The State Intellectual Property Office (SIPO) issued a notification on its official website on Nov. 12, 2012 regarding “Invitation for comments from the public on the draft Regulations on Service Invention”. Comments should be submitted to the SIPO by Dec. 3, 2012.

1. Background for Drafting the Regulations on Service Invention

For the development of the economic society in China, talents are the first resource and innovations are the radical impetus. The distribution system of the ownership rights and interests from the achievements of innovations made in duty has direct influences on the initiatives of the technical innovations and their exploitation by the skilled personnel and the entity. The State Council issued in June 2010 an official document “The outline for the development and the planning of talents in a medium to long term: from 2010 to 2020”. It explicitly requires that the Regulations on achievements from technologies made in duty should be stipulated in order to improve the sharing mechanism regarding the ownership rights and interests of intellectual property resulting from science and technology, and protect the legitimate rights of the inventors and creators. Besides, in the Regulations, the rights and interests of the inventors and creators should be clearly defined, and the proportion of benefits obtained by the main inventors and creators should be increased.

The current laws and regulations including the Patent law and the Copyright law have established the fundamental system in relation to the ownership rights of intellectual property of service inventions, the inventor’s right of indicating the inventorship and of obtaining the award and remuneration. However, there exist prominent problems in such a system during the practice, which are reflected mainly in the following two aspects:

  1. The legislation and the system for the service inventions are still at a principled level and lack of operability.
  2. In reality, it often occurs that the entity ignores and infringes the inventor’s rights and interests, which hurts the initiatives of the inventors.

2. Major Points of the Regulations on Service Invention

The Regulations include 46 Articles in 7 chapters.

  1. Defining the term “invention” and the extensive meaning of Intellectual property rights which encompass patent right, right of new plant varieties, exclusive right of integrated circuit layout-design and technical secret,
  2. Providing the definitions regarding service invention or non-service invention and the corresponding ownership right,
  3. Introducing the reporting system of service invention or non-service invention made by the inventor, and specifying the corresponding time limit,
  4. Specifying the procedure, the manner and the amount of the award and the remuneration for inventors with service inventions, including the minimum amount and the time limit, etc,
  5. Encouraging exploitation of service inventions and the intellectual property rights thereof, adopting a preferential tax policy, regarding the income obtaining from implementing the service invention and its intellectual property of the entity, and the award and remuneration awarded to the inventor,
  6. Setting up the function of supervision and inspection by the supervisory department, and indicating the corresponding legal responsibility if the entity or the inventor violates the laws, etc. 
  7. Providing a way for the official recordal of the agreement, the rules and bylaws, and 
  8. Indicating the legal application to computer software works made in duty.

3. Some concerned issues in the Regulations

Articles 9, 18, 19, 21, 22, 27, 29, 31, 40 and 41 are of importance for the entities or companies. In general, regarding the ownership right, the company may enter into an agreement with the inventor (Art. 9). Regarding the award and the remuneration, the company may stipulate corresponding provisions in its rules and bylaws or enter into an agreement with the inventor (Art. 19.1). In case that there is no such agreement or the rules and bylaws, the Regulations shall apply. However, please note that the Regulations do not clearly say that the ownership right may be stipulated in the company’s rules and bylaws.

The most concerned issue is that there is a sentence in Art. 19.2, “any agreement or provisions eliminating or limiting the rights of the inventor is entitled to in accordance with the Regulations are invalid. Since there is no definition of the wording “limiting”, it makes confusion how to determine the agreement or the rules and bylaws to be invalid. In addition, no requirements for the minimum amount of the award and the remuneration are stipulated or recommended, though in Art. 18, it uses the wording “an appropriate remuneration”. It would be hard to determine the “appropriate” amount. Or, should the amount prescribed in Art. 21 and 22 be abided by?

