On 12 November 2012, the State Intellectual Property Office (SIPO) released for public comment a draft set of regulations related to employee service inventions.
The draft regulations include some controversial provisions that may significantly increase companies’ compensation costs related to employee service inventions, and may even impact companies’ ability to control how employee-created inventions are used, if the draft regulations are passed in their current form.
Most significantly, the statutory reward and remuneration payable for an employee service invention (in the absence of an agreement or company policies) would be significantly increased above what is currently required under the Patent Law and its implementing regulations.
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For example, for an invention granted a normal patent, the annual remuneration payable to an employee-inventor would be no less than 5% of operational profits derived from the invention, in contrast to the 2% of operational profits under current regulations.
The lump sum reward payment and percentage of any licence fees derived from the patent that are payable to an employee-inventor would also be significantly increased.
Fortunately, the draft regulations further confirm that companies can reach agreements with employees or implement their own policies regarding inventor remuneration, and only in the absence of an agreement or policies would the statutory default compensation rules apply. However, the draft regulations impose certain vaguely worded requirements for such agreements/policies to validly pre-empt the statutory compensation rules.
Employers would have less autonomy and control over how an invention is used, and would have to respond to employee claims and make decisions more quickly regarding ownership and use of an invention. For example, if an employer fails to respond within two months to an employee claim that an invention is a non-service invention, the IP rights to such an invention would belong to the employee. Also, with regards to service inventions, an employer must decide within a certain period of time whether or not to patent such an invention.
If the employer does not do so, the invention may be deemed a trade secret, and the employee should be reasonably compensated for the invention by making reference to the draft regulations (current regulations only require compensation for patented inventions).
Furthermore, an employee-inventor would have the right of first refusal if the employer intends to assign the intellectual property rights to the employee’s invention.
Also of note, the draft regulations state that remuneration must be paid to employees who have already left the company if the invention was completed before they left, which goes against many companies’ current inventor remuneration policies.
Finally, not only do the draft regulations expand the scope of inventions for which compensation is payable from patented inventions to non-patented trade secrets, they also state that computer software should be compensated with reference to the draft regulations, even though these are generally subject to copyright and not patent protection.
The draft regulations include many provisions that would be quite worrisome for companies developing intellectual property in China, and it is unclear to what extent the SIPO is willing to amend the current draft regulations before finalising them (the period for public comment closed on 3 December 2012).
If the draft regulations are passed in their current form, companies will have an even greater need to have well drafted employee-inventor compensation policies, in light of the increased compensation requirements.
Companies will also have to have some type of decision making process in place to quickly handle employee ownership or compensation claims, otherwise the company may lose control over how the invention is used, or even lose ownership of the invention.
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