be infringement of copyright. This new regulation conforms to the growing digital revolution.
2. Infringement of industrial property rights (Article 226 of Criminal Code)
The Criminal Code contains only Article 226 – Infringement of industrial property rights.
Infringing acts: Intentional infringing upon the rights to trademarks and geographical indications of which goods are bearing counterfeit trademarks or geographical indications.
“Those who intentionally infringe upon industrial property rights to trademarks or geographical indications currently under protection in Vietnam, of which objects are counterfeit trademark goods or geographical indications on a commercial scale…”
It can be seen that, compared to the Criminal Code in 2015, the amended and supplemented Criminal Code 2017 has narrowed the scope of the infringement: not any infringement of the trademark or geographical indication is subject to criminal liability. They must be counterfeit trademark goods or counterfeit geographical indication goods.
According to Article 213 of Law on Intellectual Property: “Counterfeit trademark goods (including goods bearing counterfeit trademarks and goods bearing counterfeit geographical indications) are goods or their packages bearing marks or signs which are identical with or indistinguishable from trademarks and geographical indications currently protected for those goods without permission of trademark owner or organizations managing such geographical indications”.
3. “On a commercial scale” and other quantified conditions:
The afore-said acts are liable to crimes providing that they:
(i) Infringing upon industrial property rights to trademarks or geographical indications regarding counterfeit trademark goods or counterfeit geographical indication goods (infringement of industrial property rights); and
(ii) On a commercial scale; or
(iii) Gaining illicit profits from 200 million; or
(iv) Causing damage to the owner of the trademark or geographical indication from 300 million; or
(v) Infringing goods valued at 300 million.
If they have been administratively sanctioned for such acts or have already been sentenced for such offenses, their criminal records shall not be remitted. Conditions shall be lowered, including:
(i) Gaining illicit profits from 100 million; or
(ii) Causing damage to the owner of the mark or geographical indication from 100 million; or
(iii) Infringing goods value from 100 million.
The Criminal Code adds “on a commercial scale” condition in addition to the explicit quantitative rules that were added earlier. It is to comply with international treaties, particularly Article 61 of Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS): “Members shall provide for criminal procedures and penalties to be applied at least in cases of willful trademark counterfeiting or copyright piracy on a commercial scale …”
The existence of “on a commercial scale” factor has special meaning in implement of IPR in the future. It is not only to comply with international conventions of which Vietnam is a contracting party, but also to apply for such cases of uncommon infringing acts with a low value of infringing goods such as infringement with regard to vegetable, toothpicks, agricultural products, etc.
Based on the spirit of this rule, the judge, law enforcement agencies shall have authority and responsibility to review and evaluate whether an IP infringing act satisfies the condition “on a commercial scale” or not?
4. Some notes for corporate legal entities as IPRs’ users
With the current regulations on criminal liability for corporate legal entities, enterprises may officially become offenders if they commit acts of infringing which meet all the conditions. Recently, Vietnamese enterprises have also been conscious and have paid much attention to protecting their IPRs through registration. However, awareness of infringements of industrial property rights, copyrights and related rights, including software copyright, has not been fully recognized by enterprises.
According to the results of the inspection of software copyright in 2017 of the Ministry of Information and Communications, inspecting 63 enterprises, checking 2,472 computers, there were 54 enterprises copying computer software without owner’s permission with VND 1.65 billion for monetary fine. At the beginning of 2018, having inspected the observance of legal provisions on computer software copyright in 26 enterprises, ministerial inspectors have sanctioned VND 750 million.
With strict sentences as set out in the Criminal Code for corporate legal entities as analyzed above, entrepreneurs should urgently review the use of their businesses, take timely action to avoid the heavy losses of prestige and finance.
To sum up, criminal liability for corporate legal entities imposed by new Criminal Code will apply to any corporate legal persons who intentionally infringe on copyright, related rights and industrial property rights. As noted above, the writer expects that the proportion of cases of IPRs infringements in Vietnam, especially infringements committed by corporate entities, will significantly reduce, to ensure a fair business environment for businesses, as well as to promote the development of the economy./.
By Litigation and Enforcement Department
INVESTIP IP LAW FIRM
 In 1915: Lennard’s Carrrying Co., Ltd. case
 In 1983, U.S. v Basic Construction Co. case
 Vietnamese laws on corporate legal entities http://www.moj.gov.vn/qt/tintuc/Pages/nghien-cuu-trao-doi.aspx?ItemID=2219