[Author: Bella Li]

The first paragraph of Article 15 of the Patent Law stipulates: "The organization which has been granted patent rights shall reward the inventor or designer of a service invention-creation; upon implementation of the patent for the invention-creation, the inventor or designer shall be given reasonable remuneration according to the scope of promoted applications and economic benefits received.” According to this provision, for service inventions, after the patent rights are granted and the related invention-creation patents are implemented, the enterprise that has been granted the patent rights shall give the inventor or designer who made the service invention reward and reasonable remuneration. In practice, there are circumstances where multinational companies apply for service inventions and creations of the Chinese subsidiaries in the name of the parent company or other companies in the group in order to manage intellectual property rights globally. That is, the enterprise that is granted the patent right is not the enterprise of the employee who made the service invention. Several questions can be derived from this situation: Is it necessary to pay the reward and remuneration for service invention? If it needs to be paid, who should pay it? How is the payment to be made? Based on the relevant provisions of the existing Patent Law and the judicial practice, this article will explore the payment subject and payment method of the reward and remuneration for service invention under the defined situation as above.

1. Can the payer of the reward and remuneration only be the organization that has been granted the patent right? When the organization to which the patent right is granted is inconsistent with the organization to which the inventor and designer belongs, is it still necessary to pay service invention reward and remuneration?

Although Article 15 of the Patent Law stipulates that the payment subject of the reward and remuneration for service inventions is "the organization that has been granted the patent right", as mentioned above, in practice, there are circumstances where the parent company applies for the patent for the invention-creation completed by the employees of the subsidiary company. That is, the organization that was granted the patent right is not the same as the organization to which the inventor who made the service invention belongs. In addition, there are also a number of situations that may lead to the inconsistency between the company to which the inventor of the completed service invention belong and the subject of the patent application. For example, a commissioned development contract stipulates that the rights to the invention-creation developed and completed by the entrusted company belong to the entrusting company from the beginning. On the other hand, the right to claim reward and remuneration for service invention-creation is a subordinate right, which is generated on the premise that the organization to which the inventor belongs enjoys the right of the service invention-creation. Therefore, there is no legal basis for the inventor to request reward and remuneration from the patentee who has no labor relationship with him. At this point, if the obligation to pay reward and remuneration to the inventor of the service invention is only limited to "organization that has been granted the patent right", it may be difficult to guarantee the inventor's right to receive the reward and remuneration.

Paragraph 1 of Article 44 of the Law on Promoting the Transformation of Scientific and Technological Achievements stipulates that "After the transformation of the service related scientific and technological achievements, the organization completing the scientific and technological achievements shall give reward and remuneration to the personnel who have made important contributions to the completion and transformation of the scientific and technological achievements." Article 326 of the Contract Law before the implementation of the Civil Code also stipulates that "A legal person or other organization shall withdraw a certain percentage from the proceeds obtained from the use and transfer of the service related technical achievements, and give reward or remuneration to the Individuals who accomplished the service related technical achievements.” Although the relevant content in article 326 of the Contract Law was deleted when the Civil Code was compiled, it does not mean that the enterprise to which the inventor who made the service invention belongs does not need to pay relevant reward or remuneration; instead, it should be understood as deletion for repetition taking into account that there are more detailed provisions on the payment of reward and remuneration in the Patent Law, the Implementation Rules of the Patent Law and the aforementioned Law on Promoting the Transformation of Scientific and Technological Achievements.

In the case of Zhang Weifeng v. 3M China Co., Ltd. on the dispute over the inventor, designer reward and remuneration of service invention-creation [(2014) Hu High Civil Third (IP) Final No. 120)], the Shanghai High People's Court determined that "In this case, due to the agreement between 3M Company and its affiliates, the invention involved was applied for and patented by 3M Innovation Company, but the provisions of the Patent Law on remuneration to inventors are intended to give inventors the labor remuneration they deserve. Therefore, even though 3M China is not the patentee of the invention involved, it is Zhang Weifeng's employer, so/and it should still pay Zhang Weifeng the service invention remuneration." That is, judicial practice has long broken the condition that the payment subject of service invention reward and remuneration must be the "organization that has been granted the patent right", and based on the labor contract relationship between the inventor who made the service invention and the enterprise, it is considered that the enterprises are obliged to protect the rights of their employees to receive remuneration for service inventions.

