Back by popular demand, and with a completely updated 2014 agenda and speaker faculty, ACI’s 6th Advanced China IP Counsel Forum will once again provide you with a practical analysis of notable China IP law developments and best practices for IP protection and enforcement in China.

1. Invention Remuneration:
How Companies Are Upgrading their
Remuneration Practice and Managing
Related Risks and Administrative Burden
April 15, 2013
Oliver Lutze, Head of IPR, Bayer (China) Limited
Michael (Yu) Ding, IP Director, ABB (China) Limited
Meph Jia Gui, Of Counsel, Global Law Office

2. Introduction Of PRC EmployeeInventors’ Remuneration System
Meph Jia Gui, Of Counsel, Global Law Office

3. Outline
 How and when should employee-inventors be
remunerated?
 How should the remuneration be calculated?
 Potential risks for employer’s failure of remunerating
employee-inventors
 Draft Regulations on Service Inventions
 Case Study
 Practical tips for employers to remunerate their
employee-inventors

4. HOW AND WHEN SHOULD EMPLOYEEINVENTORS BE REMUNERATED?

5. How And When Should EmployeeInventors Be Remunerated?
 Inventor/designer shall be rewarded according to the scope of
application and the resulting economic benefit of the invention.
(Art. 16 of the PRC Patent Law, referred to as “Patent Law”)
 Employer may agree with inventor/designer on the method
and amount of reward/remuneration.
 Employer may stipulate method and amount of
reward/remuneration in its legally-established company bylaws.
(Art. 76 of the Rules for the Implementation of the PRC Patent
Law, referred to as “Rules”)

6. How And When Should EmployeeInventors Be Remunerated?
 Without any agreement or by-laws, employer
shall give monetary awards to inventor/designer
within 3 months upon publication of patent right.
(Art. 77 of the Rules)

7. How And When Should EmployeeInventors Be Remunerated?
 Where agreements or by-laws exist, they are
applicable.
 Without any agreement or by-laws, the
relevant provisions of the Patent Law and the
Rules shall be applicable.

8. HOW SHOULD THE REMUNERATION BE
CALCULATED?

9. How Should Remuneration Be
Calculated?
 Monetary award (if no agreement, no by-laws):
 Invention patent: ≥ RMB 3,000;
 Utility model patent/design patent: ≥ RMB 1,000.
(Art. 77 of the Rules)
 Remuneration (if no agreement, no by-laws):
 Invention patent/utility model patent: ≥ 2% of the
operating profit;
 Design patent: ≥ 0.2% of the operating profit; or
 Lump sum remuneration in reference with above
percentage.
(Art. 78 of the Rules)

10. Measures Of Calculating Remuneration
Within the validity periods of IPR
Calculation on the basis of
operating profit each year
Invention
patent
/utility
model
patent:
≥2%
Design
patent:
≥0.2%
or
Lump sum remuneration
(Art. 78 of the Rules)

11. How Should Remuneration Be
Calculated?
 Remuneration in case of license of patent right
(if no agreement, no by-laws): ≥ 10% of the
royalties.
(Art. 78 of the Rules)

12. POTENTIAL RISKS FOR EMPLOYER’S
FAILURE OF REMUNERATING EMPLOYEEINVENTORS

13. Potential Risks For Employer’s Failure
Of Remunerating Employee-inventors
 When employer fails to remunerate inventor/designer
 Where agreement or by-laws exist, employer may be
liable for breach of contract or by-laws;
 Without any agreement and by-laws, employer may be
forced to remunerate inventor/designer in accordance
with laws (Art. 77, Art. 78 of the Rules), which may be a
large amount of money.

