EMPLOYEES' REMUNERATION PRACTICE UNDER PATENT ACT IN CHINA

03/01/2010

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The third amendment to the PRC Patent Law took effect as of 1 October 2009 (Patent Law) and China has further completed the amendment to the Implementation Regulations of the Patent Law ("Implementation Regulations") which took effect on 1 February 2010.
According to Article 6 of the Patent Law, an invention/creation completed by an employee in the performance of his (her) job duties or an invention/creation completed mainly based on the employer's articles or technical conditions shall be deemed as a "job invention" and the right to apply for patent as well as the patent right covering the job invention shall be vested in the employer. Article 16 of the Patent Law further states the following: (1) an employer receiving patent grant for a job invention shall provide to the employee-inventor an award; (2) if the said patent has been commercialized, the employee-inventor shall be given remuneration that is calculated based on the scope of commercialization and the economic benefits thus received. Articles 6 & 16 were included in the Patent Law taking in effect prior to the third amendment of the Patent Law.
Although the third amendment to the Patent Law makes no change with respect to Articles 6 & 16 of Patent Law, the Implementation Regulations newly announced by the SIPO contain the following changes with respect to employees' remuneration:
l	According to the Implementation Regulations in effect prior to 31 January 2010 ("Old Implementation Regulations"), a state-owned entity shall provide remuneration to its employee if a patent covering a job invention completed by the employee has been granted or has been put into practice. Through the recent amendment to the Implementation Regulation, an entity other than a state-owned entity shall also be obliged to the remuneration obligation as stated above (including a foreign company's subsidiary in China etc.).
l	Articles 76 through 78 of the newly amended Implementation Regulations set forth the following principles with respect to employees' remuneration:
	1.	An entity receiving patent grant may enter into an agreement with an employee-inventor with respect to the method and amount of remuneration as prescribed in Article 16 of the Patent Law.
	2.	Where there is no agreement between an employer and an employee with respect to the remuneration as prescribed in Article 16 of the Patent Law, the employer shall pay the employee within 3 months from the date of patent grant publication, a remuneration of no less than RMB3,000 for each invention and no less than RMB1,000 for each utility model or design.
	3.	Where there is no agreement between an employer and an employee with respect to the remuneration as prescribed in Article 16 of the Patent Law, when the concerned patent has been practiced during the patent term, the employer shall pay the employee a remuneration at a ratio of 2% for an invention patent or a utility model patent and 0.2% for a design patent annually based on the net profit (after tax) obtained from the practice of the patent. The employer may pay the employee a one-time remuneration by reference to the ratio stated above. Where the said patent is licensed to another party for practice, the employer shall pay the employee a remuneration of no less than 10% of the royalty fee (after tax).