China: Case Study—Test Of Post Employment Service Inventions

Last Updated: 28 July 2014
Article by Xi Sun

[Abstract]

The same test should be adopted in determining service inventions created during employment and those created in one year after the termination of employment. The major test is whether the employee's work or assigned duties include research, which is the same as or closely related to the invention purpose and technical solution of the involved patent. And the plaintiff has burden to prove the relevance.

Introduction

Under current Chinese law, service invention includes inventions that were made by employees in performing their tasks assigned by their employers, and inventions that were made by employees who substantially used the material and technical means of their employers. The first type of service invention can be further divided into three: i) inventions made by the employees as a consequence of performing their normal duties; ii) inventions made by the employees as a consequence of performing their special jobs that were outside their normal duties and assigned to them by their employers; and iii) inventions that were relevant to their previous normal duties or special jobs but made by employees within one year after they left their employers. The first two relate to inventions that were made during the employees' employment with their employers (hereinafter referred to as "Service Inventions during Employment"), whereas the third one relates to inventions that were made after the employees quit their employers (hereinafter referred to as "Post Employment Service Inventions").

In practice, many disputes arise from the ownership of inventions created by employees in course of carrying out their special jobs during employment. There are many controversies regarding how to define Service Inventions during Employment and Post Employment Service Inventions, especially their relevance (i.e., how to construe 'relevant to' in the definition of Post Employment Service Inventions), and no uniform judicial standard is available. The author will try to discuss this issue with a case he recently handled.

Case Summary

Company A is a leading U.S. supplier in the environment protection industry and Company B is its subsidiary in mainland China for project implementation. Company C is a Chinese supplier in the same industry. Inventor D was n engineer of Company B before he joined Company C. Within his first year with Company C, Inventor D completed several inventions that were later granted patents under the name of Company C.

Company A and Company B then filed a lawsuit against Company C and Inventor D, requesting the Court to declare that the patents be jointly owned by the two plaintiffs because the inventions were post employment service inventions.

Issues of the Case

This case focused on whether the patents in question were related to D's normal duties or special jobs during his employment with Company B and therefore should constitute Post Employment Service Inventions of Company B. More specifically, before an invention was determined as a Post Employment Service Invention, the relevance between the invention and the inventor's normal duties or special jobs with his formal employer, and that between a Post Employment Service Invention and a Service Invention during Employment should be clarified.

The two plaintiffs alleged that the patents in question were identical to their business in view of the technical fields and contents disclosed in the patent specifications. In accordance with the Employment Contract between Company B and Inventor D, the patented inventions were within the scope of D's responsibilities to improve on plaintiffs' technologies. Further, the embodiments disclosed in the patents in question were identical to D's work at Company B in the technical means and objectives. Therefore, the patents in question constituted service inventions created by Inventor D in connection with his duties with Company B.  

The defendants argued. On one hand, the plaintiffs misunderstood the determination test of Post Employment Service Invention and its relation with Service Invention during Employment. In view of the legislative intent of Post Employment Service Invention, it should have a determination standard as strictly as Service Inventions during Employment, and to some extent, more strictly. Further, the two types of employment inventions were different in their completion time only. A Service Inventions during Employment should be defined as an invention that was created in the course that the employee completed his normal duties or special jobs. That means, the objects or technical solutions of a service invention must fall into or closely relate to the employee's actual or assumed duties in employment. An invention made by the employee who had left the employer was not naturally a service invention only because the said invention had the same or similar technical field to that of the his job or the employer's business scope.

On the other hand, the subject patents did not fall into Inventor D's range of duties during his employment with Company B for two reasons. Firstly, according to his Employment Contract with Company B, D was mainly responsible for project management and maintenance, and he did not engage in research work. Legally speaking, managing and maintaining projects were sort of supporting work that was provided to ensure the existing technical solutions to achieve normal technical effects. This was utterly different from research work that was aimed at improving technical solutions and achieving better effects. The subject patents, however, were significant improvements upon basic processes. Secondly, in view of the relation between the two plaintiffs, Company B, as a project operator to promote and implement ripe technologies of Company A, did not conduct scientific experiments or have a R&D branch, so it is unlikely to make any significant improvements upon Company A's technologies. Company B might make minor changes such as partly adjusting process conditions or parameters in the course of project implementation. In addition, the subject patents and plaintiffs' technologies differed in their technical means and principles. Therefore, the subject patents were not Post Employment Service Inventions made by Inventor D.

Court Judgment

The first instance court supported defendants' major arguments. In the decision, the court considered the three types of services inventions enumerated in Rule 12 of the Implementing Regulations of the Patent Law of the People's Republic of China ("the Regulations") together, and held that Post Employment Service Inventions differed from Service Inventions during Employment only in their completion time. According to the court, Post Employment Service Invention was provided in Rule 12 with a purpose that when conditions of the service inventions were met, inventions easily obtained in the inventor's follow-up work would constitute service inventions owned by his former employer. Otherwise, the scope of Service Inventions during Employment would be narrower than that of Post Employment Service Inventions. In other words, without the prerequisite of 'performing duties or carrying out special jobs assigned by the former employer,' inventions created within a year after the inventor's termination of employment should not be considered as service inventions owned by the former employer.