14. STATE IP OFFICE’S
DRAFT REGULATIONS
ON SERVICE INVENTIONS

15. Draft Regulations On Service Inventions
 Detailed provisions about measures of calculating the
remuneration (if no agreement, no by-laws)
 Invention patent/new plant variety: ≥ twice the average
monthly salary of the on-job employees;
 Other IPR: ≥ the average monthly salary of the on-job
employees.
(Art. 21 of the SIPO Draft Regulations on Service Inventions,
referred to as “Draft Regulations”)

16. Draft Regulations On Service Inventions
 Measures of calculating remuneration (if no
agreement, no by-laws):
Within the validity periods of IPR,
on an annual basis
(1)
Calculation
on the basis
of business
profit
Invention
patent or
new plant
varieties:
≥5%
or
Other
IPR:
≥3%
(2)
Calculation
on the basis
of sales
revenues
or
or
Invention
patent or
new plant
varieties:
≥0.5%
(3)
Determine
the amount
referring to
(1) and (2)
Other
IPR:
≥0.3%
(4) Determine the
lump sum
remunerations
referring to a
reasonable
multiple of Items
(1) and (2)
(Art. 22 of the Draft
Regulations)

17. Draft Regulations On Service Inventions
 Measures of calculating remuneration (if no
agreement, no by-laws)
 The cumulative amount of remuneration: ≤ 50%
of the cumulative business profit.
 In case of transfer or license of patent right, the
remuneration shall be not less than 20% of the
net income.
(Art. 22 of the Draft Regulations)

18. CASE STUDY

19. Case Study
 Pan xiping vs. Jinshajiang Co., Ltd.
 Pan invented two service inventions when he worked for
defendant. When two patent rights are licensed to others,
Pan asked for remuneration of RMB20,000,000.
 Shenzhen Intermediate Court:
 Without any evidence proving the royalties, according to
provisions regulating statutory compensation in the Patent
Law, the defendant shall pay RMB1,000,000 to Pan as
remuneration.
 Guangdong High Court:
 Original judgment upheld.

20. Case Study

Zhu Ruizhen vs. Dongwan Weiba Cleaning Equipment Co., Ltd.

Zhu engaged in designing 7 design patents with another 3 people before
he left the defendant. The defendant has used these patents and the
annual business profit after tax is RMB14,547,100. The patents had been
implemented for 2 years.


Zhu asked the defendant to pay for reasonable remuneration.
Dongwan Intermediate Court:

Without any agreement and by-laws, remuneration shall be calculated in
accordance with Rules, i.e., RMB14,547,100 (annual business profit ) ×
0.2% (regulated percentage) × 7 (amount of patent right) × 2 (years of
implementation) ÷ 4 (amount of employee-inventor) = RMB101,829.7.

Guangdong High Court:

Original judgment upheld.

21. PRACTICAL TIPS FOR EMPLOYERS TO
REMUNERATE THEIR EMPLOYEEINVENTORS

22. Practical Tips For Employers To
Remunerate Their Employee-Inventors
 Companies shall enter into an agreement with
inventors regarding rewards and remunerations for
service inventions.
 Companies shall establish its own remuneration
system, e.g., provide the detailed
rewards/remuneration provisions in its legally
established company by-laws.

23. Practical Tips For Employers To
Remunerate Their Employee-Inventors
 Better to include in the agreement and by-laws:
 The procedure, manner and reasonable amount of the award
and remuneration
 Employees’ obligation of truthfully reporting
 Employees’ obligation of non-competition and confidentiality
 However, the minimum amount shall be not less than the local
standard. e.g., Shenyang Patent Encouragement Regulation
provides that the rewards for
 invention patent: ≥4,000 RMB;
 utility model patent/design patent: ≥ 1,000 RMB.

24. Practical Tips For Employers To
Remunerate Their Employee-Inventors
 The relevant documents regarding service
invention, such as the contract between
employer and inventor/designer, shall be
well preserved.

25. Any Questions?
Thank You !

26. Establishment Of
Remuneration System
Michael (Yu) Ding, IP Director, ABB (China) Limited

27. Outline
 Background of Draft Service Invention Regulation
 How to establish remuneration system?
 Tips on the remuneration scheme
 Some open questions

28. Background of Draft Service Invention
Regulation
 National Medium- and Long-term Talent Development Plan
(2010–2020)

It was jointly issued by Central Committee of the Chinese
Communist Party (CCP) and State Council on June 6, 2010

To institute regulations on service technical achievements, improve
legal mechanism to ensure IP ownership and fair compensation for
technical achievements, protect legal right of inventor. Explicitly
define the legal right of inventors for service invention, increase
benefits rate for major inventors.