In the case of Chen Haidong v. Coca-Cola Beverage (Shanghai) Co., Ltd. in the dispute over the inventor, designer reward and remuneration of service invention-creation [(2018) Hu 73 Civil First No. 499)], Shanghai Intellectual Property Court also determined that "Although the patent involved was not applied for by the defendant, instead by the defendant's affiliated company Coca-Cola Company, the defendant and Coca-Cola Company are affiliated companies, and according to the requirements of Coca-Cola Company, the patent application rights for the inventions and creations made by the defendant's employees were all transferred to Coca-Cola Company for free; thereafter Coca-Cola Company applied and was granted for the patent right in the case, and its affiliated company implemented the patent and purchased the concentrate from the defendant to make the final products and sold them out. The defendant also obtained economic benefits from the sales of the finished products, that is, indirect economic benefits in the process of patent implementation. According to the provisions of the Patent Law, after the implementation of the invention-creation patent, the organization shall pay the inventor reasonable remuneration according to the scope of promoted application of the patent and the economic benefits obtained. In this case, due to the agreement between Coca-Cola Company and its affiliates, the invention involved was applied for and patented by Coca-Cola Company. However, the provisions of the Patent Law on remuneration to inventors are intended to give the inventors reasonable labor remuneration. This legal right to receive remuneration should not be compromised by agreements within the multinational enterprises. Therefore, even if the defendant is not the patentee of the invention involved and has not directly implemented the patent involved, but it is the employer of the plaintiff, it should still pay the plaintiff remuneration for the service invention.”

Summary: In judicial practice, it has been clear that the legal right of inventors to receive reward and remuneration should not be compromised due to agreements within multinational enterprises. Therefore, when a service invention made by an employee of a subsidiary is granted a patent right in the name of the parent company or other companies in the group, the subsidiary company shall also pay its employees reasonable reward and remuneration for service invention.

2. How to pay the reward and remuneration to the inventor of the service invention?

The first paragraph of Article 76 of the Implementation Regulations for the Patent Law stipulates “The organization that has been granted the patent right may make agreement with the inventor or designer or stipulate in its rules and regulations formulated in accordance with the law the methods and amounts of reward and remuneration stipulated in Article 16 (Article 15 after amendment) of the Patent Law.” Article 77 and Article 78 of the Implementation Regulations also stipulates the statutory amount and standard of payment of reward and remuneration when there is neither agreement between the patentee and the inventor or designer, nor relevant provisions in the rules and regulations formulated by them according to law. That is, the reward and remuneration for service invention shall be paid in accordance with the principle that the agreement takes priority, and if there is no agreement, the payment shall be made according to the above statutory standards. Then, under the circumstance set in this article, the author believes that the standards for the reward and remuneration for service inventions can vary according to the specific circumstances.

(1) When the parent company has not paid the relevant consideration for assignment

The assignment of the service invention completed by the subsidiary to the parent company and the patent application by the parent company is essentially a transfer of the patent application right. Since the Patent Law does not stipulate the remuneration payment standard for the assignment of service inventions, the provisions related to implementation and license of the patent stipulated in Article 78 of the Implementing Regulations of the Patent Law may be referred to. That is, where the organization which has been granted patent rights licenses another organization or individual to implement its patent, it shall withdraw not less than 10% of the royalties collected as remuneration for the inventor or designer. However, under the highly unified centralized mode of intellectual property management, it is not uncommon for the inventions and creations completed by the subsidiary to be directly transferred to the parent company or other companies in the group for patent applications according to internal resolutions, and consideration corresponding to such transfer may not be paid. The author believes that under such circumstance, the inventor should be paid according to the specific implementation of the patent. In the above-mentioned case (2014) Hu High Civil Third (IP) Final No. 120, the court also held that “the circumstances in which remuneration should be paid for inventors or designers of service inventions includes when the organization that has been granted the patent right has licensed other organizations or individuals to implement its patent and collected royalties, as well as when the organization assigns the patent (including the assignment of the right to apply for a patent which has actually been granted) and obtains economic benefits from the assignee’s implementation or licensing of the patent, which is also in line with the purpose of the transformation and implementation of scientific and technological achievements.”