Another conflicting issue relates to Art. 21 and Art. 22. In current Implementing Regulations of the Patent Law, Rule 77 prescribes “the sum of prize for a patent for invention shall not be less than RMB 3,000, and the sum of prize for a patent for utility model or design shall not be less than RMB 1,000 ”, while Art. 21 of the draft prescribes that the sum of prize is based on the average salary of the employees. And, in current Implementing Regulations of the Patent Law, Rule 78 prescribes a yearly remuneration of not less than 2% from the profits from exploitation of the invention or the utility model and not less than 0.2% from the profits from exploitation of the design, or a yearly remuneration of not than 10% of the licensing fee, while the percentages stipulated in Art. 22 of the draft have been increased. In the aforesaid situation, which Regulations shall be conformed to? Or, if the Regulations on Service Invention are approved, will the current Implementing Regulations of the Patent Law be amended? Further, how to calculate the profit, that is, the profit which is yielded from the service invention?

A further concerned issue is that the company shall be responsible for making compensation for the inventor if it fails to conform to the requirements of Art. 19, or if it fails to conform to the rules and bylaws or the agreement, and causes losses to the inventor (Art. 40 and Art. 41).

In addition, there are some other Articles need to be clarified. For example, in Art. 25, the expression “appropriate compensation” seems not clear; and in Art 29, some exceptions may need to be considered regarding the “first refusal” of the inventor’s right.

If the above concerned issues would be clarified in the Regulations, it would be beneficial for both the entity and the inventor to enter into an agreement regarding the ownership, the award and the remuneration, and to avoid disputes or risks there between afterwards.

4. Timeline for its implementation

The SIPO will fix the draft after collecting the public opinions within the announced time limit and submit the fixed draft to the State Council for approval. There is no official indication when the Regulations will come into effect.

5. Possible influence if the Regulations come into effect

In general, the Regulations will play important role in encouraging innovations and talents in China. In one aspect, the inventors are entitled to safeguard their legitimate rights for their inventions and creations made in duty. In another aspect, the entities can own the intellectual property rights of service inventions and may enjoy a preferential tax policy regarding the income from exploitation of service inventions. As a result, the development of science and technology in the economic society in China will benefit from the implementation of the Regulations. However, regarding several issues, for example, the amount of award and the remuneration of the inventor, it needs to be controlled at a reasonable level. Otherwise, this policy would become a burden for the entity to which the inventor belongs.

From the inventor’s side:

Actually, the announced draft of the Regulations inclines to a better protection of the inventor’s rights. In China, the employees are deemed to be the weaker group. If the Regulations come into effect, the employees may increase their enthusiasm to make independent innovations in connection with science and technology. At the same time, the inventors can take advantage of the Regulations to request and protect their rights for Intellectual property resulting from the invention made in duty and obtain the corresponding monetary or other kind of return from the entity.

From the entity’s side:

The entity needs to understand well the Regulations so that there will be no or less risk of disputes in the future. As the basic principle is that the agreement between the entity and the inventor prevails, it is important that the entity carefully enters into an agreement with the inventor regarding the ownership right of the service invention, the award and the remuneration, or stipulates the related matters in its rules and bylaws according to laws and regulations. Attention should be paid by the entity that the agreement or the rules and by laws shall be on the reasonable basis in order to avoid invalid results. As for the “appropriate amount”, the Regulations set up the minimum amount of the award and the remuneration in Art. 21 and Art. 22 in case of no agreement. However, it does not say that such minimum amount shall be also applied to the situation if there is an agreement between the entity and the inventor.

Actually, foreign industry in China is looking at this draft Regulations very seriously, and a lot of concern.

In the draft Regulations, Article 19.2 raises a fundamental question. It seems that the term “right” could be construed not only as the level of the financial remuneration but in a broader sense. So, in what situation that a labour contract or company rule becomes invalid because it “limits” any of the rights provided for by the Regulations? In this regard, Article 19.2 may need to be clarified so that it becomes operable for a company when it enters an agreement with the inventor or stipulates its internal rules or bylaws without unpredictable risk in the future.