Are foreign-owned companies required to transfer technology to local partners?

Question:

Can user data collected by technology companies, such as those on social media platforms or e-commerce applications, be categorized as company assets that can be freely owned and used by platform managers?

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Answer:

1. It is important to first understand the meaning of “technology transfer.” In the context of investment law, technology transfer not only means the transfer of equipment or machinery, but also includes the knowledge (know-how), skills, management, and innovation possessed by foreign companies that can improve the production capacity and competitiveness of local industries.
2. Legal provisions regarding technology transfer are regulated in Law Number 25 of 2007 concerning Investment, specifically Article 10 paragraph (3), which states: “The government may establish certain conditions for foreign investment activities, including obligations to transfer technology, increase human resource capacity, and collaborate with local entrepreneurs.” The wording of this article indicates that the technology transfer obligation is optional (not automatically applicable) and depends on government policy or sectoral provisions governing it.
3. In practice, technology transfer obligations are generally outlined in cooperation agreements between foreign investors and local partners, for example in the form of joint venture agreements, production sharing contracts, or technical assistance agreements. In these cases, the technology transfer obligation arises not from a direct statutory mandate, but rather from a contractual agreement binding the parties.
4. The Indonesian government, through the Ministry of Investment/BKPM and other technical ministries, frequently establishes sectoral policies that encourage technology transfer. For example, in the energy and mineral resources sector, foreign contractors are required to provide training and mentoring to local workers. This aligns with the mandate of Article 11 paragraph (1) letter c of Government Regulation Number 5 of 2021 concerning the Implementation of Risk-Based Business Licensing, which emphasizes the importance of increasing human resource capacity and technology transfer in foreign investment.
5. From an international legal perspective, Indonesia also respects the principle of protecting intellectual property rights and trade secrets belonging to foreign investors. Therefore, technology transfer mechanisms should not be forced to the point of threatening the ownership of protected technology. These obligations must be regulated proportionally through contracts, not as a unilateral imposition by the host country.
6. Based on the above description, it can be concluded that technology transfer by foreign investment companies is not an absolute legal obligation, but rather a conditional form of contractual responsibility and national policy. The government has the authority to require technology transfer in certain strategic sectors for the sake of the national interest, but not all foreign investment companies are automatically required to do so. Therefore, technology transfer by foreign investment companies is not an automatic legal obligation, but rather a moral and contractual responsibility regulated by the business sector, investment agreement, and government policies in effect at a given time.

This Legal Opinion is presented based on the limited initial information we have received. For further details, please schedule a consultation with our lawyer.