(By Albert Chen) Statistics have shown that since 2007, the invention made for hire have comprised over half of China’s patent applications, and the number is still increasing. According to Article 16 of the Patent Law: “The unit that is granted the patent right shall reward the inventor or designer of an employee invention. After such patent is utilized, the inventor or designer shall be given a reasonable amount of remuneration according to the scope of application and the economic results.”
Today’s post will introduce matters concerning employers’ payment of remuneration for the invention made for hire in China.
I. Chinese Laws on reward and remuneration for employee inventions
In addition to the Patent Law, Articles 76, 77, and 78 of the Implementing Regulations of the Patent Law (“Implementing Regulations”) also have the following detailed rules on reward and remuneration for the employee inventions:
1. The payment method and the amount of the reward or remuneration may be agreed upon between the inventor and the unit granted the patent, or may be regulated by the internal rules of the unit granted the patent;
2. When the two sides have no agreement or no rules can be found on the reward, the unit granted the patent shall pay the reward to the inventor within three months of the announcement of its patent rights. Each invention reward shall be no less than RMB 3000, and for the utility model patent or design patent, the reward shall no less than RMB 1000;
3. When the two sides have no agreement or no rules can be found on the reward, the unit granted the patent shall pay the inventor remuneration of no less than two percent of its profit from the exploitation of the invention or the utility, or no less than 0.2 percent of its profit from the exploitation yearly for the effective period of the patent or make a one-time remuneration payment to the employee following the above standard. When the unit granted the patent has licensed the patent to other units or individuals, it shall pay no less than ten percent of the profit gained from the license to the inventor as remuneration.
II. Shanghai Implementing Measures on the Ownership of and Compensation for Employee Inventions
Some regions of China have implemented regulations even more specific than the Implementing Regulations, such as the Shanghai Implementing Measures on the Ownership of and Compensation for the invention made for hire(“Shanghai Measures”)
1. More specific calculation standard
The Shanghai Measures have adopted an even higher remuneration calculation rate than the Implementing Regulations:
(1) When the unit itself utilizes the employee invention, the unit can pay no less than five percent of its profits after tax for the exploitation of inventions or utility model patents as remuneration and pay no less than one percent of its profits after tax for the exploitation of design patents as remuneration.
(2) When the unit licenses or transfers the employee invention to others, the unit can pay no less than thirty percent of its profits after tax from the licensing fee or the transfer price, among which higher academic and scientific institutions can take no less than fifty percent of its income to serve as remuneration to the inventor or designer.
Based on the above, the Shanghai Measures also regulate that the following elements shall be considered in cases of calculating the remuneration:
1) The technological contribution ratio of the employee invention to the whole transfer or license;
2) The ratio agreed to by contract or provided in law;
3) The ratio of the contribution made by the inventor or the designer in the invention and creation.
As to free or very low priced low priced patent transfers or licenses used in bad faith by the unit to get an exemption or a lower remuneration payment obligation, the Shanghai Measures stipulates that the inventor may demand payment from the unit as calculated under normal circumstances.
2. The employee invention remuneration payment period
With regard to absence of a payment period in the Implementing Regulations, the Shanghai Measures also provide clarity:
(1) When the unit itself utilizes the invention, it shall pay remuneration each year, and the yearly remuneration for each year shall be paid before June 30 of the next year.
(2) When the unit transfers or licenses the invention to others, the remuneration shall be paid within three month after the transfer fee or license fee has been collected.
3. The inventor’s right to know
The inventor has the right to know whether his employee invention has been exploited, transferred, or licensed, which is important for him to make timely demands for remuneration payment. According to Shanghai Measures, the unit shall notify the inventor of the relevant situation within three months of utilization of the invention or within thirty days of executing an agreement with others for the license or exploitation of the invention.
Despite the detailed regulation in the Shanghai Measures, its regulations have a problem with binding enforceability. When the articles encounter a specific issue, they use the word “can” instead of the word “shall,” which is usually seen in mandatory regulations. Additionally, the Shanghai Measures stipulate the precondition of “following the agreement between the parties” when applying its regulations. This all lowers the functionality of these regulations in practice. In the meantime, both the Implementing Regulations and the Shanghai Measures provide no regulation for when the unit delays or resists payment, which makes rights protection for employees more difficult.
When the company refuses to pay the employee the remuneration for the invention for hire, how does the court determine the amount of compensation? For the answer to this question, please see tomorrow’s post.