Reshaping the game

Having surprised an audience of billions with a stunning Beijing Olympic Games, China made international headlines again by its approach to tackling the global financial crisis and its leadership of world economic growth. A new, stronger and more confident China has stepped onto the world stage. Its emerging market has become another playing field on which corporate players hope to win big. And this time, intellectual property will be the game upon which every corporate focuses. It is only natural, therefore, that international companies should pay such close attention to the recent Implementing Rules for the PRC Patent Law (2nd Revision) (中华人民共和国专利法实施细则 (第二次修订)).

[For more views on the new rules, see CLP's virtual roundtable.]

Background to the legislation
In 1984, the first patent law was introduced in China. Since then it has been revised every eight years. The most recent and most comprehensive revision was the PRC Patent Law (3rd Revision) (中华人民共和国专利法 (第三次修正)) (Revised Law), which has been in force since October 1 2009.

    The Revised Law called for a substantial amendment to the old Implementing Rules. On February 23 2009, a draft of the amendment was submitted by the State Intellectual Property Office (Sipo) to the State Council for consideration and approval. However, to much surprise, concern and disappointment, the new Implementing Rules were not published together with the Revised Law as previously promised by the government. Insecurity and uncertainties in the IP community spawned rumours and speculations relating to the final draft – which was troubling to corporate policy making – and, to some extent, even the implementation of the Revised Law. It was not until the last days of 2009 that everyone was able to breathe a sigh of relief: the delayed Implementing Rules were finally approved by the State Council after the Legal Affairs Office of the State Council together with Sipo made considerable changes back and forth and consulted appropriate cabinet ministries, provincial governments, courts, IP practitioners, corporations and academic societies. The Implementing Rules were promulgated on January 9 2010 and came into effect as of February 1.

    In general, the Implementing Rules provide further interpretation of the Revised Law and make its implementation more solid. In comparison with the old provisions, the Implementing Rules are more feasible, reasonable and in line with international practice. Unfortunately, the Implementing Rules also leave a number of grey areas. Hopes for a set of more pro-patentee rules are still unmet. But one thing is certain: the Implementing Rules will reshape the IP game in China.

Changes and implications
In the Implementing Rules, a total of nine brand-new provisions were added; five old ones were deleted and substantive changes were made to another 47 old provisions. Summarised below are major changes made in the Implementing Rules and how they are likely to change foreign companies' operations in China.

1. Reward and remuneration regulations for service invention-creations: tricky but workable

Policy on reward and remuneration to inventors or designers for service inventions is probably the only area in which major changes are made in the Implementing Rules while the corresponding provision remains the same in the Revised Law (Article 16 in this case). Unlike other rules, rewarding service inventions is dealt with more through the internal policy of a corporation than through interactions with the patent office.

    To foreign companies, the Implementing Rules matter this time because they interpret the scope of the law more broadly. Unlike the old rules, which were only applicable to state-owned entities, Articles 76–78 now apply to all entities, including joint ventures, wholly foreign-owned entities, and R&D centres of foreign companies in China.

    The relevant rules may seem puzzling at first look. The “agreement rule” here is that the one who has agreement, rules. Under Article 76, an entity is permitted to set out its own policy and reach agreements with employees as to how and how much to reward service inventions. A company should consider a separate agreement or at least some clause in this regard in the employment agreement or corporate policy.

    In the absence of agreement, however, statutory numbers stipulated in Articles 77 and 78 will govern. Article 77 specifies a minimum of Rmb3,000 (approximately US$440; increased from Rmb2,000) for an invention patent upon grant, and Rmb1,000 (increased from Rmb500) for a utility model or design patent. Article 78 lays out the statutory remuneration package for use or license of an unexpired patent: (i) at least 2% (for invention or utility model) or 0.2% (for design) of annual operating profits (changed from profits after tax) generated from the exploitation of the patent; and (ii) 10% or more of royalty fees if the patent is licensed.

    Articles 77 and 78 apply to both Chinese and foreign inventors. The reward and remuneration should be shared by all inventors or designers of the pertinent patent.