Series Articles of Patent Protection Practice (2) ─ Brief Analysis of the Attribution of Patent Rights in Service Invention and Cooperative Development (Mainland China)

September 2023

Yanting Pei and Teresa Huang

Today, the importance of patents goes without saying, and the first step in the implementation of a patent strategy is to maintain a valid patent, which we have already discussed in the previous article, and in this article we will focus on the attribution of patent rights or patent application rights. Do not underestimate such a problem because if the patent ownership is unclear, it may not only be a waste of the initial investment, but also may affect the patent layout and the overall development strategy of the enterprise. Therefore, it is necessary to understand relevant legal provisions and judicial practice, and take precautions in advance.

Generally speaking, patent ownership disputes mainly exist in the following three patent development situations: 1) the enterprise’s R&D personnel skipping to another enterprise; 2) commissioning other enterprises to develop; 3) co-operating with other enterprises to develop. Therefore, this article will briefly analyze these three situations for reference.

I. Attribution of Service Patent Application Rights or Patent Rights

1. Legal provisions

In terms of service inventions and creations, according to Article 6 of China’s Patent Law[1], it refers to the inventions and creations which are performed in the execution of the tasks of the organization or which are mainly accomplished by making use of the material and technical conditions of the organization. Therefore, in China’s Patent Law, there are two main categories of service inventions and creations, one of which is inventions and creations “carrying out tasks of the organization”, and the other is inventions and creations “accomplished mainly by making use of the material and technical conditions of the organization”.

For inventions and creations “carrying out tasks of the organization”, according to Article 6 above, the patent application right belongs to the organization by default, and the organization is the patentee after the application is approved. As for inventions and creations made by “making use of the material and technical conditions of the organization”, although the patent application right also belongs to the organization by default, if the organization and the inventor or designer agree on the patent application right and ownership of the patent right, the agreement shall prevail.

It can be seen that, for the service inventions and creations, the general default patent application right and patent right belongs to the organization, but if the service inventions and creations belong to the “inventions and creations mainly making use of the material and technical conditions of the organization”, it should also consider whether there is an agreement between the two parties. From the Patent Right Ownership Dispute [(2020) ZGFZMZ1212] among Wuxi Leer Science and Technology Co., Ltd., Bai Jianmin and Jiangsu Dowaytech Co., Ltd., the court will give priority to the agreement between the parties in the case involving the participation of university personnel in the development and the existence of a variety of competing identities.

2. How to understand “the organization”?

As can be seen from the above provisions, in patent disputes involving service inventions and creations, the first step is to solve the problem of what is the “organization”, which, according to Article 12 of the Rules for the Implementation of the Patent Law, includes temporary work organization. That is, in addition to the formal establishment of the employmentrelationship of the employer, employees establishing the employment relationship with the enterprise involved through the labour dispatch or employees temporarily seconded within the group enterprise will also be identified as employees of the “organization” in practice. For example, in the patent application rights ownership disputes between Beijing Shuyu Technical Development Co., Ltd. and Bai Jubing [(2021) ZGFZMZ1155], the party involved was dispatched to the plaintiff through the labour dispatch to serve as an engineer, and the court recognized the party involved as an employee of the “organization” under the Patent Law; and in the patent rights ownership disputes between Enji (Shanghai) International Trade Co., Ltd. and Chen Dongsheng [(2020) J73MC845], the employment relationship of the party involved belonged to Shanghai subsidiary but the party involved was responsible for relevant R&D projects in Fujian subsidiary, and during the period participated in the external relation on behalf of the company as an employee of Fujian subsidiary, and ultimately the court recognized that the party involved was a “temporary staff” of Fujian subsidiary, belonging to an employee of the “organization” under the Patent Law.

3. How to understand “carrying out tasks of the organization”

According to Article 12 of the Rules for the Implementation of the Patent Law, the service inventions and creations accomplished by carrying out tasks of the organization as referred to in Article 6 of the Patent Law refer to: (1) inventions and creations made in the course of the organization’s own work; (2) inventions and creations made in the course of carrying out tasks assigned by the organization other than the organization’s own work; (3) inventions and creations made within one year of retirement, transfer from the organization or termination of the employment relationship, which are related to the work of the former organization or tasks assigned by the former organization.

