On November 12, 2012, the Consultation Draft of Regulations on Service Inventions ("Draft Regulation") was released by the State Intellectual Property Office of China for public comments with immediate effect. The Draft Regulation was formulated for the purpose of protecting the legal rights and interests of the inventor-employee and the employer, to stimulate and improve the ability to innovate. For those pharmaceutical companies which have Chinese service inventions in China, they should be aware of this Draft Regulation as it places additional pressures on employers.

The Draft Regulation addresses the following topics: the employer's obligation to establish an internal intellectual property management system; ownership and reporting of the inventions/creations; the reward and remuneration of the service inventions/creations; the utilization and implementation, supervision and inspection, and legal liability of the intellectual property rights of the service inventions-creations.

It is worthy of special attention that the default rule of remuneration according to the Draft Regulation is huge (no less than 5% of the turnover for an invention patent) and companies shall also reveal extensive commercial information to its employees if the default rule applies. Moreover, pharmaceutical companies should be aware that this default only applies to the circumstance when an employer does not reach an agreement with its employees. Therefore, a proper agreement with employees is vital in mitigating service invention disputes and reducing associated risks.

Pharmaceutical companies should review their agreements and ensure there are no ambiguities in their agreements. In addition, they should ensure compliance with any requirements or obligations to avoid damages due to the huge remuneration as ruled.

On December 14, 2012, the China Trademark Office issued a Notice on Adding Trademark Specifications on Retail and Distribution Service Trademark. In this Notice, the CTMO specifies that "Retail and Distribution Service for pharmaceutical, veterinary, sanitary and medical goods" will be added to Class 35 of the Revision of the 10th Edition of Goods and Services Classifications in China, and the new Revision will be effective January 1, 2013.

According to the Notice, the newly expanded service classification will not be deemed as similar to pharmaceutical goods. Additionally, the services are classified differently from prior "Distribution for others" in Class 35.

Prior to the Notice, the CTMO rejected trademark applications on retail and distribution services. Pharmaceutical distribution companies generally relied on registering trademarks in the "distribution for others" service to try to cover their retail or distribution business in China. However, the Notice denies this practice and opens trademark registration for medicine retail and distribution services. Therefore, the failure to register such trademarks may put pharmaceutical distribution companies in danger of losing their trademarks in China.

The Notice also sets out a transitional period for such registration from January 1, 2013 to January 31, 2013. Trademark applications filed during this period will be considered to be made on the same day for identical or similar newly added services. This rule will protect the real trademark owner from rush trademark registrations. However, this rule is only available during the transitional period.

In light of the benefits during this transitional period, all pharmaceutical companies, especially those who have a pharmaceutical distribution business in China, are highly recommended to register their trademarks in China by adding the above mentioned services classification during the transitional period and as soon as possible, for either use or defense.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.