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The new Rules for the Implementation of the Patent Law (hereinafter referred to as the “Rules”) have abolished the restrictive provisions on qualified parties who grant reward and remuneration for service inventions; this amendment has made the system of reward and remuneration for service inventions a hot topic for enterprises. In this article, we will select two questions that foreign-funded enterprises are most interested in and give answers respectively, so as to help enterprises correctly understand the present legal system of reward and remuneration for service inventions.
Question 1:
Must foreign enterprises pay reward and remuneration to the inventor of a service invention in accordance with Articles 77 and 78 of the Rules?
W&B’s Answer:
Articles 77 and 78 of the Rules are not binding on foreign enterprises. We will detail this question by breaking it down into the following three circumstances and analyzing each of them respectively:
1. The patent right is granted to a foreign enterprise; the invention on which the patent right is based is completed by the enterprise’s employee outside China.
Being domestic laws, the Patent Law and the Rules on the recognition of service inventions and the related reward and remuneration shall only be applied within China.
2. The patent right is granted to the foreign enterprise; the invention on which the patent right is based is completed by the enterprise’s dispatched employee within China.
With respect to this circumstance, we will further detail it into the following two circumstances:
(1) The foreign enterprise dispatches its foreign employee to its affiliated Chinese company; said foreign employee concludes a labor contract with the Chinese company.
In this situation, if said foreign employee completes an invention during his or her performance of the work assigned by the Chinese company or mainly based on the material and technical conditions of the Chinese company, such an invention will be deemed as a service invention according to Article 6 of the Patent Law. However, it will be the Chinese company that grants reward and remuneration to the employee rather than the foreign enterprise.
(2) After the foreign employee is dispatched to the Chinese company, no labor contract is concluded between him/her and the Chinese company.
If the foreign employee only performs work assigned by the foreign enterprise within China and no labor contract is signed between him/her and the Chinese company, his/her service relationship will exist only with the foreign enterprise and the service invention will only be subject to the law of the place where the foreign enterprise is located. Our opinion is that in this circumstance, the Chinese court will have no jurisdiction over the service invention.
3. The patent right is granted to the foreign enterprise; the invention on which the patent right is based is a service invention completed by the Chinese company’s employee.
If the invention for which the foreign enterprise applies for patent is completed by an employee of the Chinese company based on his/her service, and no service relationship exists between the foreign enterprise and the inventor, no reward and remuneration will be granted by the foreign enterprise to the inventor. In such a case, the foreign enterprise only needs to perform the R&D contract or technology transfer contract signed with the Chinese company.
Based on the aforesaid analyses, although Article 16 of the Patent Law and Articles 77 and 78 of the Rules do not specify the nationality of the party to which they are applicable, foreign enterprises are not obligated to pay reward and remuneration to the inventor under the Chinese patent law.
Question 2:
Article 76.1 of the Rules provides that when deciding the amount and payment means of the reward and remuneration specified in Article 16 of the Patent Law, the unit to which a patent right is granted may reach an agreement with the inventor or designer or specify its related policy in its rules and regulations formulated by law. How should the “rules and regulations formulated by law” be defined?
W&B’s Answer:
The phrase “by law” specified in Articles 77 and 78 of the Rules refers to rules and regulations, the contents and formulation of which shall be based on the relevant labor laws. Therefore, the contents and the formulation of such rules and regulations shall conform to the provisions of the relevant labor laws. Definition of the phrase “by law” shall include the following three aspects:
1. The party formulating the rules and regulations shall be suitable.
Article 4 of the Labor Law and Article 4 of the Labor Contract Law both provide that the employer shall establish and perfect its rules and regulations. According to these provisions, the party formulating the regulations and rules shall be the employer.
2. The contents of the rules and regulations shall be lawful.
With respect to the reward or remuneration payable to the inventor or designer of a service invention, the related laws and regulations mainly include the Labor Law and Labor Contract Law and their Implementation Rules, the Patent Law and its Implementation Rules, and the Contract Law. Therefore, the reward and remuneration for service inventions shall not violate compulsory provisions under the foresaid laws and regulations.
3. The procedure of formulation of the rules and regulations shall be lawful.
Articles 4.2 and 4.4 of the Labor Contract Law provide that when the employer formulates, amends or determines rules and regulations that will directly influence or involve the employee’s vital interests, such as remuneration, working hours, time off and vacation, safety and sanitation, insurance and welfare, training, labor disciplines and fixed labor management, the employer shall go through the statutory procedures of democratic consultations and public declaration.
Yuanyuan Tang
Watson & Band Law Offices
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