In the Chinese patent framework, a service invention is an invention created by employees while performing their regular duties or primarily utilizing the material and technical resources provided by their employer.
Recognition Criteria of Service Inventions
"Created while performing regular duties"
In the Implementing Regulations of the Patent Law, it is clearly defined that the following inventions should be deemed as service inventions:
Remarks:
"Regular duties" refer to the daily responsibilities within the scope of one’s job and do not necessarily align with the employer’s business scope or the individual’s field of expertise.
"Employer" encompasses the employee’s official affiliated unit as well as any temporary work units, such as the borrowing unit for seconded personnel or the hiring unit for professional staff.
"Tasks assigned outside regular duties" refer to short-term or temporary assignments given by the employer.
"Created primarily utilizing the employer’s material and technical resources"
If inventors or designers primarily utilize the material and technical resources (such as funds, instruments, equipment, raw materials, and undisclosed technical documents) provided by their employer to complete an invention, and these resources are crucial for the completion of the invention, even if it falls outside their normal job responsibilities, the invention should be classified as a service invention. The right to apply for a patent and the patent right are owned by the employer.
However, according to Article 6, Paragraph 3 of the Patent Law, there may be some exceptions to the rights of ownership.
If the inventor or designer who uses the employer’s material and technical resources to complete an invention enters into a contract with the employer, and they agree on the rights to apply for a patent and the ownership of the patent, for example:
According to the provisions of this article, the determination of the right to apply for a patent and the ownership of the patent should follow the agreement between the employee and employer. This provision was added during the recent amendment of the Patent Law.
Reward policies for inventors of service inventions
What currently happens?
China's reward mechanism for inventors of service inventions is primarily established under the legal frameworks of the Patent Law, Implementing Regulations of the Patent Law, and the Law for the Promotion of Scientific and Technological Achievements Transformation.
China encourages entities to negotiate independently with inventors to establish relevant reward terms, in particular in the form of cash awards, equity, options, dividends, and so on. However, to prevent potential disputes, certain minimum reward criteria have been established.
One-time rewards
Latest Standard (according to the Patent Law Implementing Regulations amended in 2023): Since 20 January 2024, once a service invention/design is granted, the inventor or designer should receive a one-time cash reward within three months of the patent announcement. The minimum reward for an invention patent is 4,000 RMB (about 560 USD), while that for a utility model or design is 1,500 RMB (about 210 USD).
Transitional Provisions: According to Article 104 of the Legislation, laws and administrative regulations do not have a retroactive effect. Therefore, the above provisions in the current Patent Law Implementing Regulations only apply to patents granted on or after 20 January 2024. Patents granted before this date should follow the previous lower reward standards, i.e., the minimum reward for an invention patent is 3,000 RMB (about 420 USD), while that for a utility model or design is 1,000 RMB (about 140 USD).
Applicability to subsequent economic activities: Despite the old standards applying to patents granted before 20 January 2024, if economic activities such as patent transfer, licensing, equity investment, or implementation occur after this date, the new regulations will apply, potentially providing inventors or designers with higher subsequent returns.
Ongoing Remuneration
Income Sharing from Technology Transfer (according to the Law for the Promotion of Scientific and Technological Achievements Transformation):
Only when the entity has not agreed upon reward and remuneration methods and amounts with the inventor or designer, the following guidelines apply:
o When transferring or licensing the technology achievement to a third party for implementation, no less than 50% of the net income should be awarded as remuneration.
o When investing in technology achievements in the form of equity, at least 50% of the resulting shares or capital contribution ratio should be awarded as remuneration.
o When implementing technology achievements independently or in collaboration with others, from the start of production, at least 5% of annual operating profits should be awarded as remuneration for three to five consecutive years.
Conclusion
The compensation for a service invention is primarily governed by the principle of "contractual agreements taking precedence over legal provisions". This principle allows employers to tailor compensation structures to align with their specific operational needs and strategic goals.
To implement these regulations in practice, corporations could consider the following proposals:
Transparent Communication: Clearly communicating the terms of service invention compensation in employment contracts or company bylaws will ensure all parties understand their rights and obligations. Involving employees in the development of compensation policies can foster a sense of ownership and motivation with the business.
Regular Reviews: It’s essential to periodically review and update legal terms in employment agreements or company bylaws to reflect changes in legal regulations and industry practices to avoid potential disputes and liabilities.
Incentive Programmes: It’s advisable for corporations to develop incentive programs that reward innovation and align with the company’s long-term objectives, thereby encouraging continuous improvement and creativity among employees.
