(By Gao Shaoyi and Li Rong) The Patent Law, the Detailed Rules for the Implementation of the Patent Law and other relevant laws are all guidelines as to how to reward and pay the rewards for patents. In Patent Law, businesses are not only entitled but also obligated to pay rewards for patents. Considering these legal provisions, many businesses have made agreements with relevant right holders or formulated patent reward policies according to their industry and regional conditions. Businesses need to follow the principle of “acting upon agreement or in case of no agreement, law” and reasonably formulate their own patent reward policies by reference to statutory standards. In this article we would like to deal with general, key and practical issues connected with service invention reward cases in recent years we searched.
I. Rewards for service inventions
(1) Rewards for patents and compensation for work
Under Article 62 of Labor Contract Law, the employer should pay to the employees performance bonuses and provide welfare benefits related to their job positions. Literally, the patent rewards for the employees engaged in their own job, such as invention and creation, seem to be regarded as benefits related to their job positions, thus applied to the Labor Contract Law, and the employer only needs to provide performance bonuses or benefits to the employees under its existing regulations and policies.
However, compensation for work in labor law differs from rewards in patent law. The salaries and bonuses that the employer should pay to the employees for their own work or main obligation to make inventions and creations should not be seen as rewards for service inventions in patent law.
In terms of work arrangement, the employees engaged in research and development cannot guarantee that they are able to actually make technological or scientific achievements, or develop these achievements into inventions or creations, or guarantee the prospects of implementing or operating the inventions or creations. Besides, the inventor’s or designer’s intellectual input into a patent, totally different from a general worker’s intellectual input, brings different effects to the industry and the society so that patent reward policies are intended to reward the inventors or designersfor their great intellectual achievements and innovative effectto differentiate it from general compensation for work. In terms of rulemaking, businesses have great autonomy over salaries and bonuses to decide the amount paid to their employees while businesses should not make any obviously unfair agreement or policy compared with the legal provisions concerning the amount and rate of rewards for patents set out in patent law. In terms of the nature of compensation for work and rewards for patents, the former is highly personal and cannot be transferred or inherited while the latter can be claimed and obtained continuously by the heir after the obligee’s death. For these reasons, rewards for patents should be separated from compensation for work and governed by related rules in intellectual property laws.
(2) Forms of rewards
Article 15.2 of the Patent Law provides several kinds of rewards and remuneration, including monetary interests and indirect interests such as promotion, pay raises and paid leave. But it is still worth considering whether those indirect interests can completely replace monetary interests.
First, indirect interests are not measurable. Usually, relevant legal provisions only specify the amount or the profit ratio of rewards and judicial authorities only support monetary claims. Indirect interests such as job positions, wages and leaves cannot be measured in money so that it is difficult for claimants, units or courts to figure out. As subsidiary means to monetary interests, indirect interests are not accepted in practice for lack of specific content or assessment criteria. If it is generally provided in the regulations of relevant units that the inventor or designer is entitled to get “a promotion or a pay raise” as a reward, this provision is usually not accepted for lack of specific content and quantitative criteria. Second, the practicability of indirect interests may be questioned. The inventor or designer will find it difficult to continue having these interests after he or she resigns or is no longer employed.
I recommend units adopt the reward policy of monetary interests as the main form and indirect interests such as promotion, pay raises, paid leaves as the subsidiary form, and specify the specific contents and forms of relevant indirect interests to improve their practicability and acceptability.
