HOW TO RESOLVE THE “MISSING BARRIER” TRAP AND THE LESSON ON PROVING STARTUP OWNERSHIP WHEN A FORMER EMPLOYEE FILES FOR DESIGN PROTECTION FIRST?

1. Summary of the Real-Life Situation

Mr. M and Mr. K are two founders. They have been close neighbors for many years in the residential area of [LOCAL]. In 2024, the two invested their capital to establish TechShape Digital Solutions Joint Stock Company [LOCAL]. The company specializes in manufacturing premium smart-home devices. Mr. M serves as Chief Executive Officer (CEO), responsible for administration, human resources, and coordinating the disbursement of cash flows. Mr. K serves as Chief Technology Officer (CTO), responsible for the company’s technology infrastructure. Because of their close neighborly relationship, Mr. K entrusted Mr. M with full authority to approve administrative and personnel record-keeping procedures.

At the beginning of 2026, the company’s R&D department completed a highly sophisticated and commercially groundbreaking housing design for one of its devices. Immediately after the product was launched, it generated substantial quarterly revenue. Seeing that the product was selling successfully, a former design employee who had recently left the company secretly filed an application in their own name with the Intellectual Property Office of Vietnam to register exclusive protection for this industrial design. After conducting a legal review, Mr. K was shocked to discover that Mr. M had previously been careless and superficial in the daily procedures and had completely failed to file an application for protection of the product design.

The former employee immediately issued a demand for payment, pressuring TechShape [LOCAL] to pay an unjustified remuneration fee; otherwise, they would sue to force the company to stop manufacturing on the grounds of infringement of priority rights. Revenue declined severely, the company’s financial circulation was frozen, and the project completely collapsed [V02Q6Y].

The entire jointly invested capital was wiped out, leaving Mr. K extremely angry [V02Q6Y]. Mr. K demanded that Mr. M compensate for all economic losses with his personal assets. Their long-standing neighborly relationship immediately collapsed completely [V02Q6Y]. The two families engaged in heated arguments and harsh verbal exchanges in the neighborhood. They threw dirty substances into each other’s homes, causing public-order disturbances and forcing local police to intervene.

2. Legal Perspective – “A Strong Shield”

From the perspectives of civil law, enterprise law, and intellectual property law, the former employee’s unilateral filing for registration of a product design developed using the company’s financial resources constitutes an unlawful appropriation of property; meanwhile, the manager’s failure to properly implement the filing process constitutes a breach of the duty of care.

• Regulations on an organization’s right to register an industrial design: Pursuant to Articles 6 and 86 of the 2005 Intellectual Property Law, an organization or individual that provides financial investment and material facilities to an author in the form of an assignment or employment contract is the owner of the right to register the industrial design, unless otherwise agreed in writing by the parties. Vietnam applies the first-to-file principle under Article 90 of the 2005 Intellectual Property Law, under which a protection title will only be granted to a lawful application having the earliest priority date. Mr. M’s negligence in administrative management procedures under Article 162 of the 2020 Law on Enterprises, including his failure to prepare an urgent filing dossier, effectively weakened the organization’s legal defense capacity under Article 122 of the 2015 Civil Code and created the risk of non-contractual unlawful appropriation of property under Article 584 of the 2015 Civil Code.
• Non-contractual civil liability arising from personal managerial fault: Pursuant to Article 165 of the 2020 Law on Enterprises, managers are required to perform their duties honestly and with the highest degree of care in order to protect the company’s interests. Mr. M’s decision to hastily launch the product without completing the necessary verification and review of exclusive protection applications constitutes direct managerial negligence. Under Article 585 of the 2015 Civil Code, Mr. M is legally responsible for compensating the company and shareholder K for the economic losses caused by his fault using his personal assets [V02Q6Y].

3. Psychological – Educational – Management Perspective – “The Human Key”

Psychological – Educational Perspective

• Material greed among personnel creates a mentality of betrayal and intellectual-property appropriation: The former design employee was driven by financial greed and was willing to exploit gaps in the Startup’s documentation to turn the exclusive design into leverage for extracting unjustified financial benefits. For Mr. M, overconfidence in his managerial position created a subjective mindset, leading him to cut corners in daily and quarterly document-review procedures. When the incident occurred, Mr. K fell into severe panic and confusion, destroying a long-standing neighborly relationship [V02Q6Y].
• Insufficient education on internal intellectual-property protection barriers: Many Startup business managers mistakenly believe that because they pay employees monthly salaries, the resulting designs automatically belong to the company forever and no one would dare to betray them. They lack proper awareness of administrative compliance and respect for corporate law. They deeply confuse informal managerial relationships and emotional trust with the legal obligation to establish a secure framework for protecting the legal entity’s trade secrets and intellectual property.