29. Background of Draft Service Invention
Regulation (Cont’d)
 SIPO has worked in conjunction with relevant agencies and
stakeholders to produce the “Draft Service Invention
Regulations”
 Issues found after survey

The inventors' authorship was infringed

No IP remuneration policy or agreement with employees

Claim IP remuneration has been included in inventor's salary

30. How to establish remuneration system
An Innovation is the combination of many different activities. Generally an invention
is made and recognized, capital is obtained, plant is acquired, manager and workers
are hired , markets are developed, and production and distribution take place.
- JOHN L. ENOS
R&D
HR
Reasonable
Remuneration
Policy
IP
S&M

31. Tips on Remuneration Scheme
 Patent reward scheme

Invention Disclosure

Patent filing

Patent granted

Patent Implementation
 Trade secret
 Defense publication

32. Some open questions
 Will the company remuneration policy be invalidated due to
“unreasonable or unfair” reward scheme?
 Who has the duty to pay the remuneration?
 How is the risk to adopt various remuneration scheme in
different countries?
 What is the practical approach to distribute the reward to
former employees who has left the company?
 How to handle an invention which is accomplished by
Chinese employees overseas instead of China?

33. Inventor Remuneration in China
-- A German Practitioner’s View
Dr. Oliver Lutze, Head of IPR, Bayer (China) Ltd.

34. Recent Consultation Topics
 Draft Regulations on Service Inventions
 released for public comments on November 12, 2012
 Several Opinions on Further Protecting Legitimate
Interest of Service Inventors to Promote
Exploitation of IPR
 released on November 26, 2012
 only applicable to State-owned Entities and the Military
Pag
e

35. How ownership for the company is
ensured?
China (Draft Regulation)
Article 14: The entity shall, within 6
months from the service invention
reporting date, decide whether to apply for
intellectual property right, protect as
know-how or publish and shall inform the
inventor of the decision in a written notice.
Where the entity fails to inform the
inventor within the time limit as provided in
the above paragraph, the inventor may
send a written inquiry urging the entity to
reply; if the entity fails to reply after 1
month of the inventor’s written inquiry, the
invention shall be deemed to be protected
as know-how (…)
 Potential conflict area:
 No complaint right for
incompleteness of the reporting
exists?
Pag
e
Germany (Law on Employees invention)
 (NEW Section 6) If company does not
declare in writing within 4 months after
receipt of complete invention report that the
service invention is free then it will be owned
by the company with the duty to pay
remuneration.
 BUT, Section 5(3) employer can
communicate within 2 months after receipt of
invention report to employee the reasons for
non acceptance due to incompleteness
Practical consequence (new law)
 Loss of IP for the company is less
likely
 Companies can complain about
incompleteness of invention report
(all issues resolved in recent law reform)

36. How ownership for the company can be
ensured?
China (Draft Regulation)
Germany (Law on Employees invention)
 Article 12:
Where an inventor claims the invention
he reports is a non service invention, the
entity shall, within two months from the
receipt of the report which is in
conformity with Article 11, give a written
reply; failure of giving such a reply within
the above mentioned time period is
deemed as entity’s acceptance that the
invention is a non service invention.
 (Section 18) Same as in China, but 3
months response time
 Potential conflict area:
 No complaint right for
incompleteness of the reporting
exists?
Pag
e
 BUT, Section 5(3) Employer can
communicate within 2 months after receipt of
invention report to employee the reasons for
non acceptance due to incompleteness
Practical consequence
 Complaint right for incomplete
invention report is crucial to avoid
disputes and to stop the deadline of 3
months