II. Calculation of rewards
In addition to the Rules, different administrative departments or cities have formulated corresponding policies and rules for certain industries in terms of calculation of rewards for patents in dispute. The employers may do preliminary legal researches before formulating their own policies. Take Shanghai for example, and the following provisions can be found:
| Article | Content |
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Article 78 of Detailed Rules for the Implementation of the Patent Law of the People’s Republic of China (Amended in 2010) |
If the licensee does not agree with the inventor or designer on or sets out in their legal policies the form and amount of the rewards under Article 16 of Patent Law, the licensee shall pay to the inventor or designer the rewards for the patent implementation at 2% or more of business profits from the implementation of an invention or a utility model or 0.2% or more from that of an appearance design or pay the rewards in a lump sum at the above rate. If the licensee sublicenses other unit or person to implement the patent, the licensee shall pay to the inventor or designer 10% or more from the royalties. |
| Item 27, Article 8 of the Annoucement by the Shanghai Municipal People’s Government on Several Supporting Policies Concerning the Implementation of the Outlines of the Medium- and Long-Term Scientific and Technological Development Plan in Shanghai (From 2006 to 2020) (S.G.I.[2006] 12) (As from 23 May 2006) |
The inventor’s or designer’s interests should be fully protected. The patent owner may pay to the inventor or designer rewards at 30% or more or if the patent owner is a university or an academy, 50% or more of after-tax earnings from the patent transfer or license or pay the above amounts by granting the inventor or designer shares in exchange of their technology. |
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Item 1, Article 1 of the Several Opinions on Further Strengthening the Work on Intellectual Property Rights in Shanghai (S.G.I.[2003] 48) (As from 29 July 2003) |
Businesses should increase rewards for inventions and the awareness of protecting inventors’ interests. Patent holders may pay to the inventor or designer for the patent transfer or license at 30% or more of after-tax earnings and for the patent or utility model implementation at 5% or more or for the appearance design implementation at 1% or more of after-tax annual earnings within the term of the patent rights or pay the above amounts to the inventor or designer in a lump sum. |
Based on the above clauses, the rewards paid to the inventor or designer are generally calculated on the basis of actual profits from the patent implementation that are calculated on the basis of three ways: (1) annual business profits from the patent implementation, (2) potential business profits from the patent implementation that can be withdrawn and paid to the inventor in a lump sum or (3) royalties connected with the patent received from the licensee.
Without knowledge of the amount of royalties received by the licensor, the key issue is how to calculate business profits on the basis of after-tax income from the patent implementation. Actually, courts may adopt different calculation methods according to evidence and circumstances of the parties involved. In the absence of evidence of interests in the patent courts may decide the amount of rewards according to the status of the patent rights and implementation.
1. Calculation based on profits obtained by implementing the patent
Courts usually calculate rewards for a patent based on after-tax earnings obtained by implementing the patent multiplied by the proportion of the patent, as shown by evidence. Considering the difficulty in evidence collection and the fairness principle, courts could decide business profits based on after-tax profits from specific products, average profits in the industry, the profit margin of the production line or the cost saved by implementing the patent.
| Case No. | Calculation basis | Calculation method |
| (2008) S.S.P.3 (I) F.Z.23 | After-tax income from the patent transfer agreement |
[After-tax income from the patent transfer agreement*the proportion of the patent in dispute] and [the contribution ratio of the patent in the products under the agreement] |
| (2008) Y.S.C.C.F.Z.246 | After-tax profits obtained by implementing the patent |
The product price*the average profit margin in the industry*the number of the patented products sold |
| (2004) E.C.3.F.Z.10 | After-tax profits obtained by implementing the patent |
[the product price*the proportion of the patent in dispute to the production line*sales profits]-[the enterprise income tax and financial and administrative expenses] |
| (2013) S.I.C.I.C.F.Z.272 | Business profits connected with the patent in dispute |
Business profits connected with the patent in dispute*the proportion of income from sales of products reproduced by using the patent in dispute to the total income*the number of inventors of the patent in dispute |
| (2013) Y.S.C.C.F.Z.00029 | After-tax profits or business profits obtained by implementing the patent |
The cost saved by implementing the patent in dispute in a year |
| (2017) L.C.F.Z.1268 | Business profits connected with the patent in dispute |
The unit price of the patented products-[the aggregate amount of invoices*the proportion of invoices on patented products to invoices in a year] |
The calculation methods show that despite the variety of evidence, the most important thing is to decide profits obtained by implementing the patent on specific products, which could be calculated on the basis of net profits connected with the patent in dispute on the annual financial reports or the annual AIC inspection report. If the proportion of profits from the patent in dispute to the overall business profits cannot be determined, the patent is usually be seen as irrelevant. The profits could be decided on the basis of the price of the patent implementation contract, for example tender documents or the winning bid contract. Profits from sales of a particular type of products patented could be calculated on the basis of the unit price of or invoices on the products and the proportion of invoices connected with the patent in dispute to all invoices.
