Dodging service invention disputes

Also, the Olympus case (Olympus Optical v. Tanaka) judged by the Supreme Court of Japan ruled that “the court has the right to judge whether the remuneration is reasonable or not.” Furthermore, the world-famous Blue LED case (Nichia Corporation v. Shuji Nakaumura) judged by the Tokyo District Court sided with the employee with ¥20 billion as a reasonable remuneration for the employee and then the parties reached a ¥844 million (Rmb70 million) settlement before the Tokyo High Court.

As the remuneration part of PRC Patent laws has learned a lot from that of Japan, and companies set up more and more R&D centres in China, there is no doubt that employers in China will face the same tough issue as those in Japan sooner or later.

PRC practice

There are no specific PRC provisions or cases on this issue. However, it cannot be fully excluded that there might be the possibility of the court supporting claims of employees that request additional remuneration if the remuneration they are receiving from their employers is not reasonable.

A related PRC case which is found regarding non-compete responsibility may help in finding that an unreasonable contract between an employer and an employee could be adjudicated to be invalid by the PRC Court. According to the Aixin case((2006) Hui Zhong Fa Min Yi Zhong Zi No. 2596 Guangzhou Aixin v. Li Wei case regarding labour compensation), the non-compete provision limited the employment rights of Li Wei, and set broad restrictions on Li Wei from receiving financial compensation. This violated the principles of fairness and reasonableness. Therefore, this non-compete clause was adjudicated to be invalid according to Article 9 of the Rules on Labour Contract Management in Guangzhou. Also, Article 54 of the PRC Contract Law (中华人民共和国合同法), which stipulates that a party shall have the right to request the people's court or an arbitration institution to modify or revoke those contracts that are obviously unfair when concluding the contract. From this case, it can be seen that the PRC court may support claims of seeking financial compensation raised by employees if the employee had entered into an unreasonable contract with the employer.

In the scenario for remuneration of a service invention, the employee may be entitled to request the court to modify or revoke the remuneration clause by arguing that the clause is unfair according to Article 54 of the PRC Contract Law. During the negotiation of a contract, the employer is always in a stronger position and the relationship between the employer and the employee is not necessarily equal. Also, during the stage of signing the employment handbook or other relevant documents, the employee has no idea how great a profit his invention can generate. As a result, this contract actually causes unfairness. This contract could be revoked and the employer should compensate the employee with a corresponding amount based on the principle of reasonableness.

Furthermore, another question that is raised is whether the employee is entitled to request additional remuneration if the employer transfers or licenses the service invention patent to a third party at an unreasonably low price or even for free to avoid paying a remuneration fee to the employee who made the invention, and the third party enjoys huge profits from exploiting the patent rights.

To answer this question, Professor Tao Xinliang proposes an interesting solution: designing a subrogation right for employees. In his paper “Discussion on the inventorship attribute of the service invention remuneration and its incentives to innovation” (“职务报酬的发明权属性及其创新激励探讨”), he states that if the employer transfers its patent voluntarily to its affiliates, or the employer licenses others to use its patent but fails to collect its royalty fee, or defaults to collect outstanding royalty fees on purpose, the employees' legitimate right of receiving reasonable remuneration will be prejudiced. Therefore, the employee can plea in the court in his employer's name to request remuneration directly from the licensee or assignee. However, the question remains open for further discussion.

Final thoughts

The possibility cannot be excluded that the employee may be entitled to request the court to modify or even revoke the remuneration clause and request some additional remuneration if the huge commercial benefits acquired by the employer based on a service invention made by him/her do not correspond to the remuneration received from the employer.

Therefore, the employer should develop a fair and reasonable system for rewards and remuneration. For example, during the development of such a corporate policy, the employer could fully consult with the employees regarding the calculation of remuneration standards, and fully disclose the development process of the rules, etc. Only in this way can the system prevent a massive remuneration claim stemming from a service invention dispute. Also, after a dispute arises, an employer can also use the fact that it took the above steps as a defence, and request the court to make a favourable decision.

Cecilia Lou, Partner and Di Yao, King & Wood, Shanghai