By Cecilia Lou Ding Xianjie and Yao Di King & Wood Mallesons’ IP Legal Group Shang Hai Office
On November 12, 2012, the Consultation Draft of Regulations on Service Inventions (“Draft Regulation”) was released by the State Intellectual Property Office of China for public comments with immediate effect. The Draft Regulation was formulated for the purpose of protecting the legal rights and interests of the inventor-employee and the employer, to stimulate and improve the ability to innovate. For those companies which have Chinese service inventions in China, they should be aware of this Draft Regulation as it places additional pressures on employers.
The Draft Regulation addresses the following topics: the employer’s obligation to establish an internal intellectual property management system; ownership and reporting of the inventions/creations; the reward and remuneration of the service inventions/creations; the utilization and implementation, supervision and inspection, and legal liability of the intellectual property rights of the service inventions-creations.
It is worthy of special attention that the default rule of remuneration according to the Draft Regulation is huge (no less than 5% of the turnover for an invention patent) and companies shall also reveal extensive commercial information to its employees if the default rule applies. Moreover, companies should be aware that this default only applies to the circumstance when an employer does not reach an agreement with its employees. Therefore, a proper agreement with employees is vital in mitigating service invention disputes and reducing associated risks.
Companies should review their agreements and ensure there are no ambiguities in their agreements. In addition, they should ensure compliance with any requirements or obligations to avoid damages due to the huge remuneration as ruled.