37. How define the remuneration claim?
China (Draft Regulation)
Germany
 Article 19: The entity may enters into an
agreement with the inventor, or provide it
in its policy formulated in accordance with
the laws, on the procedure, manner and
amount of the award and remuneration.
The agreement or policy shall inform the
inventor the right he is entitled to, the way
to seek relief, and in accordance with
Articles 20 and 23 of the Regulations.
Any agreement or policy eliminating or
limiting the right which the inventor is
entitled with in accordance with the
Regulations are invalid.
Guidelines for the Remuneration of Employees’
inventions in Private Employment
 Potential conflict area:
 Can an agreement or company
policy be invalidated on Article 19?
 Will courts understand industry
model?
 Is 5 % of profits minimum standard?
Pag
e
Practical consequence
 Complex Ministry Guideline that tries
to cover all cases
 Royalty rate tables for different
industries
 Strong information rights of inventors
cause disruption of normal business
administration
 High incident of disputes (especially
retirees or former employees)
(administrative burden, disputes, cost)

38. Right to take over abandoned rights
China (Draft Regulation)
Germany (Law on Employees invention)
 Article 16:
Where the entity intends to stop the
process of applying for intellectual
property right or abandon the
intellectual property right of a service
invention, it shall inform the inventor 1
month in advance. The inventor may
negotiate with the entity to get the
application right to intellectual property
right or intellectual property right for a
fee or free of charge. (…)
 Section 16 (Abandonments)
 Potential conflict area:
 What happens if the offer is
omitted? Many disputes.
 Will inventors be able to discuss
on one level and commercialize?
 Can right be waived for lump sum?
Pag
e
 Requirement to inform and offer the
right to employee
Practical consequence
 Complex procedures needed, but low
rates of takeover
(administrative burden)
 Many small companies neglect the law
 Routinely the right is waived upon
lump sum payment
(cost)

39. Trade Secrets now included
China (Draft Regulation)
Germany (Law on Employees invetion)
 Article 25:
Where the entity decides to protect the
service invention as know-how, it shall
pay a reasonable compensation to the
inventor in accordance with the
provisions of this Chapter.
 Section 17 (Trade Secrets)
 Subject to remuneration
 Employer must acknowledge to
employee that the service invention is
capable of protection
 Non acknowledement leads to
automatic arbitration
Practical consequence
 Potential conflict area:
 “Know how“ needs to be
patentable?
 When is it clarified?
 How many disputes to come?
 Right of company to challenge?
Pag
e
 High risk for disputes leads to loss of
strategic options (keeping trade
secrets is avoided by all means)
(opportunity cost)
 Opinions need to be obtained to
reduce risk
(administrative burden, cost)

40. Pre-emptive right of inventor
China (Draft Regulation)
Germany
 Article 29:
Where an entity intends to assign
intellectual property rights of a service
invention, the inventor is entitled to the
right of first refusal under the same
conditions.
No such clause exists. IP can be freely transferred.
[similar to Article 326 contract law]
 Potential conflict area:
 How to deal with it for service R&D
inventions (“same conditions”) or
assignments within a company
group?
 What about assignment before
making the invention?
 Can this be waived by professors,
students, CRO scientists
individually in advance?
Pag
e
Guidelines for the Remuneration of Employees’
inventions in Private Employment:
 According to benefit of the employer
 Agreements on remuneration before making of
the invention are invalid.
Practical consequence
 Company Group: Sales by affiliate
companies are treated as those of the
legal entity unless a license agreement
with fair market value exists
 Service R&D: A certain percentage of the
service fee is shared with the inventors
unless it is agreed to compensate more.

41. Learning
 Documentation & Administration

Build up an administrative back bone organization, if this regulation
becomes effective

Work in document and template frameworks

Think through every form and template to minimize risk
 Counseling of Management

Get buy-in for FTE build up & establishment of a company policy
according to Article 19 of the draft regulation
(“industry and research type” dependent standard for being
reasonable)

Highlight the potential risks continuously

Avoid being an innovation block by remaining attentive to gap fixing
solutions or developments

42. Thank You!