Inventor Remuneration Laws: What Can We Learn From Jurisprudence In China?

Every patent is made possible by human ingenuity; be it an inventor, researcher, student, or teacher. When it comes to India; to boost domestic ingenuity and manufacturing; the central government launched its “Make in India” movement to build India into a global manufacturing hub. Although it has been 9 years since then; India needs a lot to catch on yet. The low patent filing rate of MSMEs has become a concern as they contribute up to 30% to India’s GDP. One policy law that is used in so many countries is the remuneration law for employee inventors of organizations and institutions.

Such remuneration can be done at various stages of the patent life cycle such as filing, grant, commercialization, licensing as well as sale of the patent. There was an attempt made by the government in 2008 to introduce remuneration laws for patents filed by public universities; although the bill did not pass Parliament.

Several studies have been conducted on the impact that the number of inventions and their commercial value brings to the economic aspects of a country. China and South Korea both have enacted as well as overhauled such laws in the past decade. Studies have shown that since patent remuneration laws were passed in China; patent productivity increased tremendously in the state.

Residents of South Korea contribute about 78% to the patent filing[1]. In South Korea; SMEs are major contributors to domestic filings, as they contributed more than 13% in 2008[2].

It is highly important to boost the balance of payments for the use of IP. The payments that were received due to IP in China rapidly increased from 2008 to 2017 and grew about eight times after the strengthening of the remuneration laws.

Inventor remuneration laws can provide a significant impetus to the massive scientific, research, and professional community that India has. To make India the next superpower in terms of innovation and technology; it is highly important to take steps in the direction of IP remuneration laws. Although we can learn from the existing gaps in this law in other jurisdictions before formulating our policy. As China is one nation that has seen tremendous growth in patent productivity after introducing Implementation Policy regarding IP Remuneration; it is apt to consider its jurisprudence for formulating some key lessons.

Chinese Case Study Of Remuneration Laws

As per the IP remuneration law of China; after the grant of a patent for the invention-creation; either inventor or the creator of the invention must be rewarded and after reaping the economic benefits of the invention; he or she must be remunerated. Now as per the Patent Law; it is the entity that has been granted a patent that must award a reward and pay remuneration to the one who is the employee-inventor. This has to be understood in the context of the employer and employee relationship.

There are various kinds of employee and employer relationships and also include employer-employee relationships in the context of a service invention such as internship, rehiring after retirement, and secondment. Although when it comes to practice, the patents can be granted or assigned to third parties; in which case the question arises that who should pay reward and remuneration to the invention creator.

As per the 3M Case[4] in China, Zhang was one of the creators who had created a service invention during his service employment with 3M China. 3M China assigned the patent to 3M Innovation.

When the matter went to Shanghai High People’s Court, it was held that the legal rights of the inventor to reward and remuneration must not be impeded by any kind of internal agreement between the affiliated entities within a multinational corporation. Hence, 3M China must pay renumeration to Zhang but the same will not apply to 3M Innovation as that is not the employer of Zhang.

Further as per Huminzhong(zhi)zongzi, Case No. 258/2017[5]; when the inventor changes organization; the service invention can be attributed to both the original as well as the new entity. The question arises that in cases where service invention is attributed to more than one entity; which entity must be responsible for providing reward and remuneration in such a case?

It is opined here that the judgment of Huminzhong(zhi)zhongzi, Case No. 258/2017[6], does not appeal to the reasoning of natural justice. The new entity where the inventor currently is working neither assigned him the task which led to the invention nor provided him the resources and the facilities which helped in the process resulting in such ingenuity of mind. It also created confusion as to who must pay the reward and remuneration. When such a law is drafted in India; these situations must be kept in mind and provided a natural and reasoned solution for.

Further where the employment contract or policy of the company does not stipulate the amount of reward or remuneration; the Implementing Regulations of Patent Law in China provide Article 77[7] and 78[8] which states that where a relevant agreement or policy is absent; the statutory standards for the issuance of reward and remuneration must be adhered to.

