Service Inventions In China: A Guide To Employee Inventor Patent Rewards And Remuneration

Patents and patent applications are the fruits of the inventors’ wisdom. Under the Chinese patent system, where a service invention creation (an invention made by an employee in the course of their employment) is patented and commercially exploited, the employer is required by law to give the employee inventor a reward or remuneration. This article provides an overview of employee inventor rewards and remuneration under Chinese Patent Law, relevant provisions, court precedents and real world practice.

1. Inventors’ Entitlement to Rewards and Remuneration

Paying a reward and remuneration to the inventor or designer is a legal obligation that the employer must fulfill after a service invention (an invention made by an employee as part of their job) is patented and commercially exploited. For non-service inventions (inventions made by an employee independently, outside of their job duties), the rules on rewards and remuneration do not apply.

Rewards shall be paid by the employer to the inventor or designer after the service invention is granted a patent. Remuneration shall be paid by the employer to the inventor or designer after the patent for the service invention is commercially used, and the amount depends on the how widely it is applied and the economic benefits it generates.

2. How to Pay Rewards and Remuneration

How much rewards and remuneration should be paid? And how? Generally, there are two ways to determine these: one is through an agreement between the inventor and the employer, and the other is by following legal provisions.

2.1 Rewards and Remuneration Agreed by Contract or Company Rules

The employer can sign a written contract with the inventor (or designer) of a service invention to agree on the payment of rewards and remuneration, such as the amount, timing, and method of payment. Alternatively, the employer can also specify theses terms in its internal company rules and regulations formulated in accordance with the laws.

Where the employer uses its company rules to specify rewards and remuneration, it shall disclose the rules to ensure that the inventor can read and understand them. If the rules and regulations are not properly disclosed, they have no binding force on the inventor.

Specifying rewards and remuneration in company rules is convenient for unified management, while signing a written contract with the inventor offers more flexibility. In either case, the employer shall not exclude or limit the inventor's right to obtain rewards or remuneration. For example, the employer shall not agree with the inventor, or specify in its rules, that it may waive its obligation to pay rewards or remuneration. In practice, if the employer has no relevant rules or regulations on rewards or remuneration at the time of filing a patent application, it should sign a written contract with the inventor or designer to agree on rewards and remuneration to avoid potential disputes.

2.2 Rewards and Remuneration Stipulated by Law

Where the employer neither has an agreement with the inventor nor has internal rules on rewards and remuneration, it must pay according to the legal standards.

Rewards shall be paid to the inventor or designer within three months from the date of the announcement of the grant of the patent. The minimum sum of money prize for an invention patent is CNY 4,000; and for a utility model or design patent, the minimum is CNY 1,500.

Remuneration shall be paid based on the actual exploitation situation: For example:

1. if the patent is exploited by the employer itself or with others, at least 5% of the operating profit from exploiting the patent shall be withdrawn as remuneration each year, for three to five consecutive years after the successful exploitation of the patent;
2. if a patent is assigned or licensed to another party, at least 50% of the net income from the assignment or license shall be withdrawn as remuneration;
3. if the patent for a service invention is used as investments (such as forming shares or capital), at least 50% of the shares or capital contribution ratio obtained from the patent shall be withdrawn as remuneration.

In addition, China encourages employers to implement property rights incentives and adopt methods such as equity, stock options, dividends, etc., to ensure that inventors or designers receive a fair share of the innovation benefits. This means rewards and remuneration are not limited to money, and can also be other forms of rights and interests. If the employer choose to use other forms of rights, it is recommended to sign a written contract with the inventor in advance.

3. Who Pays Rewards and Remuneration?

During the course of a service invention, the employer is legally required to give rewards or remuneration to the inventor (or designer) after the patent application for the service invention is granted.

3.1 Who pays when the patent is transferred?

The employer’s disposal of the patent/patent application for a service invention, such as transfer, cannot exclude or transfer its duty or obligation to give rewards and remuneration to the inventor (or designer). A judicial precedent confirms this.

