Inventor remuneration update in China

Rouse
Jin Ling
[email protected]



In 2009, China passed The Implementation Rules of the Chinese Patent Law (the Rules), which came into effect on February 1 2010. The law has led to significant changes in regulatory requirements in relation to inventor remuneration for employee inventions.

Under the previous Patent Law and its Implementation Rules, the statutory remuneration scheme applied only to state-owned companies and institutions. There were no mandatory inventor remuneration rules for other types of entities registered in China. Under the revised Patent Law and Rules, all business entities obtaining a granted patent in respect of an invention made by an employee in the course of his employment – or using the employer's resources, materials or equipment – are now legally obliged to engage in the development and management of a remuneration plan for the employee-inventor.

During the early stage of drafting of the new Rules, the plan had been to make minor adjustments to the remuneration rates prescribed in the existing Rules, and to make the scheme applicable to all entities. However, because of the relatively high remuneration rates being proposed, the lack of flexibility, and practical implementation difficulties, there was strong industry resistance to the proposed bill.

Taking account of industry opinion, and reviewing the practices and legislation of other countries, namely Germany, Japan and the US, the legislative body finally adopted an alternative and more flexible scheme that allows a reasonable contract to be entered into between the parties in respect of invention remuneration.

Implications

1) Statutory scheme for employee-inventor reward and remuneration in the absence of an agreement

Articles 77 and 78 of the Rules provide a statutory scheme for rates of reward and remuneration in the absence of an agreement between the employer-patentee and the employee-inventor.

In respect of reward, the Rules provide that within three months of the date of the grant of a patent for an employee invention, the patentee shall reward the employee-inventor no less than RMB3,000 (approx US$450) for an invention patent or RMB1,000 (approx US$150) for a utility model or design patent. Although not specified in the Rules, the payment is usually made as a one-off reward (in one lump sum).

In respect of remuneration, the Rules provide that upon commercial exploitation of an employee invention that is the subject of an invention or utility model patent, the patentee shall pay the employee-inventor no less than 2% of the business profits derived from exploitation of the invention during the term of the patent. For inventions the subject of a design patent, the patentee is required to pay 0.2% of the annual profits derived from exploitation of the patent. Alternatively, the patentee-employer can make a lump sum payment based on the above rates. If the patentee-employer licences the relevant patent to another entity, the employee is entitled to no less than 10% of the royalty charged.

2) Reward and remuneration scheme can be agreed separately between employer and employee

Article 76 of the Rules provides that an employer may specify its reward and remuneration scheme either in an agreement with its employees or in its bylaws. As stipulated under Article 16 of the Patent Law, the terms contained in such agreement or bylaws must be 'reasonable'.

Dispute resolution

Generally speaking, according to Article 7.1 of the Several Provisions of the Supreme People's Court on Issues Concerning Applicable Laws to the Trial of Patent Disputes, disputes over inventor remuneration will be treated as patent, rather than labour, law disputes.

Recommendations

It is advisable, in practice, to avoid the statutory remuneration scheme (i.e. by entering into a separate agreement) for the following reasons:

First, in certain circumstances, where the employee remuneration is based on profits, companies may be forced to disclose confidential information. Secondly, the calculation stated in the statutory remuneration scheme may be difficult for products that involve multiple inventions or have little or no commercial value. Thirdly, it is not clear whether the minimum percentages are to be applied to profits before or after tax, even though the term 'business profits' in the original Chinese text of the Rules normally implies pre-tax profits.

If the scheme of remuneration is agreed in a separate agreement or is set out in the company's bylaws, the company can determine its own 'reasonable' remuneration scheme. It should be noted that there are no guidelines as to what will be considered 'reasonable'. In the event of a dispute, it would ultimately be for the People's Court in China to determine a particular remuneration scheme reasonable. Employers developing their own invention remuneration scheme should do so carefully, giving consideration to the practices and legislation of countries with well-established employee inventor remuneration systems.