On 25 June 2013, the Shanghai High People’s Court issued a trial guidance with respect to rewards and remuneration for inventors and designers of service inventions.
The remuneration guidance clarifies that an inventor or designer of a service invention created in China is entitled to rewards and remuneration according to China’s Patent Law and its implementing regulations, regardless of whether the employer files for a patent within or outside China.
The remuneration guidance states that rewards and remuneration can be in the form of cash compensation, stocks, options, promotion, salary increase or paid leave, provided that the actual benefits offered to the employee are reasonable. Most significantly, the remuneration guidance stresses that an employer can offer rewards and remuneration lower than the statutory default amounts, or in one lump sum, as long as it reaches an agreement with an employee or has adopted a policy through the “employee consultation procedure”. The court will not strike down the agreed amount unless it is extremely unreasonable. In the absence of agreement or company policy, the employee inventor or designer will receive rewards and remuneration at the statutory default amounts.
The above guidance confirms the importance of executing valid inventor compensation agreements with employees who may create patentable inventions, or adopting company policies dealing with inventor compensation through the required consultation process stipulated in article 4 of the Labour Contract Law. Without valid agreements or policies, companies will be forced to pay to employee-inventors the potentially large default amounts of remuneration stipulated in the Patent Law.
According to the remuneration guidance, only inventors or designers of the entity who own the patent are entitled to rewards and remuneration. Therefore, if the employee of a commissioned entity creates a patentable invention, and if the commissioning entity has the sole right to patent the invention under the entrustment agreement, the employee will not be entitled to rewards or remuneration because his/her employer (i.e. the commissioned entity) does not and will not own the patent. The remuneration guidance also provides that a dispatched employee can claim for rewards and remuneration for any service inventions he or she creates while being dispatched to the employing unit.
Finally, the remuneration guidance makes it clear that any dispute over the reward and remuneration claims in relation to a service invention shall be treated as a patent dispute instead of an employment dispute. Therefore, such disputes shall be brought to courts with jurisdiction over patent disputes, instead of employment dispute arbitration commissions.
Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) firstname.lastname@example.org