By implementing these proposals, corporations can create a balanced and effective approach to managing service inventions, ultimately driving innovation and growth.
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Annex: Related Articles and Rules
The Patent Law of the People's Republic of China
Article 6: Inventions created by performing the regular duties provided by the unit or primarily utilizing the material and technical resources of the Unit are deemed as service inventions. The right to apply for a patent for service inventions belongs to the unit, and once approved, the unit becomes the patent owner. The unit may legally dispose of its rights to apply for patents and patent rights to promote the implementation and utilization of such inventions.
For non-service inventions, the right to apply for a patent belongs to the inventor or designer; once approved, the inventor or designer becomes the patent owner.
If an invention is created utilizing the material and technical resources of the unit, and the unit and the inventor or designer have entered into a contract that specifies the rights to apply for a patent and the ownership of the patent, then the terms of the contract shall prevail.
Article 15, Paragraph 2: The State encourages patent rights holders to implement property rights incentives, such as equity, stock options, dividends, etc., to ensure that inventors or designers reasonably share in the benefits of innovation.
Article 16: It stipulates that the entity granted patent rights shall provide rewards to the inventor or designer of service inventions or designs, as well as remuneration based on the extent of implementation and economic benefits obtained from the exploitation of the patented invention.
The Implementing Regulations of the Patent Law of the People's Republic of China
Chapter VII: Rewards and Remuneration for Inventors or Designers of Service Inventions or Designs
Article 13: According to Article 6 of the Patent Law, inventions created by performing the tasks of the unit are deemed as service inventions and include:
- (1) inventions created within the scope of one’s regular duties;
- (2) inventions created while fulfilling tasks assigned by the unit that fall outside one’s regular duties;
- (3) inventions created within one year after retirement, transfer from the original unit, or termination of labor or personnel relations, which are related to the employee’s previous job responsibilities or tasks assigned by the original unit.
According to Article 6 of the Patent Law, the term "unit" includes temporary work units. The term "material and technical resources of the unit" refers to the funds, equipment, components, raw materials, or undisclosed technical information and documents provided by the unit.
Article 14: According to the Patent Law, the term "inventor or designer" refers to the person who makes a creative contribution to the substantive features of the invention or design. During the process of completing the invention or design, individuals who only manage organizational work, provide convenience for the use of material and technical conditions, or engage in other auxiliary work are not considered inventors or designers.
Article 92: The entity that is granted patent rights may enter into agreements with inventors or designers or specify in its legally formulated rules and regulations the methods and amounts of rewards and remuneration as stipulated in Article 15 of the Patent Law. Entities granted patent rights are encouraged to implement property rights incentives through methods such as equity, stock options, dividends, etc., to ensure that inventors or designers share reasonably in the benefits of innovation.
Rewards and remuneration provided by enterprises and public institutions to inventors or designers shall be managed in compliance with national financial and accounting regulations.
Article 93: If the entity that is granted patent rights has neither entered into an agreement with the inventor or designer nor specified in its legally formulated rules and regulations the methods and amounts of rewards as stipulated in Article 15 of the Patent Law, it shall pay the inventor or designer a bonus within three months from the date of announcement of the grant of patent rights. The minimum bonus for an invention patent shall not be less than 4,000 RMB; the minimum bonus for a utility model or a design shall not be less than 1,500 RMB.
For inventions created as a result of suggestions from inventors or designers that are adopted by their affiliated units, the entity that is granted patent rights shall provide a preferential bonus.
Article 94: If the entity that is granted patent rights has neither entered into an agreement with the inventor or designer nor specified in its legally formulated rules and regulations the methods and amounts of remuneration as stipulated in Article 15 of the Patent Law, it shall provide the inventor or designer with reasonable remuneration in accordance with the provisions of the Law for the Promotion of Commercialization of Scientific and Technological Achievements.
The Law for the Promotion of Commercialization of Scientific and Technological Achievements
Article 44: After the commercialization of achievements made in the course of duty, the entity that completed the achievement shall reward personnel who made significant contributions to its completion and commercialization. The entity may stipulate or agree with the scientific personnel on the methods, amounts, and timeframes for rewards and remuneration. When formulating relevant regulations, the entity should fully consider the opinions of its scientific personnel and publicly disclose the regulations within the entity.
Article 45: If the entity that completed the scientific and technological achievement has not stipulated or agreed upon the methods and amounts of rewards and remuneration, the following standards apply for rewarding personnel who have made significant contributions to the completion and commercialization of achievements made in the course of duty:
Authors: Li Mi and Cheng Shuang