In addition, in the case where the parent company did not pay the transfer consideration, this situation cannot be regarded same as the usual transfer of right. The author believes that if the patent right is granted after the parent company applies for a patent, in order to fully protect the legitimate rights and interests of the inventors to obtain reward and remuneration, besides the implementation remuneration to the inventors, the subsidiaries shall also follow the provisions of Article 16 of the Patent Law to pay reward to the inventors for the patents being granted.

As to the issue that the subsidiary has not obtained the benefits including the ownership of rights and transfer consideration, but has to pay reward to its employees, or even pay remuneration for the implementation benefits of the parent company, although it is not within the scope of this article, the author believes that the parent and subsidiary companies should make an agreement on the payment of reward and remuneration for related service inventions, in addition to their agreement on the ownership of rights. There can be various ways to reach a consensus, but the principles of fairness, reasonableness, and legality should be followed.

Summary: When the service invention completed by the subsidiary is transferred to the parent company for free or with minimal consideration, and the parent company applies for a patent, after the patent is granted and implemented, the subsidiary as the employer shall give the inventor reward for the patents being granted and remuneration for implementation of the patents.

(2) When the parent company has paid the relevant consideration for assignment

In practice, there are also cases in which the service inventions completed by the subsidiary are transferred to the parent company through the form of entrusted development contract or assignment to the parent company for application, which is also a transfer of the right to apply for a patent. In such a case, a certain percentage of the commissioned development fee or transfer consideration collected can also be withdrawn as remuneration to the inventor or designer, by referring to the relevant provisions on implementation and licensing stipulated in Article 78 of the Implementing Regulations of the Patent Law. Article 21 of the Draft Regulations on Service Inventions (Draft for Review) even stipulates that “If the organization has neither agreed with the inventor nor stipulated the remuneration for the inventor of service invention in the rules and regulations formulated by it according to law, after transferring or licensing others to implement its intellectual property rights, the organization shall withdraw no less than 20% of the net income obtained from the transfer or license, and give it to the inventor as remuneration.” Although the Regulations on Service Inventions failed to be implemented in the end, it can also be seen from the content of the draft that the academic circles treat the payment of remuneration for the transfer and implementation of licenses equally. And as mentioned above, both the Law on Promoting the Transformation of Scientific and Technological Achievements and the original Contract Law stipulate that the enterprise shall withdraw a certain percentage of the proceeds from the use and transfer of the service -related technical achievements, and give reward or remuneration to the individuals who complete the service -related technical achievements. Item (1) of paragraph 1 of Article 45 of the Law on Promoting the Transformation of Scientific and Technological Achievements stipulates that “If the service -related scientific and technological achievements are transferred or licensed to others for implementation, no less than 50% shall be withdrawn from the net income from the transfer of the scientific and technological achievements or the net income from licensing.” This ratio is significantly higher than the 10% stipulated in Article 78 of the Implementing Regulations of the Patent Law.

