China: Service Invention In China - Current Provisions & Proposed Changes

Last Updated: 6 June 2017
Article by CHOFN Intellectual Property

Ownership of Service Invention

Current Provisions

Article 6 of the current Chinese patent law defines "service invention-creation" and the ownership thereof. Specifically, it provides that:

An invention-creation, made by a person in execution of the tasks of the entity to which he belongs, or made by him mainly by using the material and technical means of the entity is a service invention-creation. For a service invention-creation, the right to apply for a patent belongs to the entity. After the application is approved, the entity shall be the patentee.

For a non-service invention-creation, the right to apply for a patent belongs to the inventor or creator. After the application is approved, the inventor or creator shall be the patentee.

In respect of an invention-creation made by a person using the material and technical means of an entity to which he belongs, where the entity and the inventor or creator have entered into a contract in which the right to apply for and own a patent is provided for, such provisions shall apply.

As can be seen, in China, under the current law there are two kinds of service invention-creations. The first kind of service invention-creation is an invention-creation made by a person in execution of the tasks of the entity to which he belongs, which is defined in Rule 12 of the Implementing Regulations of the Chinese Patent Law as any invention-creation made:

  1. in the course of performing his own duty;
  2. in execution of any task, other than his own duty, which was entrusted to him by the entity to which he belongs;
  3. within one year from his retirement, resignation or from termination of his employment or personnel relationship with the entity to which he previously belonged, where the invention-creation relates to his own duty or the other task entrusted to him by the entity to which he previously belonged.

"The entity to which he belongs" referred to in Article 6 of the Patent Law includes the entity in which the person concerned is a temporary staff member. For the first kind of service invention-creation, the right to apply for a patent belongs to the employer rather than the inventor.

The second kind of service invention-creation is an invention-creation made mainly by using the material and technical means of the entity. Rule 12 of the Implementing Regulations of the Chinese Patent Law further defines "material and technical means of the entity" as the entity's money, equipment, spare parts, raw materials or technical materials which are not disclosed to the public, etc. As can be seen from Article 6 of the Chinese Patent Law, for this kind of service invention-creation, if there is a contract entered between the entity and the inventor or creator which provides for the right to apply for and own a patent, such provisions shall apply. If there is no such a contract, then the right to apply for a patent belongs to the entity and entity shall be the patentee, if the application is granted.

Proposed Changes

The above are the current provisions. However, to encourage more invention-creations to be made, the latest draft 4th amendment to the Chinese patent law revises the definition of service invention-creation. Specifically, the proposed new Article 6 redefines service invention-creation by limiting it to an invention-creation made by a person in execution of the tasks of the entity to which he belongs. In other words, an invention-creation made by a person using the material and technical means of an entity to which he belongs is no longer regarded as a service invention-creation.

The new draft further proposed that in respect of an invention-creation made by a person using the material and technical means of an entity to which he belongs, where the entity and the inventor or creator have a contract in which the right to apply for and own a patent is provided for, such provisions shall apply and in absence of such a contract, the right to apply for a patent belongs to the inventor or creator.

Reward and Remuneration of Service Invention

Current Provisions

Article 16 of the Chinese Patent Law provides that the entity that is granted the patent right shall reward the inventor or creator of an employment invention-creation. After such patent is exploited, the inventor or creator shall be given a reasonable amount of remuneration according to the scope of application and the economic benefits yielded. As can be seen from this article, an inventor or creator of a service invention-creation may receive two kinds of compensation, i.e. reward and remuneration.

Rules 76 of the Implementing Regulations of the Chinese Patent Law further provides that the entity to which a patent right is granted may, on the manner and amount of the reward and remuneration as prescribed in Article 16 of the Patent Law, enter into a contract with the inventor or creator, or provide it in its rules and regulations formulated in accordance with the laws. The reward and remuneration awarded to the inventor or creator by any enterprise or institution shall be handled in accordance with the relevant provisions of the State on financial and accounting systems. In other words, the amounts of the reward and remuneration can be specified in a contract between an employer and its employees or in the internal rules of the employer. It is to be noted that such amounts, especially the amount of remuneration, must be reasonable, according to Article 16 of the Chinese Patent Law. However, what can be regarded as reasonable may be open to debate.

In absence of such a contract of provisions in the internal rules, Rules 77 and 78 of the Implementing Regulations provide for specific amounts of reward and remuneration.

Rule 77: Where the entity to which a patent right is granted has not entered into a contract with the inventor or creator on the manner and amount of the reward as prescribed in Article 16 of the Patent Law, nor has the entity provided it in its rules and regulations formulated in accordance with the laws, it shall, within three months from the date of the announcement of the grant of the patent right, award to the inventor or creator of a service invention-creation a sum of money as a prize. The sum of a money prize for a patent for invention shall not be less than RMB3,000; the sum of a money prize for a patent for a utility model or design shall not be less than RMB1,000.

Where an invention-creation is made on the basis of an inventor's or creator's proposal adopted by the entity to which he belongs, the entity to which a patent right is granted shall award to him a money prize on favorable terms.

Rule 78: Where the entity to which a patent right is granted has not entered into a contract with the inventor or creator on the manner and amount of the remuneration as prescribed in Article 16 of the Patent Law, nor has the entity provided it in its rules and regulations in accordance with the laws, it shall, after exploiting the patent for invention-creation within the duration of the patent right, draw each year from the profits from exploitation of the invention or utility model a percentage of not less than 2%, or from the profits from exploitation of the design a percentage of not less than 0.2%, and award it to the inventor or creator as remuneration. The entity may, as an alternative, by making reference to the said percentage, award a lump sum of money to the inventor or creator as remuneration once and for all. Where any entity to which a patent right is granted authorizes any other entity or individual to exploit its patent, it shall draw from the exploitation fee it receives a percentage of not less than 10% and award it to the inventor or creator as remuneration.

