China: Invention for hire in PRC: what should practitioners know?

Last Updated: 20 July 2015
Article by Ou Xiuping, Xu Jing and Yin Ji

The legal framework of service invention is stipulated by the PRC Patent Law and the Regulation on Protection of New Varieties of Plants. Also in April 2015, the State Council solicited public opinion of the Regulations on Service Invention (Draft), which has been amended for the fourth time1. This article will closely study and analyse hot-spot issues in PRC legal practice with respect to disputes over service invention on the case study, including:

  • Subjects and conditions when compensating;
  • Agreement priority principle;
  • Determination upon the amount of rewards and compensation;
  • Limitation of action.

We firstly introduce subjects and requirements when compensating inventors in this section.

The subject and requirements when compensating inventors

  1. Subject of right: inventor

Only are the inventors or designers of the service invention, pursuant to Article 16 of the Patent Law, entitled to the compensation or rewards. Article 13 of the Implement Regulations of Patent Law further states that:

"'Inventor' or 'designer' as mentioned in the Patent Law means any person who has made creative contributions to the substantial features of the invention. Any person who, in the process of accomplishing the invention, is responsible only for organizational work, or who offers facilities for the use of material resources, or who takes part in other auxiliary functions, shall not be an inventor or designer."

Therefore, an inventor shall be the one "made substantial contributions to the substantive features of the invention". Besides, only an individual person, neither a company nor entity, can be an inventor.

In practice, a company usually refuses to pay compensation to its employee arguing that the person failed to make substantial contribution to the invention. But how could we define "making creative contributions to the substantial features of the invention"? Substantial features are originated from the Patent Law2. Likewise, it can be referred to the provisions in the Implement Regulations of Patent Law and Guidelines for Examination to determine the ownership right of the inventor. This approach not only is consistent with the legislation intention, but also able to determine who is inventor based upon the quality and size of objective contribution, which tends to be fair.

However it is rather difficult to clarify who and to what extent he contributed to the invention in practice. Therefore, the courts always perform a simple presumption rule, whether the employee's name shown in the patent documents' corresponding column of the inventor, when they need to identify who is the inventor. For instance, Beijing secondary intermediate people's court stated in the Zhang Zhili v. HuaXia Julong Company that "the patents' inventor column in all six documents showed that Zhang Jianjun, Zhang Jianguo or other inventors except Zhang Zhili were the inventors, thus this court held that all persons appeared on the inventor column of the patent document shall be deemed as the inventors of these 8 subjected patents.3" It is rely on the record of the patent document. Generally, the authenticity of this record shall be recognized and the inventor listed on the document shall be deemed as the actual inventor. However, the presumption is of uncertainty, thus it is allowed to present counter-evidence to overrule this presumption. Provided there are counter-evidences overruling the authenticity of the record in the patent document, the owner of the patent shall be the actual inventor instead of the one recording in the patent document.

  1. Subject of obligation: the company granted a patent

Article 74 of Detailed Rules for the Implementation of the Patent Law (2002) provides that "The state-owned-enterprise (SOEs) or institution that a patent is granted shall, within three months from the date of the announcement of the grant of the patent, give compensation to the inventor or creator of a service invention." This provision shrinks the application scope of the compensation system to SOEs, which was unfavorable to the inventors or designers of the service invention. Yet in 2010 amendment cancelled the restriction over the SOE. The suitable subject is redefined as "the company that is granted a patent". So "the company that is granted a patent" is the obligation subject of the compensation for the invention.

From the legislative perspective, "the company that is granted a patent" has no ambiguity. However, it doesn't conform to the legislation original purpose if "the company that is granted a patent" is merely interpreted as "the patentee written on the patent certificate". For example, the company does not file the patent by itself but assign this right to someone else. In this case, the law does not provide how to determine the obligation subject of compensation. The standard in judicial practice varies as well. In the case Wei Qingfu pl. v. China Aerospace Science & Industry Corp., Beijing First Intermediate People's Court held that:

According to the interpretation of literal doctrines, the term 'the company that is granted a patent' should be 'the initial licensed patentee'. According to the interpretation of legislation doctrines, employees should receive compensation from their employer. Other patent owners and practitioners such as patent assignee or licensee do not have employment relationship with the service inventors or designers, so they do not have to fulfill corresponding obligations4.

In the case Zhang Weifeng v. 3M China Limited, the patent was not filed by the employer of the plaintiff (3M China Limited) or employer of three other inventors (3M Company), but was filed by the defendant 3M Innovation Company and then was granted by the administration. The court held in the final instance:

Service inventors or designers can get compensation not only from the patent royalty received by the company that is granted a patent, but also from the profit received from assignment of the patent right (including assignment of the patent filing right and then the patent gets licensed). ... 3M Company, 3M China Limited, 3M Innovation Company are affiliated company, 3M Company should had been entitled with this patent filing right, but this right was assigned to 3M innovation company because of 3M company's management mode of intellectual property. According to the provision of compensation, its original legislative purpose is to ensure that the inventors or designers receive deserved compensation for their work. This right should not be impaired by the agreement between the multi-national corporates. Therefore, even 3M China Limited is not the patentee of involved invention, they still should give Zhang Weifeng compensation for his service invention.5

What we say: when determining the obligation subject of compensation for service inventions, the existence of the employment relationship between the company and the service inventors or designers shall be initially considered. This is the necessary and sufficient condition in determining who is obligated to compensate the service inventors or designers. If there is no employment relationship, there is not sufficient condition for payment of the service invention compensation. Secondly, the patent granting does not change the employment relationship between the inventors or designers and its employer, and the obligation. The owner of patent right written on the patent document should not be considered as the obligation subject. Usually, the company that is granted a patent is the employer of the service inventors or designers. In this condition it is not controversial that the company should give the inventors or designers compensation. But in some condition, the employer does not file the patent itself instead assign this right to someone else. In this case the company that is granted a patent is not the employer company of the inventors or designers. If the obligation subject of giving compensation is restricted to "the company that is granted a patent", the employer company is not the obligation subject. The company to which the patent belongs could defend itself for not giving compensation by using the nonexistence of employment relationship as an excuse. This makes the inventors or designers unable to receive deserved compensation from both sides. In this case the provision of service invention compensation would be a dead letter. Therefore, we hold the opinion that as long as there is employment relationship between the inventors or designers and the company, the company cannot exempt itself from giving the inventors or designers the compensation, regardless of the owner of the patent or the patent filing right.

