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PRC Implementing Rules of the Patent Law

 

18 June 2010

The PRC Implementing Rules of the Patent Law (the New PRC Patent Implementing Rules) came into operation in February 2010 and apply to all companies in mainland China.  

Under the New PRC Patent Implementing Rules, an employer who is granted a patent on an invention created by an employee during employment is required to reward the employee for that invention.

The amount of the reward should be agreed and put in writing. In the absence of any agreement, the New PRC Patent Implementing Rules prescribe a certain minimum level of rewards.

Who do the New PRC Patent Implementing Rules apply to?

The New PRC Patent Implementing Rules apply not only to state-owned companies but also to all other companies (including FIEs) in the PRC.

When did the New PRC Patent Implementing Rules come into effect?

The New PRC Patent Implementing Rules came into operation with effect from 1 February 2010.

Key features of the New PRC Patent Implementing Rules

The PRC Patent Law has laid down a general requirement that "reasonable" compensation is required to be paid upon the grant of a patent on an invention created by an employee during employment and the subsequent exploitation or transfer of the patent. However, employers in the PRC – especially those in the private sector – have traditionally disregarded such legal requirement.

Prior to the implementation of the New PRC Patent Implementing Rules, regulations governing rewards for invention applied to employees of state-owned companies only. The objectives of the New PRC Patent Implementing Rules are to extend the clear legal requirements to all employers in China and to provide for default arrangements if no prior agreement has been reached between an employer and an employee regarding payment of rewards for invention.

Under the New PRC Patent Implementing Rules, in the absence of any specific provisions in company rules or policies or employment contracts, the following minimum standards apply with regard to employee inventions:

  • within three months from the date on which a patent is officially published, a lump sum reward of no less than RMB3,000 is required to be paid in relation to invention patents. The minimum amount of reward for utility model or design patents is RMB1,000;

  • if, during the term of a patent, a patent is being exploited, a gross sum is required to be paid on a yearly basis as follows:

    • for invention or utility model patents: not less than 2% of the annual operating profit derived from the exploitation of the patent;

    • for design patents: not less than 0.2% of the annual operating profit derived from the exploitation of the patent;

  • if, during the term of the patent, a patent is licensed to a third party, an employer is required to pay compensation of no less than 10% of the royalty generated from the licensing of the patent; and

  • if the suggestions of an employee inventor or designer have been accepted by the employer which culminated in the grant of a patent, a bonus is required to be paid to the employee inventor or designer.

The above default arrangements – especially the rewards for invention payable in respect of the exploitation of patents – can potentially create a significant financial burden on employers. However, the New PRC Patent Implementing Rules do not seek to impose the statutory minimum standards of rewards for invention on every employer in the PRC but apply only if an employer and employee have failed, in their employment contracts or the company rules and policies, to agree on a reasonable amount. It is up to employers and employees to agree on what constitutes a reasonable amount. Provided that the parties' agreement is reasonable, generally, such agreement should be respected.

What should you do now?

  • Companies, especially those engaged in research and development activities, should verify that policies and contractual documentation are consistent with the New PRC Patent Implementing Rules.

  • Companies should address the statutory invention reward requirements contained in the New PRC Patent Implementing Rules by, for instance, making explicit alternative provisions in their employment contracts or company rules or policies which provide for reasonable amounts to be rewarded for invention.

How can we help?

Allen & Overy's China Practice Group has an integrated IP, employment and regulatory team in place across our Hong Kong, Shanghai and Beijing to assist with advising and implementating the New PRC Patent Implementing Rules (including, in conjunction with our Global Employment Practice, to assist group arrangements in Europe and the US). In Asia, we also have offices in Singapore, Bangkok, Sydney and Tokyo and the regional coverage to assist, on a coordinated basis, with the roll-out of these types of measures in other jurisdictions as and when adopted.

 

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