China: Shanghai High Court Issued Guidelines On Trial Of Disputes Over Rewards And Remunerations For Inventors Or Designers Of Creation Of Service Inventions

Last Updated: 9 June 2014
Article by Jun Ji and Na Wang

On June 24 2013, Shanghai High People's Court issued Guidelines on Trial of Disputes over Rewards and Remunerations for Inventors or Designers of Creation of Service Inventions (the "Guidelines"), which was implemented on the date of issuance.

The Patent Law and the Implementing Rules of the Patent Law provide for general principles on rewards and remunerations scheme for the inventors or designers of creation of service inventions (the "Reward and Remuneration Scheme"), while the Guidelines provide for the detailed rules and standards for the courts in adjudicating disputes regarding Reward and Remuneration Scheme.

1. Clarification on Applicability of the Reward and Remuneration Scheme

(1) The Guidelines clarify that the Reward and Remuneration Scheme applies to the creation of inventions completed in mainland China

The Guidelines provide that, for creation of inventions completed in mainland China, the inventors or designers of such creation of service inventions ("Inventors or Designers") are entitled to demand for the corresponding reward and remuneration pursuant to the Patent Law and Implementing Rules for the Patent Law in China, regardless of whether the patent is applied in China or overseas.

(2) The Guidelines clarify that the Reward and Remuneration Scheme is also applicable to dispatched workers who are Inventors or Designers.

The Guidelines provide that, as dispatched workers are employees of the employer, they may assert for reward and remuneration as the Inventors or Designers for their creation of service inventions completed during the employment.

2. Clarification on the Principle of Agreement Taking Precedence for Reward and Remuneration Scheme

The Guidelines provide that, the Reward and Remuneration Scheme shall adopt a principle of "agreement taking precedence". More specifically, where the company to which the patent is awarded (the "Company") has entered into an agreement with the Inventors or Designers regarding the Reward and Remuneration Scheme, the corresponding reward and remuneration for creation of the service invention shall be determined pursuant to such agreement; where there is no agreement, the corresponding reward and remuneration for creation of the service invention shall be determined pursuant to the standards stipulated in the Implementing Rules of the Patent Law (the "Statutory Standards").

3. Detailing the Form and Content for the Agreement Regarding Reward and Remuneration Scheme

According to the Guidelines, the Reward and Remuneration Scheme may be agreed by the Company and Inventors or Designers, or otherwise stipulated in the internal rules and policies enacted by the Company pursuant to the law.

Meanwhile, the Guidelines provide that the Company may reach an agreement on the method and amount of the reward and remuneration with Inventors or Designers:

(1) Method of reward and remuneration: besides monetary form, the reward and remuneration may be in various forms, such as in the form of shares, options, salary increase, paid leave and etc., provided that the reasonableness requirements in the Patent Law are satisfied. In addition, it is also permitted to grant reward and remuneration by installments (such as granting reward and remuneration for patent application, patent grant and patent implementation) or in one lump sum;

(2) Amount of reward and remuneration: where the agreed remuneration is in monetary form, the agreed amount may be higher or lower than the Statutory Standards; the Company may formulate the relevant detailed standards independently at its own discretion.

4. Clarification on the Standards and Methods for Reviewing the Legality and Reasonableness of Reward and Remuneration Agreement

(1) The Guidelines clarify the standards and methods for reviewing the form legitimacy of the reward and remuneration agreement:

A. Where the Reward and Remuneration Scheme has been negotiated and mutually agreed, the Contract Law and Labor Contract Law shall apply in determining whether such agreement is effective, and whether there exists circumstances which may render the agreement invalid, revocable, or modifiable (such as material misunderstanding, obvious unjust, fraud, duress or taking advantage of others' precarious position), and etc.

B. Where the Reward and Remuneration Scheme is stipulated in the internal rules of the company, the procedural legitimacy on the enactment of such rules shall be examined pursuant to relevant clauses in the Company Law and the Labor Contract Law.

(2) The Guidelines clarify the standards and methods for reviewing the reasonableness of the content of reward and remuneration agreement:

A. The nature of the enterprise shall be taken into account in reviewing the reasonableness of the agreed content (such as industry research and development characteristics, the purpose for patent application, and the characteristics of patent implementation, and etc.). Normally, agreements on remuneration and rewards made based on the nature of the enterprise are presumed to be reasonable.

B.If the agreed amount is extremely low and evidently unreasonable, neither such agreement nor Statutory Standards will apply, the court will decide a reasonable amount of reward and remuneration according to the specific circumstances.

When entering into agreements with employees or enacting company internal rules regarding reward and remuneration scheme for creation of service inventions, an enterprise shall comply with relevant provisions regarding the effectiveness of contract prescribed in the Contract law, and shall also follow the procedures required in the Company Law and the Labor Contract Law in order to ensure form legitimacy of such Reward and Remuneration Scheme. Meanwhile, the enterprise, when agreeing on the amount of reward and remuneration which is lower than Statutory Standards, shall prudently consider its nature and determine the basis for such reward and remuneration standards with reference to the industry research and development characteristics, the purpose for patent application, and the characteristics of patent implementation, and etc., so as to avoid the risk that such standards may be deemed as unreasonable and adjusted by the court.

5. In absence of an agreement, assertion for reward and remuneration higher than Statutory Standards will not be supported.

Statutory Standards stipulated in the Implementing Rules of Patent Law are as follows:

The Guidelines expressly state that, in the absence of a reward and remuneration standard agreed by the Company and Inventors or Designers, or stipulated in the internal rules enacted pursuant to the law, the Company is only obliged to pay the reward and remuneration based on the Statutory Standards with no obligation to pay the amount exceeding the Statutory Standards. Under such circumstance, the court will not support the assertion for the amount exceeding the Statutory Standards made by Inventors or Designers.

6. Stipulation on the Standards for Reference in Determining the Statutory Remuneration in the case of Patent Assignment

According to the Guidelines, in the absence of an agreement regarding the reward and remuneration standards applicable to Inventors or Designers at the time of patent assignment, when the patent is assigned by the Company to others within the validity period of the patent, the remuneration of Inventors or Designers shall be determined with reference to patent licensing.

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.

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