Regarding the application of the Patent Law and the Law on Promoting the Transformation of Scientific and Technological Achievements, in the case of Jiang Changping (individual) v. Ansteel Construction Group Co., Ltd. over right to be named as inventor, right of honor, and right of reward [(2020) Supreme Court IP Civil Final No. 1334], the Supreme People's Court held that: “The prerequisite for an inventor or designer of a service invention-creation for requesting award from an organization is that the patent is granted, and the prerequisite for requesting remuneration is the implementation of the granted patent; the prerequisite for a person who has completed a non-patent service related technological achievements requesting award from an organization is the successful adoption and transformation of the technological achievements.” That is, when a technological achievement is granted a patent right, the Patent Law shall apply to disputes over reward and remuneration, and the Law on Promoting the Transformation of Scientific and Technological Achievements shall apply to non-patent technological achievements. And under the framework of the Law on Promoting the Transformation of Scientific and Technological Achievements, the prerequisite for those who have completed the non-patent service related technological achievements to request reward from the organization is that they have been successfully adopted and transformed. For the non-patent technological achievements themselves, there are no relevant provisions for reward in the laws and administrative regulations. Whether or not to give reward should be a matter of company autonomy and democratic management. Provided that the company has neither agreed with the person who completed the non-patent service related technological achievements nor stipulated the reward in its legally formulated rules and regulations, if the person who completed the non-patent service related technological achievement requests the reward, there would be no legal basis.

Regarding the issue concerned in practice of whether the Law on Promoting the Transformation of Scientific and Technological Achievements apply to foreign-invested enterprises, the Law on Promoting the Transformation of Scientific and Technological Achievements does not exclude private or foreign-invested enterprises from its scope of application. In the case of disputes over the right to be named as inventor, right of honor, and right of reward for the persons who completed the technological achievements [(2016) Yue 19 Civil Final No. 9115], the Intermediate People's Court of Dongguan City, Guangdong Province calculated the reward and remuneration according to the percentage 5% of the profit in accordance with Item (3), Paragraph 1 of Article 45 of the Law on Promoting the Transformation of Scientific and Technological Achievements. The major shareholder of the defendant Tgdc Guangdong Display Co., Ltd. is a French company. It can be seen that in judicial practice, there have been cases for the application of the Law on Promoting the Transformation of Scientific and Technological Achievements to foreign invested enterprises.

In addition, what is different from the above-mentioned situation "where the parent company has not paid the relevant transfer consideration" is that at this time, the subsidiary has obtained consideration related to the service invention made by the inventor based on the entrusted development contract or the transfer agreement. The author believes that even if the relevant service invention is granted a patent right after being applied for by the parent company, the subsidiary does not need to pay the inventor reward for the patent being granted. That is, on the premise that the transfer consideration paid by the parent company is relatively objective and reasonable, there is no need to deliberately distinguish whether the transaction subjects are parent and subsidiary or affiliated companies or not, and a certain percentage of the development fee or transfer consideration collected can be directly paid to the inventor for implementation remuneration. There is no need to pay the inventors additional reward for the patent being granted.

At the same time, it should be noted that the consideration agreed in the entrusted development contract or the transfer agreement signed between the affiliated companies may be affected by various factors, and it may be hard to say whether the amount is objective. If the consideration in the contract signed between the parent company and the subsidiary is obviously lower than the reasonable amount, at this time, the payment method that only a certain percentage of the contractually agreed amount is withdrawn may be deemed unreasonable by the inventor who may bring a lawsuit to court. At this time, the court needs to determine a reasonable amount of remuneration according to the characteristics of the service invention, the external market environment, and the contribution made by the inventor. In the case of Wei Qingfu (individual), et al. v. AISINO Corporation on the disputes over the reward and remuneration of the inventor and designer of service invention-creation [(2016) Jing Civil Retrial No. 38], the court held that with reference to the provisions of Article 76 of the Implementation Regulations of the Patent Law that came into effect in 2001, the defendant China Hangtian Science and Industry Corporation should withdraw no less than 10% of the transfer fee collected for the transfer of the patent right in question as remuneration. Taking into account the huge economic benefits obtained from the implementation of the patent right in the case, the court of first instance reasonably determined the withdrawal percentage higher than 10% at discretion, and calculated the amount of inventor's remuneration that the plaintiffs could finally obtain according to the proportion of the number of plaintiffs Wei Qingfu and others among the inventors of the patent involved.