  1. Substantive conditions of object: service invention accomplished in PRC

According to Article 16 of the Patent Law, the precondition for requesting compensation is that the invention is a service invention, provided in Article 12 of Detailed Rules for the Implementation of the Patent Law:

  1. in the course of performing his own duty;
  2. in execution of any task, other than his own duty, which was delivered to him by the company to which he belongs;
  3. within 1 year of his retirement, removal from office, or termination of the employee or personnel relationship, provided that the invention relates to his own duty in the company where he worked or relates to a task assigned to him by the company.

Yet the Patent Law has no specific provision for the object of Service Inventions. However, Article 4 of Regulation on Service Inventions (Draft for Comment) provides: "The 'inventions' as used in this law means intellectual creation accomplished within the People's Republic of China which includes patents, new varieties of plants and layout designs of integrated circuits." This provision means that objects of compensation system includes not only patent, but also new varieties of plants and layout designs of integrated circuits.

As to the specific object of service inventions-creation, no definition explicitly is provided in the Patent Law or relevant judicial interpretation.

What does "service invention" mean exactly? To answer this, we have to study the nature of compensation dispute of Service Inventions and applicable law. Regardless of the nationality of the inventors or designers, the country in which the service invention is completed and the nation that grants the patent, the compensation dispute of invention is contract dispute between employer and employee. Therefore, first we should determine the jurisdiction and applicable law before we determine the object of service invention in Article 16 of patent law with applicable provisions. As is provided in Article 265 of Civil Procedure Law,

Where an action is filed against a defendant which has no domicile within the territory of the People's Republic of China for a contract dispute or any other property right or interest dispute, if the contract is signed or performed within the territory of the People's Republic of China, the subject matter of action is located within the territory of the People's Republic of China, the defendant has any impoundable property within the territory of the People's Republic of China, or the defendant has any representative office within the territory of the People's Republic of China, the people's court at the place where the contract is signed or performed, where the subject matter of action is located, where the impoundable property is located, where the tort occurs or where the domicile of the representative office is located may have jurisdiction over the action.

Thus it can be seen that the legal basis of determining jurisdiction of compensation dispute of a service invention should be the Doctrine of the Most Significant Relationship6 in international private law.

Article 41 of Law of the People's Republic of China on Application of Law in Foreign-related Civil Relations provides: "The parties concerned may choose the laws applicable to contracts by agreement. If the parties do not choose, the laws at the habitual residence of the party whose fulfillment of obligations can best reflect the characteristics of this contract or other laws which have the most significant relation with this contract shall apply." Therefore, in a compensation dispute of a service invention, if the parties did not choose, the applicable law should relate the most significantly to the contract. The place of performance of the service invention has the most significant contact with the contract without doubt. The place of performance of the service invention is the place where the service invention is accomplished. PRC courts have jurisdiction over such compensation disputes. PRC laws should be applicable to such disputes as well. The core of controversy over such dispute is whether the employers should pay rewards and compensation to the employees. The place where the patent is filed or granted is not closely relevant to affirmation the employment relationship between two parties. Besides, as to whether an invention belongs to service invention, rules may vary in different jurisdiction.

It can be seen from the above analysis that although PRC Patent Law has no clear definition over service invention, however its intentional meaning should be service invention that was accomplished in China. Specifically, it includes patents invented and filed in China and patents invented in China but filed abroad. In other words, as long as the invention is accomplished in China, the PRC compensation system of service invention should be applied wherever the patent is filed. Japanese courts hold the same opinion. In the Hitachi case, besides Japan, the involved service invention is granted a patent in USA, England, France, Netherland and Canada. In its second instance, the Tokyo High Court held that the right to apply a patent (or the patent right) consists of both right obtained domestically and right obtained abroad. In the final instance, the Japanese Supreme Court held: the inventor of such service invention described in Patent Law has the right to claim for the profit gained abroad by the employer which means the inventor or designer can request for compensation.

Footnotes

1Its first version was issued in August 2012, which was followed by the Draft of November 2012, December 2013, and April 2015 the last version.

2 Article 22 (3) of the Patent Law states that "inventiveness means [...] the invention has prominent substantive features and represents a notable progress..." which share the same implication herein.

3 Zhang Zhili v. HuaXia Julong Company on service invention compensation dispute, Beijing Second Intermediate People's Court, Case No.: (2014) ER ZHONG MIN CHU ZI No.05591.

4 Wei Qingfu pl. v. China Aerospace Science & Industry Corp. on service invention compensation dispute, Beijing First Intermediate People's Court, Case No.: (2013) YI ZHONG MIN CHU ZI No.9621.

5 Zhang Weifeng v. 3M China Ltd. on service invention compensation dispute, Shanghai Higher People's Court, Case No.: (2014) HU GAO MIN SAN (ZHI) ZHONG ZI No.120.

6 Here the most significant relationship refers to the place where the contract is signed or performed, where the subject matter of action is located, where the impoundable property is located, where the tort occurs or where the domicile of the representative office is located, instead of the nationality of the inventors or designers, the place where the patent is applied for or where the patent is granted.

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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