Management Perspective

• A fatal failure in managing the risk of internal intellectual-property leakage (Internal IP Infringement Failure): Mr. M placed the survival of the TechShape brand [LOCAL] on the assumption that employees would act with personal integrity. Managing a company through an empty system without protective barriers is an extremely dangerous practice. The absence of a procedure for reviewing exclusive protection applications neutralized the management team’s defensive safeguards against the trap of an internal party filing first to block the company.
• A gap in the process for controlling the release of new product designs: TechShape [LOCAL] completely lacked a formal procedure governing the release of new products. A properly managed enterprise should establish rules requiring that 100% of technical drawings and industrial designs be supported, before market launch, by an Intellectual Property Assignment Agreement, an application filing number issued by the Intellectual Property Office of Vietnam, and written approval by the Board of Directors through a resolution bearing dual signatures on a quarterly basis.

4. Comprehensive Solutions Proposed by Expert Nguyễn Hữu Long

Step 1: Urgent Opposition to the Grant of Protection and Neighborhood Mediation (Short Term)

• Urgent neighborhood mediation: Mr. M and Mr. K must immediately stop throwing dirty substances into each other’s homes to avoid being handled for public-order violations under the 2015 Civil Code. Mr. M needs to remain calm, put aside his ego, and proactively invite the neighborhood leader to act as a mediator and organize a private meeting. The objective is to prepare a written record of the neighborhood mediation and commit to maintaining safety for both families before addressing the economic dispute [V02Q6Y].
• Establishing a bailiff-record dossier proving the company’s lawful ownership: Mr. M, together with legal counsel, should immediately submit a written opposition to the former employee’s industrial design registration application to the Intellectual Property Office of Vietnam in accordance with the Intellectual Property Law. The company should present all work-assignment records, payroll records, documents evidencing mold-production expenses, and CAD drawings bearing CTO K’s traceable signature and created before the employee’s departure in order to demonstrate bad faith. The company should reject the former employee’s monetary demands and file a request with the court for an order lifting the freeze on the company’s bank accounts in order to restore its working capital flow.

Step 2: Restructuring Document-Governance Procedures and Internal Capital Reimbursement (Medium Term)

• Agreement undertaking personal financial responsibility for correcting the mistake: To compensate for the lost budget and ease internal concerns, the two parties should sign a supplementary undertaking based on the 2015 Civil Code. Mr. M voluntarily agrees to offset the losses using his existing personal assets or reduce his future dividend entitlement in order to secure his obligation to fully compensate Mr. K for the losses caused by his negligent management, thereby rebuilding trust and restoring a healthy cash flow for the company [V02Q6Y].
• Issuing an IP Due Diligence Protection Policy and applying dual internal signatures: Immediately draft and promulgate a new Corporate Brand & Design Governance Policy based on the 2020 Law on Enterprises. The policy should establish a strict deadline and rule: no production or commercial funds may be disbursed for any new design unless there is written confirmation that a protection application has been filed and assigned an application number by the competent authority. All contract-signing procedures must include quarterly cross-review minutes signed by both founders to ensure 100% control.

Step 3: Long-Term Lesson on Separating Personal Relationships from Assets

• Clear documentation is the most sustainable way to protect capital flows: The painful lesson for managers is: “If a Startup’s product design is not clearly defined and tightly secured through written exclusive-protection filings from the very beginning, betrayal by former employees can automatically destroy the entire business” [V02Q6Y]. Clarity and strictness in strategic management of brand and financial assets, together with respect for the legal framework from the outset, do not constitute unnecessary expenses. On the contrary, they are the essential shield for protecting personal assets, safeguarding corporate capital, and preserving strong neighborly relationships in the face of the challenges of the business world.

EXPERT PERSPECTIVE:

• This article was developed based on the professional consultation and expert advice of M.A. Nguyễn Hữu Long – an expert in Leadership, Law, Psychology & Education. Through an interdisciplinary approach, we not only provide a strong legal shield but also offer comprehensive risk-management and psychological-empathy solutions for the sustainable development of the community.
• If you or your organization are facing similar issues relating to land or education, please contact us immediately via our hotline or leave your questions on the website tuvanphapluattamlygiaoduc.vn or call the hotline at 0898.627.762 for timely assistance.