Summary: The author believes that when the parent company pays a reasonable consideration for the transfer of the service invention-creation, a certain percentage of the transfer consideration can be withdrawn to give the inventor a reasonable remuneration. If the consideration paid by the parent company for the service invention is significantly lower than the reasonable price, the remuneration paid to the inventor based on this consideration cannot be considered reasonable, thereby impairing the inventor's right to receive remuneration, and should be adjusted accordingly.

3. Reasonableness of reward and remuneration

In practice, the following questions are often asked. Is the amount of reward and remuneration agreed too low? Can the remuneration be agreed to be paid in lump sum? In judicial practice, no matter it is a certain percentage or a one-time payment, unless it extremely deviates from the statutory amount, it is generally considered that the amount of reward and remuneration is reasonable as long as it is agreed by the parties through legal procedures.

As mentioned above, agreement prevails when it comes to payment of reward and remuneration. The agreed amount can be higher or lower than the statutory standard. From the enterprises’ point of view, if they want to pay reward or remuneration lower than the statutory amount, an agreement with the inventor is needed. From the perspective of the inventors, if they want to obtain higher reward or remuneration than the statutory amount, an agreement with the enterprise is also needed. As to the amount and payment standard of service invention reward and remuneration, the enterprise usually stipulates it in the form of internal rules and regulations such as service invention regulations. For this, it is necessary to pay attention to the legality of the procedures and the reasonableness of the amount stipulated in the regulations.

Regarding the legality of the procedure, Paragraph 1 of Article 50 of the Interpretation of the Supreme People's Court on Issues concerning the Application of Law in the Trial of Labor Dispute Cases (1) stipulates: " According to the provisions of Article 4 of the Labor Contract Law, where the rules and regulations formulated by the employer through democratic procedures do not violate the provisions of the laws, administrative regulations and policies, and have been publicized to the laborers, they can be used as the basis for determining the rights and obligations of both parties.” The establishment and implementation of the rules and regulations on service inventions are related to the vital interests of employees. Therefore, whether the rules and regulations are formulated and implemented through democratic procedures and whether they are publicized would be important factors which will determine whether the rules and regulations are effective and whether they can be the basis for reward payment.

Regarding the reasonableness of the agreed amount, the agreement based on factors such as the nature of the enterprise, the characteristics of the industry, the purpose of the patent application, the prospect of implementation of the patent, and the level of economic development of the city where the enterprise is located is generally considered to be reasonable. If the agreed remuneration is extremely low, it will be considered unreasonable. In the case of (2014) Hu High Civil 3 (IP) Final No. 120, the court held that “Although the calculation formula for service invention remuneration in the bonus plan is based on annual sales rather than business profits as the calculation base, in any case, the coefficient of 0.01% is still far from the coefficient of no less than 2% that should be withdrawn from the business profits from the implementation of the invention or utility model patent annually as stipulated in Article 78 of the Implementing Regulations of the Patent Law. It can be seen that the bonus plan is indeed unreasonable." For unreasonable reward and remuneration standards, the court will not directly apply the statutory minimum standards, but will determine a reasonable amount according to the specific circumstances of the case when disputes arise. Usually, an appropriate amount of reward to be paid will be determined based on factors such as the category of the patent, the implementation of the patent, the business profits, the profit contribution of the patent to the product, and the number of inventors, etc.

Summary: The payment of reward and remuneration for service inventions follows the principle that agreement prevails, and if there is no agreement, the payment is made in accordance with the statutory standards. In order to avoid unnecessary disputes over the payment of reward and remuneration, it is recommended to formulate a reward and remuneration system for service inventions in advance, and special attention should be paid to democratic and legal procedures when formulating the system for service inventions to ensure the legitimacy and validity of the system.

Conclusion:

In addition to the above-mentioned situations, there are also situations in which the subsidiary company's service invention is applied for in the name of the parent company in other ways or protected as trade secrets, but no matter what the circumstances are, the fundamental remains that the inventor's right to receive reasonable reward and remuneration should be guaranteed. Enterprises should pay attention to the legitimacy of the formulation procedures, the reasonableness of the amount of reward and remuneration, and the types of technical achievements that the system can cover when formulating a reward and remuneration system for service inventions.