2. Factors considered by courts for the calculation
Business profits from patented products are found by evidence provided by the parties involved. If evidence of business profits is not available or adequate, courts usually decide the amount of expenses by taking into account factors pertaining to the patent in dispute, including the nature and implementation of the patent, inventor’s or designer’s contributions to the patent, the value created by the patented products, the patent related actions, the current status of the patent, etc.
|
Case No. |
Amount claimed | Amount awarded | Factors considered |
| (2019) L.C.R.3 | 1 million RMB | 10 thousand RMB |
1. the role of the patented products, 2. the inventor’s and designer’s contributions, 3. the running of the licensor’s company, etc. |
| (2019) S.C.I.C.F.230 | 1 million RMB | 200 thousand RMB |
1. the fact that patent in dispute is utility mode, 2. the number of inventors, 3. the amount of damages awarded by valid adjudication documents in the patent related action cases brought by the licensor, 4. the term of implementation of the patent, 5. the importance in effect and value of the patent for research and improvement of the licensor’s technology, etc. |
| (2017) Y.C.F.2273 | 92,917 RMB | 5,000 RMB |
1. the fact that the patent in dispute is utility mode, 2.the inventor’s and designer’s contributions to the patent, 3. use of the patent in one of the steps in the basic stage of production, 4. the current use of the patent, etc. |
| (2018) C.C.R.615 | 10.905 million RMB | 1.5 million RMB |
1. the fact that the patent is invention with much creativity, 2. business profits obtained by the licensor from products manufactured by using the patent; 3. the inventor’s and designer’s contributions to the patent, 4. the fact that the patent is one of the technologies used in the production of the patented products, 5. the current use and the term of the patent, etc. |
| (2015) S.I.C.I.C.F.Z.947 | 1 million RMB | 200 thousand RMB, not a lump sum |
1. the number of inventors, 2. the license for the implementation of the patent, 3. business income disclosed by the securities dealer on the main board in the open transfer statement, 4. the fact that the compensation claimed by the inventor or designer is not a lump sum and 5. the claim that the inventor or designer could not appoint an auditor because of the unavailability of original financial data of the licensor |
| (2013) S.I.C.F.Z.0041 | 200 thousand RMB | 50 thousand RMB |
1. the term of the utility model in dispute, 2. the inventor’s or designer’s contributions to the patent, 3. the role of the utility model and 4. the transaction between the licensor and the licensee. |
The court decisions in the above cases show a gap between the amounts claimed by the inventor or designer and awarded by the court.
III. Criteria for “Reasonable Reward”
Subject to the principle of “acting upon agreement or in case of no agreement, law” in the patent reward system, companies should consider if the content and form of the policies they agree on or formulate are reasonable so that they can be completely applicable to inventors and designers. Specifically, when companies are to agree on or formulate regulations, the agreed reward standards may be higher or lower than the statutory standard. But the agreed standards lower than the statutory standard may not necessarily be invalid.
According to the Guidelines of Shanghai High Court1 , the rewards can be given in any form and any amount that meet the “reasonable” standard provided by the Patent Law. The agreed amount, maybe higher or lower than the statutory standard, should be appropriate to the development status and the industry standard of the companies.
In legal practices, the agreed standards reasonably lower than the statutory standard can be applicable; if the agreed standards are unreasonably much lower than the legal standards, the judge shall decide at their discretion the specific amount of the reward or remuneration in single cases; if there is no agreed standard, the statutory standard shall apply generally 2 . The “reasonable” standards cannot be found in any explicit provisions or guiding cases, but are still decided on a case-by-case basis by courts considering the nature of the company, the development status of the industry, the purpose of the patent application, the implementation characteristics of the patent and the company’s profits from the patent.
