How to properly secure service inventions

By Zhang Ming and Tan Wei, Grandway Law Offices  
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Service invention is defined by Chinese laws and regulations as an invention made in the course of performing tasks for an employer or mainly utilising the material and technical resources of the employer. A service invention must be under the premise of a labour relationship or temporary working relationship between the inventor and the employer.

Service inventions are made for the purpose of performing a task for the employer. This covers inventions and creations made for the performance of the inventor’s duty and other tasks assigned by the employer. It also covers those made within a year of the inventor’s retirement, transfer from or termination of labour and personnel relationship with the former employer, but still related to the inventor’s duty with the former employer or other assigned tasks.

Service inventions are made using the material and technical resources of the employer. This covers scenarios where the inventor wholly, or mostly, made use of the material resources of a legal person or an unincorporated organisation. These include funds, equipment, devices or raw materials in the R&D process. Such resources must have contributed substantially to the formation of the technological achievements; or the substantive content of the invention was completed on the basis of other unpublished technological achievements and staged technological achievements of a legal person or an unincorporated organisation.

FOCUS OF REVIEW

Zhang Ming, Grandway Law Offices
Zhang Ming
Partner
Grandway Law Offices

If the core technical personnel of a pre-IPO company at one point worked for a peer company or a university, the regulators will note the legality and compliance of the employment, whether the service inventions formed under employment were subject to any dispute, and whether they were service inventions of the core technical personnel at the former employer. This was the case for Essence Information Technology, Sinotec and Windey.

If the pre-IPO company has a co-operative relationship with universities or other companies involved in R&D, the regulators will focus on the ownership of IP rights, the legality and compliance of core technical personnel’s employment or part-time work status, and whether the pre-IPO company has acquired or used patents, other IP rights or core technologies that were the service inventions of any university personnel. This was the case for Willfar Information Technology, Keqian Biology and KBC Corporation.

Other key issues are whether the ownership of the company’s important technical patents or the positions of core technical personnel infringe the legitimate rights and interests of third parties, whether there are disputes or potential disputes, and whether the company is technically dependent on disputed IP rights. This was the case for Hengqiang Technology and Aerospace Mould&Plastics, both unlisted.

RESPONDING TO INQUIRIES

Tan Wei, Grandway Law Offices
Tan Wei
Associate
Grandway Law Offices

When replying to regulators’ inquiries about core technical personnel and service inventions, the following aspects could be considered by intermediaries.

An argument could be made that an invention is not a service invention by pointing out discrepancies between the time of forming the technology or patent and the work histories of core technical personnel. Failing this approach, it becomes necessary to dig deeper into the formation process of relevant technologies, taking into account the key aspects of service inventions, in particular, whether the core technical personnel and the former employer had formed a labour relationship or temporary working relationship, whether there was any agreement on service inventions, whether the R&D activities of relevant technical patents were related to the duties of core technical personnel at the former employer, and whether the R&D of technical patents was mainly conducted with the material and technical resources of the former employer. Statements from a former employer could show that relevant technical patents are not service inventions, which would effectively confirm the ownership of such patents and prevent potential disputes.

If the technical patent was developed by the company in co-operation with universities or other entities, intermediaries should specify the mode of co-operation, the legality and compliance of relevant R&D personnel’s employment or part-time work status, the division arrangement of research results and IP rights, as well as whether the company received or used any patent that was the service invention of any personnel of a university or other entities, and whether it received, used or otherwise benefited from the technology, personnel, equipment or any other support from universities or other entities.

Intermediaries should also inspect whether the company has any ongoing or potential disputes about IP infringement, particularly if the company and its core technical personnel are involved in any tort litigation relating to service invention. Intermediaries should specify the trial process and the result of the case, and illustrate the impact of an adverse result on the company based on the dependence of its main business on the disputed technologies.

TECH COMPLIANCE MEASURES

Tech companies should strengthen background investigations of employees, especially core technical personnel, including their work experience, duties, time of joining and departure, technical fields and R&D projects, and whether there was any non-competition or IP ownership agreement.

Tech companies should also improve their management of personnel. Measures should cover matters such as signing letters of undertaking on non-infringement with new employees, preventing them from engaging in any R&D activities related to their duties at the former employer within one year or within the period of non-competition; and signing of confidentiality agreements, non-competition agreements, and IP ownership agreements with core technical personnel to protect a company’s own IP rights. In the case of patents held by core technical personnel, especially core technical patents that are attributable to the pre-IPO company, an arrangement should be made for a transfer of such patents.

Finally, key information such as employees’ joining, departure and R&D content should be properly recorded and kept so as to ensure the availability of favourable evidence when disputes arise. Companies should also regularly track and monitor the whereabouts of former employees, as well as the personnel and R&D status of competitors in the industry, to discover any potential IP ownership disputes as soon as possible.

Zhang Ming is a partner and Tan Wei is an associate at Grandway Law Offices

domestic capital

Grandway Law Offices
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Tel: +86 10 8800 4488
Fax: +86 10 6609 0016

E-mail: zhangming@grandwaylaw.com
tanwei@grandwaylaw.com

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