(2016) Yue 73 Min Chu No. 1721: A service invention is made based on the employment relationship between the employer and the inventor. Based on the employment contract, the inventor performs his/her job according to the employer’s requirements; and the employer gives the inventor remuneration in accordance with the contractual agreement with the inventor or the relevant provisions of the Patent Law regarding remuneration for service inventions. Therefore, the "unit to whom a patent is granted" stipulated in Article 16 of the Patent Law shall not be understood as the current patentee, but shall be understood as an employer who has employment relationship with the inventor and has the right to apply for a patent according to law when the service invention is completed. As for the case where the employer assigns the patent application or patent to a third party,..., the entity that is responsible for paying remuneration to the inventor of the service invention is still the employer, but not the third party to whom the patent application or patent has been assigned. Assuming that the third party has committed objective acts and exhibited subjective faults that infringe the inventor's rights with respect to the employer’s performance of the above-mentioned duty to the inventor, the inventor can, on the condition that the employer failed to fulfill the duty to pay the inventor's remuneration and damage has occurred, file a lawsuit against the third party for infringement.

Given the above, if the employer assigns the patent application or the patent, it shall still bear the obligation to pay rewards and remuneration to the inventor or designer.

3.2 Who pays for jointly developed inventions?

Cooperative development of inventions is common; and the provisions on rewards and remuneration apply to service inventions created through cooperation. After a patent is granted for a cooperatively developed service invention and is exploited, each cooperating employer is obligated to pay rewards and remuneration to its own inventors (or designers) respectively, and shall not demand the inventor (or designer) to claim rewards and remuneration from other cooperating units.

Furthermore, cross-border cooperation in innovation is also common. Generally speaking, as long as an invention is made in the Chinese Mainland, the provisions of the Chinese Patent Law on rewards and remuneration for service inventions shall apply. A judicial precedent confirms this.

(2014) Hu Gao Min San (Zhi) Zhong Zi No. 120: The provisions on rewards and remuneration for service inventions in the Patent Law apply to the inventions accomplished in the Chinese Mainland. Carrying out invention activities across territories is a common phenomenon in the R&D of multinational corporation. The so-called place where the "invention" is accomplished does not require that the whole technical solution and its each part are accomplished in the Chinese Mainland, rather the place where some technical contribution is accomplished shall also be deemed as one of the places where the invention is accomplished. Company A and Chinese Company B are affiliated companies; the invention involved in the case was jointly accomplished by Zhang and other three inventors from Company A. Zhang's inventorship was also recognized by Chinese Company B and Company A. This indicates that Zhang made substantive technical contribution to the invention involved in the case. Zhang had been working in China while participating in the invention involved in the case, and, for the invention, a patent application was filed and granted in China. Therefore, China is certainly one of the places where the invention was accomplished. This lawsuit shall be subject to Chinese law. The court holds that the court of first instance was not in error in applying Chinese law in the trial of this case.

3.3 Who pays if there are only foreign patents but no Chinese patents?

In practice, some employers obtain patents only in foreign countries for a service invention, without getting a patent in China. Under such circumstances, the employer still has the obligation to pay rewards and remuneration. A judicial precedent confirms this.

(2016) Yue 73 Min Chu No. 1721: If it is determined that the provisions on inventor’s remuneration for service invention in Patent Law shall not apply because the patent in question is a US patent, it would be unfair to the inventors and would also condone the employer's behavior of avoiding payment of remuneration to inventors while actually making profits.

3.4 The employer shall pay even if the inventor leaves the company

Finally, it is worth noting that leaving the company does not affect the inventor's (or designer’s) rights to claim rewards and remuneration for the service inventions made during their employment. The fact that the inventor has resigned is not a valid reason for the employer to refuse payment.

In summary, rewards and remuneration are the employer’s statutory duty. The unit's disposal of patents and the inventor’s resignation do not affect the employer’s duty to pay rewards and remuneration.

4. What if no patent is granted?

Rewards and remuneration are triggered only after a patent is granted for a service invention. If no patent is granted for the service invention for various reasons, such as the applicant’s failure to file a patent application, the applicant’s voluntary abandonment of the filed patent application, the deemed withdrawal or rejection of the patent application caused by the applicant’s failure to respond to an official notification, the applicant’s failure to pay the required official fees, etc., then the legal conditions for rewards and remuneration are not met, and the inventor cannot claim them.

(2022) Zui Gao Fa Zhi Min Zhong No. 238: .., the remaining 49 patent applications, which are rejected, or in the substantive examination stage, or deemed withdrawn or abandoned, have not been granted, and the prerequisites for payment of rewards as stipulated by law have not been met. Therefore, the conditions for paying rewards for the 49 patent applications have not been achieved.

In summary, rewards and remuneration for service invention are legal rights granted to inventors (or designers), they represent recognition of intellectual labor, and helps employers to encourage innovation. Employers can avoid future disputes by either signing a written contract with the inventor on rewards and remuneration, or by forming relevant provisions in the company’s internal rules and regulations.

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