LLX- Legal Comments on Inventors Remuneration with respect to the Draft Regulations regarding Inventors Remuneration published by SIPO.
Q1: On November 12, 2012, the State Intellectual Property Office (“SIPO”) of the People’s Republic of China released the draft regulations (“Draft Regulations”) regarding inventors remuneration. What is the goal of these Draft Regulations?
A1. They are mainly to boost the innovation and develop talent through science and technology.
Q2. What kinds of arguments or comments have been arisen from the Draft Regulations?
A2. Legal advisors commented mainly as follows:
1. Many defined terms in the Draft Regulations need to be clarified in order to prevent from misinterpretation., including the right to establish private agreements between entities and inventors regarding remuneration, the roles of the different administrative offices in order to ensure that the appropriate office remains accountable and avoid conflicting instructions, the term “technical secrets”, the term “inventor” for non-patent inventions, the implementation details for computer software.
2. Some explanations should be given to specific terms, such as the explanation of how a private agreement could potentially be held invalid should be inserted.
3. Many requirements which will be overly burdensome for many entities need to be removed, including the requirement to track and provide remuneration for technical secrets, the requirement relating to the procedures for reporting inventions and responding to inventors and the requirement that governmental agencies have authority to examine the work contracts, entity policy, etc., relevant to service inventions.
4. A few terms which are contrary to the international norms need to be revised, such as the requirement for offering a right of first refusal to an inventor if the entity intends to assign intellectual property rights.
Q3. What is the relationship of these Draft Regulations with the Patent Law and the Implementing Regulations?
A3. There is no according guidance for this matter. Similarly, the jurisdictional relationship of these Draft Regulations with local law is unclear. Conflicts may exist between the Draft Regulations and local regulations, such as differences in the amount required for remuneration or the requirements for confidentiality. These Draft Regulations do not explain the relational levels—i.e., that the laws and regulations, in particular these Draft Regulations, will override the local laws and regulations. It is better to clarify the relational level in these Draft Regulations is prior to promulgation.
Q4. What are the most arguable articles in the Draft Regulations?
A4. There are many comments relate to specific provisions of the Draft Regulations, for example:
1. Article 3 stipulates:
The patent administration department under the State Council, the agriculture administration department, the forestry administration department (hereinafter collectively referred to as “Administrative Departments for IP Affaires”), the science and technology administration department and the labor administration department are responsible for supervision and administration of country wide service invention system in accordance with division of their respective responsibilities.
Administrative department for IP affairs, science and technology administration departments and labor administration departments at the local people’s government at above the county level are responsible for, according to the division of their respective responsibilities, supervision and administration of service-invention systems of respective administrative regions.
The supervisory and management roles for many government offices herein remain vague. Employers and employees may be subject to conflicting or alternative interpretations and become confused as confronting specific issues. It is recommended that the Regulations specify the roles of the different administrative offices to ensure the appropriate office remains accountable and to avoid conflicting instructions. Besides, It seems that the county level government agency is not suitable (e.g., may not have sufficient expertise) for the administration and supervision of the Regulations, and involvement at a local level may create too much inconsistency throughout the country.
2. Article 4 provides:
In the Regulations, “invention” refers to the achievement of mental-creation, which is made within the territory of People’s Republic of China and is eligible subject matter of patent right, right of new varieties of plants, exclusive right of electrical circuit design, or subject matter protectable as technical secrets.
Article 4 defines the word “invention” inaccurate since not all of the original enabling intellectual property rights law contemplates service inventions or remuneration to the inventor. Revision of Article 4 is needed to reference the specific intellectual property rights laws including, in particular, the law that defines “know how” or “trade secrets” or both.
3. Article 7 states which kinds of invention belongs to service invention, and its paragraph 4 reads as:
the invention made mainly by using the money, equipment, spare parts, raw material or technical materials which are not disclosed to the public of the entity he belongs to; but except there is an agreement on returning funding or fees for the usage to the entity to which he belongs, or using the material technical means of the entity to which he belongs merely for verification or testing upon completion.
