Other local laws and regulations cannot be used in legal judgments. Furthermore, enterprises shall award to the employee proper remuneration regardless of profitability.
(By Luo Yanjie) Patent carries huge value to enterprises; key patents can be especially valuable, because they are often only gained after a great deal of expense. Because of this, according to relevant provisions in the Patent Law, the right to apply for a patent belongs to an entity for any invention-creation, either made by a person in the course of executing tasks of the entity he belongs to, or made by him by primarily utilizing material and technical means belonging to the entity. Inventors having rights over inventions is well accepted, but a difficult position for the inventor to be in; often, we find the laws to be inadequate to properly serve and protect the interests of the inventor-creator. In today’s post, we will introduce to you a case touching upon this legal issue.
Introduction to the case:
Xue Limin, a senior engineer in Yizhihua Company, once served as its technical manager, deputy director and Deputy Commissioner of Sales. During his tenure, he developed new products for the company, including concentrated powdered detergents, and invented a patent for a utility model named “forming device for double tapered roller washing powder” as a service invention. Yizhihua Company has maintained high sales of patented invention, but has also suffered deficits nearly every year. Based on these facts, Xue Limin filed a lawsuit against Yizhihua, claiming that it had not awarded him with the proper incentive for the exploitation of the patented material her invented under their employ.
After hearing the case, the Wuhan Intermediate People’s Court that Xue, as a service inventor, had a right to receive a reward based on the extent of economic benefits yielded to Yizhihua for the exploitation of said patent. In approaching the question of calculation of said reward, the court explained that such questions only depend on Article 72 of the Rules for the Implementation of the Patent Law, as well as the Wuhan Regulations on Patent Management. The court determined that Yizhihua Company should pay RMB 60,000 Yuan to Xue, a decision handed down after rather intense deliberation, ruling that such a number was arrived upon by deducting the 33 percent enterprise income tax, related financial costs and management fees, Xue’s proportion of input in the detergent production line in the exploitation of said patent, and whatever profits left to Yizhihua following all prior deductions.
This case is a typical dispute arising from remuneration for service invention. The judgment handed down by the court reveals to us a number of important and practical rules commonly encountered:
I. There is no unified standard of incentives for service inventors in the relevant laws and regulations. Rules for the Implementation of the Patent Law consist of mandatory standards regarding the highest level for administrative regulations.
According to the Patent Law, incentives for the inventor include three aspects: a lump sum of money, incentives for self-exploitation, and incentives for patents transferred or licensed to others. For example, pursuant to the Rules for the Implementation of the Patent Law, a lump sum of money shall be paid to inventors after taxation of an amount no less than RMB 3000 Yuan; also, incentives for the self-exploitation of patents should be no less than two percent of profits acquired due to the exploitation of the patent for an invention or utility model after taxation, or no less than 0.2 percent due to the exploitation of a design patent. However, under some provincial standards, for example, the Shanghai Implementation of Regulations for the Award-Reward System for Invention-Creation, and the Wuhan Regulations on Patent Management, set reward levels at five percent and 0.5 percent of profits made due to exploitation of the patents, respectively.
Although rewards under provincial standards are higher than those of the Rules for the Implementation of the Patent Law, the provincial standards, regarded as local laws and regulations to administrative law, cannot be adopted as the basis for a judgment. The court’s decision that “incentive standards can only be drawn from the Rules for the Implementation of the Patent Law” means that other regulations can only be used as a reference guide, and do not hold much, if any, legal authority. For the construction of an internal management system for intellectual property, this type of practice can be regarded as rather inspirational and enlightening.
II. Enterprises shall award an employee proper remuneration regardless of profitability.
Pursuant to the Rules for the Implementation of the Patent Law, a reward for the exploitation of a patent depends largely the business profits. In practice, enterprises seldom suffer losses due to tax avoidance. If strictly construed, the Rules for the Implementation of the Patent Law do not require enterprises to award its inventors. However, the decision in this case requires that enterprises shall award to an employee a proper remuneration, regardless of profitability, and the court can settle the precise amount of remuneration to be given within its discretion. This decision is justified based on principals of fairness as well as the intent of the legislation in encouraging and promoting innovation. Therefore, in the interest of avoiding disputes, and from the point of view of litigation of such issues, we suggest that enterprises award their employees a proper amount of remuneration for their efforts in creating patentable subject matter, regardless of profitability.