When it comes to the remuneration of the inventor, if the entity that is granted the patent right has not agreed with the inventor which stipulates or the company policy that does not stipulate the amount of remuneration; the remuneration must be payable as per Article 78 of the Implementing Regulations of Patent Law in China.

Article 15.2[9] of the Patent Law also provides that the state encourages the entity that is granted a patent right to implement property right incentives through offering stocks, options, dividends, etc. to allow the investors or the creators to get a reasonable share of the benefit from such an innovation.

When it comes to the procedural legitimacy of an agreement or policy in China as well as the reward or remuneration mentioned therein, then in such cases, the requirements under the Labour Contract Law[10] must be adhered to:

1. A public announcement or notification must be made to ensure that the employees are aware of the policy.
2. Channels must be provided to ensure that the employees get to submit their proposals and voice their comments.
3. The manner, as well as the amount of reward and recognition, must be determined by negotiation.

In the Huminzhong case (Case no. 497/2014)[11]; the employee-inventor Chan had testified that the reward and remuneration policy of the defendant had not undergone discussion through employee representative congress. Hence, the court held that the testimony held with the unfair amount of remuneration; that policy could not be relied on.

When one analyses the Chinese cases, it is clear that when determining the legitimacy and reasonableness of the content of an agreement or policy on reward or remuneration for adjudicating on disputes involving service invention reward and remuneration, as a general practice; the court will always determine the reward and remuneration by the agreement or policy if the agreement or policy is procedurally legitimate.

Conclusion

So, when we try to summarize the lessons that Indian Lawmakers can take from China before formulating the IP remuneration laws; the following findings come to the surface:

1. There must be a clear provision, stating that the legal rights of remuneration and reward of employees must not be impeded by agreement between affiliated parties.
2. When an employee, changes the organization; the patent right must still belong to the original company where the task related to the invention was assigned.
3. The employer must be given the option to award the inventor with stocks, options, dividends, etc. as well.
4. Basic parameters for reward and remuneration must be provided for in the absence of company policy or agreement regarding the same.
5. The three labor contract law requirements that must be adhered to for procedural legitimacy of the agreement must be adopted in India such as:
6. A public announcement or notification must be made to ensure that employees are aware of the policy.
7. Channels shall be provided to ensure that employees are allowed to submit their proposals as well as voice their comments.
8. The manner, as well as the amount of reward and recognition, should be determined by negotiation.

It is not proposed that these suggestions are exhaustive but are only propounded as the start of basic literature on the subject.

FAQs

[1] World Intellectual Property Organization; Intellectual Property Statistical Country Profile-Republic of Korea, https://www.wipo.int/edocs/statistics-country-profile/en/kr.pdf

[2] Eulsoo Seo; Overview of National IP Policies and Services and Presentation of their best practices.

[3] Scott Kennedy, Show me the Receipts: China’s rising IP Payments to the United States; CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, (Aug. 16, 2023; 9:15 PM) https://www.csis.org/blogs/trustee-china-hand/show-me-receipts-chinas-rising-ip-payments-united-states

[4] Hugaominsan(zhi)Zhong Z (Case No. 120/2014)

[5] Huminzhong(zhi)zhongzi, Case No. 258/2017

[6] Ibid

[7] Implementing Regulations of the Patent Law of the People’s Republic of China, 2001; Art. 77, No. 306, Decree of State Council of People’s Republic of China, 2001 (People’s Republic of China)

[8] Implementing Regulations of the Patent Law of the People’s Republic of China, 2001; Art. 78, No. 306, Decree of State Council of People’s Republic of China, 2001 (People’s Republic of China)

[9] Patent Law of the People’s Republic of China; Art. 15.2, Act of National People’s Congress, 1984, (People’s Republic of China)

[10] Labor Contract Law of The People’s Republic of China; No. 65, Act of National People’s Congress, 2007, (People’s Republic of China)

[11] Huminzhong case (Case no. 497/2014)

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