It may leave too much loophole as excepting the inventions made “using the material technical means of the entity to which he belongs merely for verification or testing upon completion”. Contents need to be enriched for example by clarifying the use of materials for verification and testing is “with the prior consent of and appropriate compensation to the entity.” Otherwise, the sentence needs to be removed for avoidance of doubt.
4. Article 10 stipulates:
Where the inventor makes an invention relevant to the business of the entity to which he belongs, he shall, except there is an agreement or other provisions made by the entity otherwise, report the invention to the entity within two months from the date the invention is completed.
Where the invention is made by two or more inventors, the report shall be made by the inventors jointly.
The concept “an invention relevant to the business” which was not incorporated in Article 7 remains ambiguous. Although this article intends to cast a wide net of reporting obligations to capture the situation where an inventor may fail to report or conceal a service invention under the pretext that is it not a service invention, the requirement does introduce an added level of complexity because an unscrupulous inventor may still conceal the invention and instead argue that the invention is not relevant to the business. Conversely, it may entrap a good faith inventor employee who may not sure about the full scope of the employer’s business to fail to report. Terminologies that may narrow the scope of what is reportable are needed herein.
5. Regarding Article 12, Article 13 and Article 14 of the Draft Regulations, same contents should be adopted that is to allow employers to develop their own invention reporting and response policy so as to best match the employers’ business needs.
6. Article 19 states:
The entity may enter into an agreement with the inventor, or provide it in its policy formulated in accordance with the laws, on the procedure, manner and amount of the award and remuneration. The agreement or policy shall inform the inventor the right he is entitled to, the way to seek relief, and in accordance with Articles 20 and 23 of the Regulations.
Any agreement or policy eliminating or limiting the right to which the inventor is entitled in accordance with the Regulations is invalid.
By stating that any agreement or policy eliminating or limiting the inventor’s right is invalid, it could be seen from the texts that the second paragraph of Article 19 is contrary to its first paragraph since if any limitation to the inventor’s rights invalidates such an agreement or policy, then there would be no reason to enter into mentioned agreement or policy in the first paragraph.
7. Article 20 shows:
When the entity decides the procedure, manner and amount of the award and remuneration given to the inventor, it shall listen to the opinions of inventors.
The entity shall inform the inventor of the information on the economic benefit earned by the entity by exploiting, assigning, licensing of service invention.
The wording in Article 20 is too vague to understand. According to its context, it is unclear whether it means that the inventor’s opinion takes precedence of entity’s policies or not, and whether it refers to the percentage of contribution of each inventor to a particular invention by stipulating. Specific clarifications need to be set forth herein. Besides, the obligations allocated on entities are kind of overdue in the second paragraph. It does not specify what kind of information must be provided. The same problem in Article 21, which provides:
Where the entity has not entered into an agreement with the inventor on the award to the service invention, and has not provided the award to the service invention in its policy formulated, it shall, for the service invention granted an patent right or the right of new varieties of plants, award all of the inventors a sum of money as prize which shall not be less than 200% of the monthly average wages of the workers in the entity; and for the service invention granted other intellectual property rights, award to all of the inventors a sum of money as prize which shall not be less than the monthly average wages of the workers in the entity.
Onerous burden has been put onto the employer’s side.
8. Article 22 listed as follows:
Where the entity has not entered into an agreement with the inventor on the remuneration and has not provided the remuneration in its rules and Regulations, it shall, upon the exploitation of the intellectual property rights, provides the remuneration to all related inventors by one of the following ways
1, within the valid term of the intellectual property, extract a sum of money which shall be no less than 5% from the operating profit of exploiting the patent right or the right of new varieties of plants, or no less than 3% from the operating profit of exploiting the other intellectual property right;
2, within the valid term of the intellectual property, extract a sum of money which shall be no less than 0.5% from the revenue of exploiting the patent right or the right of new varieties of plants, or no less than 0.3% from the revenue of exploiting the other intellectual property right;
3, within the valid term of the intellectual property, references the amount of the above two items, determine the amount of annual remuneration in accordance with the reasonable multiple of the personal salary of the inventor;
4, references the reasonable multiple of the amount of the above items 1 and 2, determine the lump sum amount of remuneration to be paid to the inventor.
