The State Intellectual Property Office (SIPO) published another draft on the Regulation of Service Inventions on March 31, 2014 for awards and remuneration of employee inventors. The new regulations have important implications for employers of inventors who develop inventions in China.

The latest draft has fewer amendments compared to earlier versions and we therefore expect that any future amendments will be minimal. The new regulations are likely to come into effect in 2015. Accordingly, Companies having R&D activities in China should now consider implementing or amending their employee remuneration policies.

The creation of know-how will remain within the definition of “invention” and hence stakeholders must consider how they deal with remuneration for know-how that is not the subject of IP rights.

Stakeholders will be required to establish policies and procedures that comply with the new regulations concerning employee rights, which include inventors being informed of the status of patent protection for their inventions from pre-application until the expiry of any patent rights. In particular, inventors will also have to be informed of non-applied or abandoned patent rights and will have the option for pursuing patent rights in jurisdictions where the employer chooses not to pursue such rights. Non-compliance with the regulations could result in civil court proceedings being initiated by employees against their employer.

On the positive side, the new draft regulations will still allow companies to establish their own in-house policies that deviate from the regulations, as long as such policies do not eliminate the basic rights of the inventors. We strongly recommend having such a policy in place before the law becomes effective; otherwise the statutory conditions of the new regulations may apply. In particular, an increased statutory payment is proposed requiring that at least 5 % of the operating profit that has arisen from exploiting patent rights for an invention will need to be paid to the inventors. We believe that it will be preferable for companies to define their own remuneration scheme via an in-house employee policy that is in line with the industry sector’s R&D mode and which fits into the company’s overall incentive system for research personnel.

A well designed remuneration system can reduce administrative burden, if it simplifies the basic information and payment schemes to a level that is acceptable to the company and the inventors. Such policies must undergo a consultation process in the company, and, once accepted, can be used for all inventions in the company. Wherever the inventors agree to simplification, it may be good to offer them another benefit as compensation.

As elements of the law are somewhat similar with German and Korean laws, it is worthwhile to look for the company practices in these jurisdictions as a guide for implementing a China inventor remuneration policy.

Remuneration issues also need to be addressed when collaborating with contract research organizations (CROs). From the new draft, it is still not clear whether the remuneration claims of inventors of the research contractor may be considered to be transferred together with the IP resulting from service R&D to the service requester. If the contract research provider does not take care of its inventors, the chances for this to happen appear higher. It is therefore recommended to undertake due diligence on your Chinese partners to ensure that their policies meet the requirements of the new regulations.