Liu Lanlan
The new Implementing Regulations of the Chinese Patent Law (hereinafter referred to as the “New Regulations”) were promulgated on December 21, 2023, and will take effect on January 20, 2024. The New Regulations have modified the definition of "material technical conditions of the entity" and increased the statutory standards for the reward and remuneration for the service invention-creation.
I. Revising certain expressions within the definition of "material technical conditions of the entity."
Within the introductory provisions of the New Regulations, Article 13 revises the definition of "material resources of the entity " as outlined in Article 6 of the Patent Law. It substitutes "...technical documentation not disclosed to the public, etc." with "...technical information and documentation not disclosed to the public". The revised terminology aligns with "technical information and data" in the context of technology contracts in Article 845 of Civil Code, and "unpublished technical information and data." in Article 3 of the Supreme People's Court Interpretation (2020 Amendment).
II. Introducing novel ways for rewarding the service invention-creation.
Article 92 of the New Regulations, advocates "encouraging entities to which patent rights are granted to implement property right incentives, and enable inventors or designers to rationally share the benefits of innovation in forms such as equities, options, and dividends."
This New Regulations incorporate the newly added Article 15 of the existing Patent Law (2020 Amendment), integrating revenue-sharing mechanisms such as equity, options, and dividends that enterprises have been employing into the remuneration system. This provision offers entities flexible and diverse methodologies to ensure inventors or designers share innovation benefits fairly, thereby promoting innovation and facilitating the implementation and utilization of patents.
III. Increasing statutory standards for rewarding the service invention-creation.
Article 93 of the New Regulations raises the minimum reward for a granted invention patent from no less than 3000 Yuan to no less than 4000 Yuan. For a granted utility model or design patent, the minimum reward is increased from no less than 1000 Yuan to no less than 1500 Yuan.
The New Regulations raise the statutory minimum amount again for rewards for the service invention-creation. We recommend that the entities double check the rewards agreed upon with employees. Although the agreed amount can be higher or lower than the statutory standard, it shall be noted that if it is lower, it must be within a reasonable range.
IV. Revising the method for determining remuneration for the service invention-creation.
The New Regulations modify Article 94 concerning the determination method for remuneration for the service invention-creation. The New Regulations provide that if there is neither agreement with inventor nor company rules on remuneration for the service invention-creation, the statutory criterion of remuneration provided in the Law of Promoting Transformation of Scientific and Technological Achievements shall be applied, which is much higher and complicated than the criterion provided in the old Regulations, for example, provided a patent is licensed to a third party, the remuneration to the inventors will be increased from 10% to 50% of the license fee.
Article 45 of the "Law of the People's Republic of China on Promoting the Transformation of Scientific and Technological Achievements" provides:
The entities completing the scientific and technological achievements that have not specified or have not reached any agreement with scientific and technical personnel on the method and amount of rewards and remunerations shall grant rewards and remunerations to people who have made significant contributions to the completion and transformation of the scientific and technological achievements according to the following criteria:
(1) Where a job-related scientific and technological achievement is assigned or licensed to others, not less than fifty percent of net income from assignment or license of such scientific and technological achievement shall be withdrawn.
(2) Where a job-related scientific and technological achievement is used as a trade-in in investment, not less than fifty percent of shares or capital contributions formed from such scientific and technological achievement shall be withdrawn.
(3) Where a job-related scientific and technological achievement is implemented independently or in cooperation with others, not less than five percent of business profits from the implementation of the scientific and technological achievement shall be withdrawn consecutively for three to five years after the transformation and successful production thereof.
The method and amount of rewards and remunerations that state-maintained research and development institutions and institutions of higher education specify or agree upon with scientific and technical personnel shall comply with the criteria specified in item (1) to item (3) of the preceding paragraph.
State-owned enterprises and public institutions shall, in accordance with the provisions of this Law, include the expenditures of rewards and remunerations granted to people who have made significant contributions to the completion and transformation of the job-related scientific and technological achievements into their total wages in the current year, but the said expenditures shall not be subject to the restriction of their total wages in the current year and shall not be included into their total wage base.
The New Regulations directly incorporate the above provisions of the "Law of the People's Republic of China on Promoting the Transformation of Scientific and Technological Achievements" as the basis for calculating remuneration. After the New Regulations come into effect, the application of this provision may pose certain challenges to the calculation of statutory remuneration. Firstly, the statutory remuneration calculation under the New Regulations no longer distinguishes among inventions, utility models, or design patents. Secondly, the specific amounts have been increased from "10% of the licensing fee for others to implement" to "50% of the net income from licensing or transfer" and from "2% (inventions and utility models) or 0.2% (designs) of annual operating profit after implementation" to "5% of annual operating profit for three to five consecutive years after production." Lastly, it may involve the distribution among inventors, designers, and "those who have made significant contributions to the completion and transformation of job-related scientific and technological achievements." Applying the calculation method of the aforesaid Article 45 will undoubtedly make the determination of the amount of statutory remuneration for the service invention-creation more complex in practice.
Therefore, to avoid apply the statutory criterion directly, for a company has R&D in China, we highly recommend concluding agreement with inventors or establish rules stipulating the rewards and remunerations for service invention-creations as soon as possible.
The effective date of the New Regulations is January 20, 2024. After the implementation of the New Regulations, all awards and remunerations for granted patents of service invention-creations will be subject to these regulations.
Lesley Liu
Lesley Liu provides legal services in such areas as patent litigation, patent reexamination and invalidation, patentability and infringement assessment. She also provides legal services in all areas of intellectual property including licensing, unfair competition, trade secret, copyright and dispute resolutions before administrative and judicial authorities. Lesley Liu represented many well-known multinational and domestic corporations such as Johson & Johson, Bosch, Schindler, Volvo, Igus, Commscope, Unilever, HMD, MCM, Toshiba, SAIC, etc.
Prior to joining NTD, Lesley Liu in charge of a number of provincial and ministerial level researches of intellectual property rights. Lesley Liu also participated in the revision work of the laws and regulations on intellectual property, such as the third revision of the "Patent law", the third revision of the "Copyright law", draft of Service Invention Regulations, and Administration Regulations for the National Standards Relating Patents (Provisional), etc.