The accumulated amount of the remuneration above will not be more than 50% of the accumulated operating profit of exploiting the intellectual property right.
Where the entity has not entered into an agreement with the inventor on the remuneration and has not provided the remuneration in its policy, it shall, upon the assignment, license to the third party of the intellectual property right, shall extract a sum of money which shall be no less than 20% from the net income of assignment or license as a remuneration to the inventor.
The second paragraph of Article 22 is concerning in that it allows for an accumulated remuneration amount up to 50% of the accumulated operating profit from exploitation of an intellectual property right. Consider, for example, a product which is covered by ten patents. If each invention has one inventor who receives the maximum remuneration of 50% of operating profit, the amount of remuneration paid by the entity would be 500% of the operating profit. Even if only two patents with two separate inventors cover a product, a 50% remuneration rate would inhibit production of the product.
9. Article 29 states:
Where an entity intends to assign intellectual property rights of a service invention, the inventor is entitled to the right of first refusal under the same conditions.
The provision is basically contrary to the international norms. If an entity owns intellectual property rights, the entity is entitled to exploit that property without consulting with its employees. In light of this contrary, this article should be revised or deleted.
10. Article 30 stipulates:
Where state-owned enterprises and institution, within 3 years from obtaining the intellectual property right on the service invention, neither exploit or have necessary preparation for implementing without any justifiable reasons, nor assign or license others to exploit, the inventor shall, under the situation that the ownership of the service invention is not changed, may implement or license others to exploit the intellectual property right and enjoy the relevant benefit in accordance with the agreement with the entity.
This article deprives the right of a state-owned enterprise or institution to exploit their patents at a later date as compared to an employer that is not a state-owned enterprise or institution. This differentiation could lead to confusion to inventors, who may try to exploit an idle invention of a non-state-owned enterprise and thus violate Article 17 of the Draft Regulations.
11. Article 34 provides:
The supervisory management supervises and inspects the implementation of the service invention system made by the entity in accordance with the laws.
During the supervision and inspection, the supervisory management has the authority to examine the work contracts, entity policy, etc. relevant to the service invention, and inquire the parties involved. Both of the entity and the inventor shall provide the relevant materials and situation faithfully.
The wording of “examine the work contracts, entity policy, etc. relevant to the service invention, and” is no use as it has no real purpose for this kind of examination, other than perhaps to encourage the entities to have them in place, but the remaining articles of the Regulations sufficiently serve that purpose.
12. Article 38 stipulates:
Where the inventor claims that his authorship has been infringed, he may, request the administrative department of intellectual property right of the people’s government at the county level to handle it, or institute legal proceedings before the People’s Court.
Where the administrative department of intellectual property right of the people’s government at the county level or People’s Court finds the infringement of inventorship, the infringer will be ordered to stop the infringement, apology and compensate for loss. The authorities for granting or registering intellectual property right shall correct the inventorship recorded in the relevant documents and make an announcement based on the effective ruling.
Where infringement of inventorship of two or more inventors or infringement of inventorship for twice or more times is found, infringer shall be imposed on a penalty under 50,000 RMB and be announced for the infringement by the administrative department of intellectual property right of the people’s government at the county level.
No matter what kind of issue it will be, infringement or ownership dispute, it should be settled by court. Allowing such cases to be raised administratively at the county level will result in confusion and lack of consistency.
13. Article 45
The Regulations are applicable for the service works of computer software.
This article extends the remuneration regulation to the service works of computer software even though, as the explanation notes acknowledge, it is not a perfect fit. The lack of operational details of how to extend it in practice creates several sources of conflict. As what has been mentioned above, it lacks of the implementation details for computer software. Besides, the definition in the Copyright Law pertaining to the service works is not the same as the service invention which has been defined herein. Since the Copyright Law is a higher level law, this regulation cannot alter the treatment of the software copyright where it conflicts with the Copyright Law, creating potential confusions.
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