As can be seen, the amounts of remuneration provided for in Rules 77 and 78 are quite high if no contracts or internal rules as prescribed in Rule 76 are available, especially in the case that remuneration is paid on a percentage basis rather than a lump sum amount. Hence, it is strongly recommended that any enterprise or institution should have such a contract or internal rules in place. In the contract or internal rules, the employer may specify amounts lower than the ones specified in Rules 77 and 78 of the Implementing Regulations. However, again, the amounts of remuneration are still required to be reasonable. Hence, employers are advised not to abuse Rule 76 and to make the contact or internal rules in such a way that the specified amounts are arguably reasonable.

Proposed Changes

As mentioned, the draft 4th amendment to the Chinese Patent Law exclude, from service invention-creations, the invention-creation made by a person using the material and technical means of an entity to which he belongs. However, the proposed new Article 16 provides that for an invention-creation made by a person using the material and technical means of an entity to which he belongs, if the entity and the inventor or creator have a contract which provides that the right to apply for a patent belongs to the entity, the entity shall award the inventor or creator a reward after the patent right is granted, and in addition pay the inventor or creator remuneration upon exploitation of the patent.

In other words, according to the draft 4th amendment to the Chinese Patent Law, where an inventor or creator who makes an invention-creation by using the material and technical means of his employer, the employer can choose either to own the right to apply for a patent and the potential patent right through a contract with the inventor or creator and pay the inventor or creator an award and remuneration, or to let the inventor or creator own the right to apply for a patent and the potential patent right through a contract or by default as prescribed in the proposed new Article 16, without the obligation to pay the inventor or creator.

This makes more sense than the current provisions, as according to the current Article 6, where an inventor or creator who makes an invention-creation by using the material and technical means of his employer, even though the inventor or creator enters into a contract with his employer which prescribes that the right to apply for a patent belongs to the inventor or creator, the invention-creation is still regarded as a service invention. For this reason, the employer still has the obligation to pay the inventor or creator according to the current Article 16 of the Chinese Patent Law. In other words, the employer could end with up no patent rights and still have to pay the inventor or creator.

Up until this article is finished, no draft Implementing Regulations of the Chinese Patent Law has been published. Hence, it is not known what is being changed in regards to specific amounts of inventor rewards or remuneration.

Proposed Regulations on Service Invention

In addition to the provisions in the Chinese patent law and the implementing regulations, the State Intellectual Property Office (SIPO) published a latest draft of Regulations on Service Invention (hereinafter referred to as "the Regulations") on April 2, 2015. The status of the Regulation is departmental rules, which has a lower status than the Chinese Patent Law and its Implementing Regulations. The Regulations includes many provisions regarding detailed procedure and obligations in the exercise of service invention for both the inventors and their employers.

Contradictory Definition of Service Invention

It is to be note that Article 7 of the Regulations defines service invention. Most of the provisions are in line with the provisions of the Chinese Patent Law, except the Paragraph 4 thereof. Paragraph 4 of Article 7 of the Regulations includes as service invention, the inventions that are made by inventors mainly by using the material and technical means of the entity such as money, equipment, spare parts, raw materials, propagation materials, technical materials which are not disclosed to the public, except where capital shall be repaid or use fees shall be paid as agreed, or where the inventions are merely verified or tested after being completed with the material and technical means of the entity. Apparently, this article is contradictory to the latest draft 4th amendment to the Chinese Paten Law.

Service Invention Reporting System

The Regulations have a whole chapter directed to service invention reporting system which requires a lot of documentation. Such service invention reporting system imposes many obligations on the employer. Fulfilling the obligations can be quite burdensome for an employer.

Article 10 of the Regulations provides that unless agreed between an inventor and its employer or provided it in the employer's rules and regulations formulated in accordance with the laws, the inventors should report to its employer within 2 months after completing the invention which is related to the business of the employer. All inventors or their representative should make such report where the invention is made by 2 or more inventors. The report submitted by the inventor's representative should be agreed upon by all the inventors.

Article 12 of the Regulations provides that unless agreed between an inventor and its employer or provided it in the employer's rules and regulations formulated in accordance with the laws, where the inventor reports his invention as a non-service invention, the employer shall provide a written response within two months from the date of receipt of such report; if the employer fails to respond within the aforementioned period, it is deemed that the employer agrees with the inventor's opinion. Article 12 further provides that if the employer claims in its written response that the invention in the inventor's report belongs to service invention, it should provide reasons and that the inventor may raise his objections in writing within two months from receipt of the entity's response. If the inventor does not raise objections, it is deemed that he agrees with the employer's opinion.

Article 13 of the Regulations provides that unless agreed between an inventor and its employer or provided it in the employer's rules and regulations formulated in accordance with the laws, where the inventor reports his invention as a service invention, the employer should, within 6 months of receiving the report, decide to apply for an IP right, protect it as technical know-how or publish it, and inform the inventors accordingly in writing.

Article 15 of the Regulations provides that where the employer intends to terminate the application process of the IP rights or abandon the IP rights of the service invention, it should inform the inventor in advance. The inventor may acquire the right of application of the IP right or the IP right through negotiation with the employer. In the case where the inventor acquires the IP right free of charge, the employer has the right to freely exploit the service invention and the IP right thereof.

The Regulations has causes a lot of discussion among in-house counsels due to its numerous requirements. It will be interesting to see whether further amendments in light of the upcoming amendment to the Chinese patent law and public opinions solicited after the publication of the Regulations.

(This article first appeared in Les Novelle Special issue, June 2017)

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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