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China IP

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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 …

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.

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  • 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!