SIPO sets out clear rules on service inventions

“It does happen in China that some companies ignore and infringe upon inventors rights as they use the owner of the company as the inventor of the patent,” said Yao Di of King & Wood Mallesons in Shanghai.

Rewards

When the entity and the inventor have not previously agreed upon the rewards for a service invention, Article 21 of the draft Regulations states that the reward must not be less than twice the monthly average salary of the entity's employees.

This differs from Article 77 of the Implementing Rules for the PRC Patent Law (中华人民共和国专利法实施细则), where the inventor must be rewarded no less than Rmb3000 ($480) for a service invention. The Regulations have the potential to greatly alter the reward amount.

“It will depend on which authority issues the draft. If the State Council issues the Regulations then they will prevail. If government agencies like SIPO or the Ministry of Science and Technology jointly issue them, as they are lower than the State Council, the Implementing Rules will continue to govern,” said Huang Haifeng, an IP partner at Jones Day in Hong Kong.

Key Articles

Article 9 states that if the company and the inventor have already signed an agreement, the requirements of the Regulations do not apply. This means that contracts will prevail over the regulations.

The American Bar Association (ABA) has submitted comments to SIPO requesting that Article 9 should be clarified so that the agreement between the entity and inventor on the right regarding the invention may set forth full award and remuneration terms that supersede provisions that are applicable in the absence of an agreement

“A lot of companies have submitted their comments to SIPO. One of their concerns is that Article 9 of the Regulations must be in the final draft to ensure the Regulations shall not prevail over contractual arrangements between the entity and the inventor,” said Yao.

Any agreement that eliminates or limits the rights of an inventor is also in the draft (Article 19). Eliminating rights is easy to define, but without further clarification it is hard to infer what will be considered as limiting the rights.

“This could be an issue with many chambers of commerce and concerned parties as many of these agreements contain default rules. This Article can be risky as to what extent or in what sense agreements are viewed as limiting,” noted Huang.

When a company stops applying for IP rights to protect a service invention, the inventor can negotiate to obtain the rights for free or for a fee (Article 16). Yao warns that the notification as well as assignment of IP rights will be a heavy burden and increase the company's cost.

Empowering local IP offices

The Regulations give a surprising amount of power to local IP offices, as they now can inspect labour contracts, company policies and investigate any issues relating to non-compliance. There is also a fine of Rmb50,000 or under for entities that infringe two or more people's inventions (Article 38).

“This can raise some issues as disputes between employers and employees should be private and a penalty should not be imposed on this. Any issues the parties have they can file a law suit,” said Huang.

Disagreements over ownership or compensation can also be mediated before local IP offices. This has been a common practice for patent infringement cases, but this is the first time they will deal with such contractual issues.

It is not clear whether these local IP offices have the necessary expertise to handle contract interpretation and company policies. It will be interesting to see how the offices tackle this new role and if entities and inventors choose mediation over the courts.

Check internal policies

Companies should go back and look at their contracts and make sure they are specific. If there are any ambiguities, it could mean they are subject to the default rules in the Regulations. They may also want to ensure their contracts comply with mandatory rules.

“The specific procedure means inventors have the right to be informed. This means more tasks for IP in-house counsel as they will have to issue documents over the status of the service invention. They should work closely with the R&D department and the business to make sure they communicate and follow obligations,” said Huang.

SIPO is expected to submit the Regulations before the State Council. If promulgated, companies will have to change their internal policies over agreements with inventors and make sure they comply with the Regulations. The penalties laid out in the draft show SIPO's commitment to encouraging inventions by protecting inventor's rights.

By David Tring