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By Peter Leung
Jan. 15— Provisions governing how employers in China must pay employees for their inventions and who owns such inventions impose unfair burdens on companies, according to some groups representing international businesses.
China's Patent Law requires companies to reward employees for inventions stemming from employment—provisions that especially affect companies that set up research and development centers in China. The newest draft revision to the Patent Law continues to have these requirements, which some rights holders claim are still problematic because they are vague, unfairly limit the right to negotiate, and can result in large administrative burdens for employers.
Several organizations, including the European Union Chamber of Commerce in China and the American Intellectual Property Lawyers Association, submitted responses to the government's request for comments about the draft law.
Some commenters expressed reservations about the proposed revisions, which appear to narrow the definition of “service inventions,” which belong to the employer.
While the current version of Article 6 of the Patent Law states that service inventions are those stemming from an employee performing his or her duties, the draft revision replaces the word “duties” with “tasks of the entity,” which may cause problems. AIPLA commented that this new term is vague, and employers may be forced to continually redefine the scope of the work assigned to employees tasked with research and development.
The group also suggested that the shift is unfair, as employees would likely own inventions that arise from an unexpected discovery in the course of his or her duties— if the invention was not directly related to specific tasks given by the company.
The EU Chamber observed that the new language is vague, increasing the risk of conflicts between companies and employees.
The change in language may also undermine existing agreements pertaining to ownership of employee inventions.
“While there is some concern over whether the term ‘task' may include inventing in general, the change of wording from defining the responsibilities of an employee charged with innovation at a company from a ‘duty' to a ‘task' is troublesome, as there are many employee contracts in effect that deal with the issue of employee inventions as a ‘duty' under the current Patent Law,” George Chan, partner at Simmons & Simmons LLP, Beijing, told Bloomberg BNA. “The change of terms under the proposed Patent Law may render already established employee contractual arrangements for service inventions unenforceable for entities attempting to claim the rights to a patent made by an employee.”
The proposed draft appears to further narrow the definition of service inventions in its discussion of inventions created by employees using the employer's “material and technical means.” The draft revision states that such inventions and resulting patents belong to the inventor-employee, unless there is an agreement otherwise.
The comments from both AIPLA and the EU Chamber state that this change is problematic, and that the default position should be that employers own inventions resulting from an employee using company resources. The EU Chamber further points out that, as a practical matter, it is very difficult to tell the difference between inventions stemming from use of the employer's resources and those arising from an employee performing tasks assigned by the company.
Comments asked for clarification about proposed changes to Article 16, which requires companies to provide reasonable remuneration that takes into account the extent of the invention's exploitation and the economic benefits it has yielded. This requirement already exists in current law, and the draft contains some minor language changes about the timing of payments.
The draft also adds a new paragraph clarifying that inventions stemming from the employer's resources are also subject to the remuneration requirements.
International groups have previously asked for clarification and revision of these laws, and several suggest that the proposed amendments do not go far enough to address long-standing concerns.
One common theme in the comments is that these provisions should not be applied in a way that unduly restricts the right of companies and employees to freely negotiate payment terms.
Another concern is that requiring remuneration to reflect the “scope of application and the economic results” is problematic because these terms are vague, said AIPLA. Furthermore, it argued that patent valuation is inherently subjective, making determinations whether remuneration is reasonable as required by the statute very difficult.
The requirements may also be very burdensome. According to comments from the Intellectual Property Owners Association, requiring remuneration to reflect the patent's economic benefits could impose ongoing administrative burdens, such as the need to track revenue that can be attributed to the invention. IPO further suggested that employers should not have to pay remuneration if the invention has been assigned, an issue that it said is unclear. Tracking and calculating the economic value of a patent would be even more difficult and unfair if the company no longer even owns the patent, it said.
On the other hand, some commenters said that the changes helped to clarify obligations under these provisions. According to Michael Lin, partner at Marks & Clerk, Hong Kong, the proposed changes to Article 16 help to clarify the timing of the payments and which parties are responsible for payment. Combined with the draft version of Article 6, the changes would make the system more transparent, he told Bloomberg BNA.
The EU Chamber also said that the changes brought more clarity and transparency but asked for additional explanation as to what constitutes “reasonable” remuneration.
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