Who Has the Burden of Proving “Profit After Tax” When Calculating Remuneration for a Patented Invention?

(By Albert Chen) In the previous post, the author introduced how to determine the unit granted the patent right by looking at a case decided by a Shanghai court. Today, the author will use a case from a Guangdong court to introduce how the court there held on who must prove “the profit after tax” when a dispute breaks out on invention remuneration payable by the unit granted the patent right.

Summary of the case:

The employee inventor, Mr. Zhu, worked for Dongguan Wei Ba Cleaning Equipment Co., Ltd (the “Wei Ba Company”) from 1998 to 2006. During his employment, Mr. Zhu participated in the development of sixteen patents and was also registered as a joint inventor in the company’s patent applications. Afterwards, the Wei Ba Company exercised some of the patents but did not pay Mr. Zhu any remuneration. For this reason, Mr. Zhu filed a lawsuit against the Wei Ba Company, claiming that remuneration payable for his invention should be calculated based on the 2004 Annual Joint Inspection Report that the Wei Ba Company submitted to the Ministry of Commerce, which indicated the company’s total profit after tax. Moreover, Mr. Zhu claimed that the remuneration shall be calculated for the past two years.

The Wei Ba Company countered that when Mr. Zhu voluntarily resigned, the company paid him RMB 100,000 yuan despite not being required to pay any compensation. Therefore, this sum already covered the compensation that should have been received by Mr. Zhu. Furthermore, the Wei Ba Company claimed that Mr. Zhu was responsible for proving the profit after tax for exercise of the patent based on the principle of “whoever claims, proves.” So, Mr. Zhu must demonstrate whether the company has made economic gains from products created with the patent and use this as the basis for calculating remuneration.

Facing the advocates from the both parties, the court of first instance, the Guangdong Dongguan Intermediate People’s Court (the “Dongguan Court”), found that the Wei Ba Company bears the burden of showing whether it already paid remuneration, and that the evidence it submitted did not show that the past payment was for the invention compensation. Accordingly, the court held that the Wei Ba Company did not make payment for the invention for hire.

As to the more important element, the court also held that the Wei Ba Company had the responsibility of proving profit after tax and should bear the consequences of failure to do so because, as the actual operator, it has command of all kinds of product manufacturing and sales. Because the Wei Ba Company did not oppose the evidence submitted by Mr. Zhu, the 2004 Annual Joint Inspection Report of 2004, the court confirmed the trueness, legitimacy, and association of the report. According to Article 75 of Several Rules Concerning Evidence in Civil Lawsuits by the Supreme People’s Court (the “Rules”):

“When there is evidence that shows that one party refuses to provide the evidence it holds without reason, and the opposite party claims that the content of the evidence is beneficial to it, it can be inferred that this position is founded.”

For this reason, the court held that the profit after tax written in the Annual Joint Inspection Report of 2004 could be used as the calculation number for the past two years before the case filing, and that the final amount of compensation due to Mr. Zhu as remuneration for his invention for hire was RMB 101,829.70 yuan. On appeal by the Wei Ba Company, the Guangdong Higher People’s Court upheld the ruling.

Comments from the lawyer:

To summarize the special points in the case: the total profit after tax of the employer was clear, but how much of it came from the exploitation of Mr. Zhu’s invention was unclear. Under such circumstances, who has to prove the total profit after tax produced by the patent?

In the opinion of the judges hearing the case, responsibility for proving of the profit after tax must be borne by the actual manufacturer or the seller because only it has complete command of the specific profit after tax. And, as was noted, Article 75 of the Rules holds that:

“When there is evidence that shows that one party refuses to provide the evidence it holds without reason, and the opposite party claims that the content of the evidence is beneficial to it, it can be inferred that this position is founded.”

Therefore, if the manufacturer or the seller does not actively provide the materials that it has, courts tend to base judgment on the evidence provided by the plaintiff.

Of course, this case is a fairly exemplar case for using the total profit after tax to calculate remuneration. Normally, when the unit granted the patent actively proves the constitution of the annual profit, the whole year of profit after tax is unlikely to be used as the basis to calculate the payable remuneration.

Before concluding, it is worth noting that by the determination of the Guangdong courts, the employer must specify that its payment is for the payment of invention made for hire. Otherwise, if there is no other evidence to prove this, its payment cannot be taken as fulfilling its remuneration obligation.

Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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