Based on related cases over recent years, the reward polices may not be reasonable unless the content and form of the policies are legal and valid.
(I) The content of the policies should be reasonable.
As stated above, the reward standards agreed on or formulated by a company may be higher or reasonably lower than the statutory standard and found “reasonable” on a case-by-case basis. According to the Guidelines of Shanghai High Court, in general, the standard for service invention reward and remuneration agreed on by businesses considering their own natures such as R&D characteristics of the industry, the purpose of the patent application, patent implementation characteristics, etc. should be presumed to be reasonable3 . Therefore, considering differences in nature and industry among businesses and their differences in R&D characteristics, purposes of patent applications and patent implementation characteristics, the standards formulated by the business shall be found reasonable as long as they conform to its own development law, and adapt to the industry status and the patent implementation.
In some cases the court decided the companies’ policies were not reasonable because there was a great difference between the related coefficient in the policies and 2%4 in law or between the results calculated according to the company’s policies and the statutory standard5 . Therefore, companies may select the calculation basis and coefficients in the policies by comprehensively measuring the difference with the statutory standards.
(II) The formulation procedure of the policies should be reasonable.
Valid reward standards regulated in a company’s policies should also comply with specific procedures. According to the Guidelines of Shanghai High Court 6 , where reward and remuneration for service inventions are stipulated in the policies formulated in accordance with the law, the legality of the formulation procedure of the policies shall be reviewed mainly based on relevant provisions of Company Law and Labor Contract Law. Therefore, companies may refer to relevant provisions of Company Law and Employment Contract Law to ensure the legality of the formulating procedure by following the democratic formulation procedure, announcing the policies to employees, and other manners for them to know, including but not limited to announcing them to all staff in the form of business rules, explaining them to inventors or designers by email or on meetings, etc.
To some extent the courts may find that “all service invention reward policies formulated in accordance with law are reasonable”, which means the reasonable contents of the policies can be reflected by the legal formulation procedures. Therefore, to decide whether the policies are applicable, the court will focus on examining the legality of their formulation procedure. Only if they meet legal conditions will the court find the policies applicable. For example, in the case Shenzhen Ocean King Illumination Engineering Co., Ltd. v Zhong Hui, Etc. re. service invention reward, Guangdong High Court pointed out that “the form and the amount of rewards for inventors in the policies must: i. be subject to the democratic formulation procedure, ii. comply with laws, rules and policies and iii. be published to employees and any provisions that rule out or impose unreasonable extra conditions on the exercise of inventors’ legal rights shall be found invalid”7 . This case can help employers formulate the formulation procedure of the policies. The validity of the policies can be decided on the basis of the three points above.
IV. Conclusion
Service invention reward policies only accounts for a small proportion in the provisions of the Patent Law, but it play an important role in intellectual property right construction and management of companies. With the increase of technology businesses over recent years, formulating a set of reward policies that can balance the interests of inventors, designers and the business through contracts or bylaws is crucial for the thriving of a business and the overall efficiency of an industry. Businesses should follow the principle of “acting upon agreement or in case of no agreement, law” in the patent reward system, formulate reasonable patent reward policies, the content and form of which shall comply with mandatory provisions in law and serve to gain profits in the industry, to improve the human resources level and innovation ability of businesses.
Footnote:
1 Guidelines for Hearing Cases Involving Rewards or Remunerations to Inventors or Designers of Service Inventions by Shanghai High Court
2 Cf (2014) 3ICFZ06031 Civil Judgement
3 Guidelines for Hearing Cases Involving Rewards or Remunerations to Inventors or Designers of Service Inventions by Shanghai High Court
4 Cf (2014) SHC3Z120 Civil Judgement
5 Cf (2019) SCF497 Civil Judgement
6 Guidelines for Hearing Cases involving Rewards or Remunerations to Inventors or Designers of Service Inventions by Shanghai High Court
7 Cf (2017) YCF745-756 Civil Judgement
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