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Patents - Law on Employees' Inventions - China

The Chinese legal framework governing employee inventions and the related reward and remuneration has developed over the years in a somewhat piecemeal manner and is primarily comprised of the Patent Law that governs patented inventions, and the Law on Promoting the Transformation of Scientific and Technological Achievement ("PTSTA") that governs non-patented inventions, i.e. service inventions for which employers decide not to seek patent protection.  We set out forthwith the key rules relating to employee inventions in China.

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-When does the law on employees' inventions apply?

It applies to inventions created by employees of private companies or public institutions during the employment relationship, where those inventions relate to employees' work or tasks created within one year following the termination of the employment relationship.


-Is the employee obliged to notify the employer of an invention?

Employees are currently under no express statutory obligation to notify the employer of an invention.  However, it is typical to see employers impose such an obligation by way of an agreement or through a company policy enacted in accordance with the law.  


-Who becomes owner of employee inventions?

Under the Patent Law regime, employees' inventions are divided into the following three types:  

1. Service Inventions are those made by an employee in the following circumstances:

    • in performing work or tasks for the employer during the course of his/her employment, including inventions relevant to such work or tasks created within one year following the termination of the employment relationship; or
    • primarily using material or technical means of the employer.
       
      Such inventions belong to the employer while the employee is entitled to claim reward and remuneration for their contribution

2. Service-related inventions are those made by an employee using any material or technical means of the employer.  Ownership of such inventions is governed by the agreement between the employee and the employer.

3. Non-service inventions are those which are neither service inventions nor service-related inventions.  Such inventions belong to the employee.  

There are no equivalent statutory rules for ownership determination under the PTSTA regime but the relevant laws make it reasonably clear that ownership of non-patented service inventions similarly created (i.e. inventions made by an employee in performing work or tasks for the employer, including inventions relevant to such work or tasks created within one year following the termination of the employment relationship, or primarily using material or technical means of the employer) reside with the employer subject to contrary agreement reached with the employee.  All other non-patented inventions are considered non-service inventions under the PTSTA and belong to the employee.


-Which duties do employers have in relation to employee inventions?

The employer is under no obligation to file a patent or to protect an employee's invention in any other way.  The employer is, however, under statutory obligations to pay reward and remuneration to employees for their contribution in the creation of service inventions as discussed in the following section.


-Is the employee inventor entitled to additional remuneration?

The Patent Law regime requires employers to provide both a reward and reasonable remuneration associated with commercial exploitation to employee inventors for patented inventions.  In the absence of any agreement between the employee and employer, the statutory default minimum amounts will come into play.  Details of the default minimum amounts are set out in the following section.  

On the other hand, the PTSTA regime requires employers to provide remuneration associated with commercial exploitation to employee inventors even for non-patented inventions at a certain mandatory (and potentially onerous) minimum level.  The PTSTA does not expressly allow employers to get around the prescribed remuneration standards by way of an agreement with an employee or through a company policy, but this is likely to change according to the draft amendment to the PTSTA published for consultation purposes on 30 December 2013.  


-How is the remuneration calculated?

Patented service inventions

The statutory minimum levels for reward and remuneration of employee inventors in relation to patent inventions are as follows: 

  • Rewards payable within 3 months from the grant of the patent:
    • At no less than RMB 3,000 (around USD500) per invention patent; or 
    • At no less than RMB 1,000 (around USD167) per utility model or design patent. 
  • Remuneration: 
    • Payable annually throughout the validity period of the patent or by way of a corresponding lump-sum payment at no less than 2% of the operating profit generated from the exploitation of an invention or utility model patent, or at no less than 0.2% of the operating profit generated from the exploitation of a design patent; or 
    • Payable at the time of licensing the patent at no less than 10% of the royalties generated. 

Non-patented service inventions

The statutory minimum standards for remuneration of employee inventors in relation to non-patented inventions are as follows: 

  • At no less than 5% of the additional profit acquired from implementing the invention for three to five years consecutively; or
  • At no less than 20% of the net proceeds acquired from assigning the invention.

-Are contractual agreements possible?

For patented inventions governed by the Patent Law regime, employers may contract out of the statutory minimum requirements by way of an agreement with the employee or by enacting a company policy in accordance with the law.  

On the other hand, the statutory requirement to remunerate employees at the prescribed minimum standards for non-patented inventions under the PTSTA is compulsory and does not allow employers to contract out by separate agreements, but this is likely to change according to the draft amendment to the PTSTA published for consultation purposes on 30 December 2013.   



-Reform of current system

In June 2013, the Shanghai Higher People’s Court issued its “Guidelines on the Adjudication of Disputes Involving Rewards and Remuneration for Inventors or Designers of Service Invention Creations” (“Shanghai Guidelines”).  The Shanghai Guidelines have clarified some fundamental issues.  For example, the key tone set by the Patent Law is that agreements between employee and employer prevail over the statutory default amounts.  Despite this, companies are concerned whether such agreements can be challenged as unreasonable at some point.  The Shanghai Guidelines have clarified that under normal circumstances, the agreements will be deemed reasonable, except if the agreed amounts are extremely low and obviously unreasonable.      

In addition, the Chinese government released two pieces of draft legislation in December 2013 for public comments, including: 

  1. Draft Regulation on Service Invention released by the State Intellectual Property Office.
  2. Draft Amendments to the PTSTA released by the State Council. 

The Draft Regulation on Service Invention is intended to supplement the current Patent Law regime with detailed rules to facilitate and streamline implementation of the law.  The current draft (being the third draft released for public comments) introduces features such as the procedure and timeline for employees to disclose employee inventions and a mechanism to deal with disputes where an employee claims the disclosed invention as a non-service invention.  It also proposes employees’ rights to receive reward and remuneration over trade secrets.     

On the other hand, the Draft Amendments to the PTSTA is intended to revamp the PTSTA regime.  One important feature of the current draft is that it explicitly permits employers to make contracts with employees or enact company policies on the level of employee remuneration, aligning it with the Patent Law regime and giving way to the principle of freedom of contract.



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