New Rules on the Protection on the Patent Made for Hire in China

(By Albert Chen) In previous posts, we introduced our readers to ways to pay remuneration for the invention made for hire, and the standard adopted by Chinese courts in related disputes. On 26th November 2012, the State Intellectual Property Office (the “SIPO”), accompanied by 12 other authorities, jointly released the “Several Opinions on Further Strengthening the Protection of Service Inventor’s Legal Interests and Promoting IPR Implementation (the “Opinions”), which demand a strengthened protection on the rights of service inventors in several aspects. In today’s post, you will be able to become more familiar with the main points contained within the Opinions.

I. Support for patent transfers to the service inventor

As provided in Article 5 of the Opinions:

“When upper level colleges and scientific research institutions set up by the state intend to abandon patent rights or other intellectual property rights which are exclusive to them, they shall first provide notice to the inventor one month prior to the decision to abandon exclusive rights in the patent or other intellectual property right. If the inventor wishes to get the invention, he may negotiate with the employer to acquire the patent or IPR under payment or for free. The employer shall subsequently aid in the handling of the transfer procedures.”

It shall be noted that the entities applying to this article, as well as those regulations discussed in the “support on active implementation of the invention”, shall only be upper level colleges and scientific research institutions, which excludes corporate or other market-oriented entities. But on the other hand, other entities could apply when taking into consideration their invention issues. It cannot be denied that private entities like Huawei, Tencent, Baidu and other high-tech companies have become a crucial area of the invention made for hire, who for reasons of competition increasingly rely on the competitiveness and inventiveness of their individual Research and Development (“R&D”) departments. However, rather disappointingly, the Opinions do not include them within the above articles. Moreover, we have found no penalty or punishment resulting from any failure of notice, which somewhat weakens the enforceability of the new rules.

II. Support on active implementation of the invention

According to Article 6 of the Opinions:

The purpose of the Opinions is […]“To encourage the service inventor to actively participate in IPR application and implementation. When an upper level college or scientific research institution fails to make use of a service patent two years after acquiring the intellectual property rights in the patent, the inventor may make use of the patent itself after conducting negotiations with his or her employer. In line with the result of negotiations, a proportionate amount of the economic gains thereby made by the inventor shall be returned to the employer as per the proportion agreed.”

In addition to the above-mentioned “narrow application scope”, and questions of “no penalty or punishment” or other defects, the author also notices the employer may fudge the inventor’s claim to make use of the patent independently due to the vague definition of the phrase “application and implementation of the patent” in the new rules. Furthermore, with that unclear regulation, the inventor may also face great difficulty in proving the employer has not made use of or implemented the invention.

III. Higher remuneration for patent

According to the Implementation Rules for the Patent Law (the “Rules”), when an inventor has no previous agreement with his or her employer, or the employer has no internal policies or regulations concerning remuneration for an invention patent, the employer shall withdraw no less than 2% of the business’ income for its implementation of the invention or the utility, or no less than 0.2% of the business’ income for design. Alternatively, the employer may pay the inventor remuneration one time in one lump sum as per the above proportion. When the employer licenses or transfers the patent to any third parties, the employer shall withdraw no less than 10% of its income thereby produced as remuneration to the inventor.

However, in Article 8 of the Opinions:

“When no agreement or internal regulations have been concluded or made, and state-owned institutions or the army implement the invention themselves, remuneration to the service inventor shall not be less than 3% of the business income gained from the implementation of the invention patent. As to the licensing or transfer of the patent, or to make the share contribution with the patent, remuneration paid in all shall not be less than 20% of the transfer payment or the license fee collected. A state-owned institution or military units’ other intellectual property rights may be handled in accordance with the above proportions. ”

The standard in the new rules is obviously higher than in the Rules, but lower than that stipulated in the Shanghai Implementation Measures of Invention Rights Belonging to and Rewards for Service (the “Shanghai Measures”), which is 5% in the event of self-implementation of the invention or utility, and 30%-50% of the economic gains in the event of licensing or transfer.

In addition, the Opinions present further regulations compared with the Rules:

“In regard to the demands of the operation strategy or the development model of the employer, in the event that the patent or related IPR is transferred to or licensed to others for no remuneration, the remuneration to the inventor shall be decided according to the market price of the technology involved.”

It shall be explained that, the Shanghai Measures have the same regulations, but without the precondition that “For the demands of the operation strategy or the development model of the employer.”

IV. Guarantee for the remuneration payment

Previously, the Rules had no set articles concerning when the payment of remuneration should be made, but that has been interpreted in Article 10 of the Opinions:

“For self-implementation of the patent or other intellectual properties, in which remuneration would be paid in cash annually, that remuneration shall be paid within 3 months after each accounting year. As for payment made through share options, it shall be divided in accordance with the laws, regulations and the articles of the associations of the company. The employer shall, within a reasonable period after the effective date of the patent implementation, or the signing date of the license or transfer contract, give notice to the inventor regarding self implementation licensing of the intellectual property to others.”

It can be easily concluded that the above regulations regarding remuneration payments when the employer makes the transfer or licensing is too obscure, and not as clear as that “within three months after the collection of the transfer or licensing fee” as regulated in the Shanghai Measures.

It’s worthy of note that the Opinions have added the following:

“To guarantee the inventor’s right of gaining rewards and remuneration in unusual situations: After the end of or the termination of employment, unless otherwise regulated by the employer, the inventor’s right to gain the rewards or remuneration of profits made through the use of his invention shall not be changed; after the death of the inventor, his right to reward or remuneration may be assigned to his successor.”

These regulations are not found in either the Rules or the Shanghai Measures.

With claims to strengthen the calculation and payment of the service inventor’s remuneration, it shows the state’s focus on the invention made for hire, and its current positive attitude encouraging scientific and technical innovation. Despite the vague or lower standards for some articles compared with some local regulations, the Opinions has resulted in a strategic highlight being made on the guarantee of the inventor’s right to receive remuneration and rewards for the gains made through his inventions. Still, the writer expects it could be made in to an enforcing legislature.

Lawyer Contacts

You Yunting86-21-52134918

Disclaimer of Bridge IP Law Commentary

Leave a Reply

Your email address will not be published. Required fields are marked *