Comments

I.   Definition of Service Inventions during Employment: pertinence between the inventions and the inventor's normal duties and jobs assigned by the employer

Although the dispute in this case is about determination of Post Employment Service Inventions, it relies upon determining Service Inventions during Employment, which is a prerequisite and fundamental question in this case.

A major purpose of the Patent Law is to encourage inventions and creations. Service inventions should be recognized strictly following rather than departing from this purpose, and an appropriate boundary of service inventions should be drawn under this purpose.

The law protects service inventions because the employer provides necessary material, technical and financial supports to the employees who make inventions in the course of their work (completing their normal duties or other work assigned by the employer). The employer also pays remuneration,welfare and other benefit package for the employee's services. Therefore, the inventions so created as a result of the employee's services shall belong to the employer,which is entitled to exploit the inventions' economic value, and in turn further motivate employees' creativity, to achieve the goal of encouraging innovation. On the other hand, those inventions created by the employee after work and irrelevant to his duties should not be deemed as service inventions. Otherwise, the enthusiasm of individual creativity might be interfered.

This legislative intent actually establishes the criteria for identifying Service Inventions during Employment. It means that the conception, experiments and completion of service inventions constitute the process that the employee carries out the work assigned to him by his employer, and are products of his work. As a further conclusion, service inventions shall be relevant to the employee's normal or assigned duties. Only those inventions created in the course of performing such duties are service inventions. The technical solutions of such inventions are necessarily related to the inventor's/designer's duties with his work. Therefore, in deciding whether the involved patents are service inventions, it shall be decided whether the employee's jobs or other duties assigned to him by the employer include research work, which has the same contents as or closely relates to the invention purpose and technical solution of the subject patent. This is actually about the issue of relevance between an employee's work scope or duties and the involved invention.

In this case, although the first instance court did not elaborate on this issue, its decision indicated that the court approved the above point of view. The first instance judgment stated that evidence of plaintiffs could not prove the technical solutions of the subject patents were within D's duties or any work assigned to him by Company B. This means that in deciding on service inventions, a comparison should be made between the technical solutions of the subject patent and the employee's duties or assigned work, to see whether they are the same or closely relevant.

Accordingly, an invention cannot be considered as a service invention only because the invention has identical or similar technical or business field to that of the employee's work or that of his employer. The nature of the employee's work (research or management) also has significant implications on the consideration.

In a lawsuit, the plaintiff has burden to prove his allegations. In this case, the plaintiffs should have provided sufficient proof that Inventor D's normal duties or specially assigned jobs included research work which was the same as or closely related to the purpose and technical solutions of the subject patents.           

II. Definition of Post Employment Service Inventions: the relevance between Post Employment Service Inventions and Service Inventions during Employment.

Actually, the pivotal issue of this case is the relevance between Post Employment Service Inventions and Service Invention during Employment, or the interpretation of 'relevant to' in the definition of Post Employment Service Inventions stipulated in Rule 12.1 (3) of the Regulations. After this issue is resolved, Post Employment Service Inventions will be easily identified and defined.

This case demonstrates that though they are completed at different time, Post Employment Service Inventions and Service Inventions during Employment shall be determined under a consistent test for the following reasons, just as what was stated in the first instance judgment,    

(1)          In view of the legislative background of Post Employment Service Inventions, it is reasonable for the employer to own the inventions made by its previous employees for a certain period of time after they quit. Since the employees are engaged in research projects and aware of relevant progress or preliminary achievements before they left, even though the relevant projects are still ongoing when they left, it would be very likely that the employees continue their research and make inventions on the basis of knowledge about their previous work. Therefore, the law gives an 'extended protection' beyond the Service Inventions during Employment. However, only inventions closely related to the inventor's previous work or duties are service inventions. In some cases, it should also be taken into consideration whether the research projects that the employees were previously engaged in have achieved any results when the employees left.

Further, as an 'extended protection', the test for determining service inventions created during employment should not be significantly different from that for service inventions created in the extended period of protection.

(2)       The regulation of service inventions is intended to regulate inventions of employees, who make the inventions by utilizing materials, technical means and financial support of their employer in the course of doing their jobs, and receive remuneration and benefit package from the employer. However, it is different for Post Employment Service Inventions whose inventors do not benefit from the above mentioned supports. Therefore, it would be unreasonable to determine Post Employment Service Inventions under a lower standard, otherwise, it would cause 'the scope of Service Inventions during Employment to be smaller than that of Post Employment Service Inventions', as described in the first instance judgment.

In conclusion, the same standard should be adopted in determining service inventions created during employment and those created in one year after the termination of employment. The major test is whether the employee's work or assigned duties include research, which is the same as or closely related to the invention purpose and technical solution of the involved patent. And the plaintiff has burden to prove the relevance.

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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