In practice, there are not many cases of patent disputes between the organization and employees, and most of such cases mainly occur in the activities of patent application after the employees leave the former organization and join a new organization. Therefore, the focus of the dispute here is often centered on the question of whether the invention is “related to the work of the former organization”. In practice, the court will mainly consider the following factors in the process of examining whether the patent application is “related to the work of the former organization”[2]:

(1) The specific content of the work undertaken by the former employee or the tasks assigned by the former organization, including job duties, authority, technical information related to the patent involved that the employee may access to, control and acquire, which is not ordinary knowledge, experience and skills in the field.

(2) The specifics of the patent involved and its relationship to the job duties or the tasks assigned by the former organization, including the technical field of the patent-in-suit, the technical problem to be solved, the technical effect, and the substantive features of the technical solution in relation to the existing technology.

(3) Whether the former organization has carried out technical R&D activities related to the patent involved or has other legitimate sources of the relevant technology.

(4) Whether the right holder or inventor of the patent involved can give a reasonable explanation for the R&D process or source of the patented technology. As for the complexity of the technical programme of the patent involved, whether the right holder or inventor has the corresponding knowledge, skills and material or technological conditions, and whether he or she has carried out R&D activities.

In addition, the Supreme Court also pointed out in the judgement of the patent right ownership dispute between Foshan Dingfan Automation Equipment Co., Ltd. and Foshan Chili Technology Co., Ltd. [(2022) ZGFZMZ811] that “related” means that although the inventor no longer has a working relationship with the former organization, as long as it is proved that the content of the invention is in continuity with the work tasks of the former organization, the invention is also “related”.

Specifically on technical issues, some courts have pointed out that[3], if the invention and creation made within one year after the employee left the former organization and the former organization’s work or work tasks, although differing in specific technical problems, technical solutions, technical means and technical effects, there is a connection between the technical field, technical subject matter and technical ideas, it shall be deemed to constitute the “inventions and creations related to the work or tasks assigned by the former organization” specified in Article 12.1.3 of the Rules for the Implementation of the Patent Law of the People’s Republic of China.

Secondly, application time of the patent involved is also a key factor for the court to consider. If the application time of the patent involved is indeed filed within one year of the employee’s departure, the court will reasonably doubt the possibility of the defendant obtaining the patent within a short period of time in view of the difficulty of the development of the patent involved. For example, in the above-mentioned case (2022) ZGFZMZ811, the defendant company applied for four patents with the employee as the inventor at almost the same time when the employee enters the defendant company, and then applied for the remaining six patents in May and August of the same year, which belonged to the field of packaging machine and related technical fields, and all of them had the continuity with the employee’s work in the former company’s work tasks. Therefore, it was difficult to convince the court that he had independently developed the patents involved.

Furthermore, whether the true information about the R&D process may be provided was also a factor of concern to the court. For example, in case (2020) ZGFZMZ902, the court held that the so-called R&D evidence submitted by the defendant company only contained research conclusions, but did not reflect the substantive R&D process with specific technical contents and details, and therefore could not prove that the defendant company had the ability to independently research and develop the patented technology involved. In addition, some companies attempted to circumvent service inventions by borrowing the identity of a third party to file a patent application. For example, in the patent application ownership dispute between Fujian Lizhongcheng Food Co., Ltd. and Fujian Orientland Food Co., Ltd. [(2021) ZGFZMZ1083], the inventor indicated by the defendant, who only possessed a high school degree, was suspected of being unable to become an inventor, thus being suspected of circumventing the service invention.

On the other hand, some courts have pointed out [4]that it cannot simply be assumed that as long as the invention has some connection with the inventor’s field of business in the former organization, the invention is deemed to be an invention made by the inventor in the course of his job. In this case, the court held that the work related to the steering brake system performed by the employee and the patented vacuum booster oil pot in dispute were different technologies, and it could not be assumed that the patents in dispute were related to the employee’s own work or the work tasks assigned to the employee just because they belonged to the same field of technology related to automobile chassis.

It can be seen that the court still gives more weight to substance than form in judging “related to the former organization’s work or tasks assigned by the former organization”, and will not judge “related” or “unrelated” merely by the position or title. From the point of view of the real right holder, in practice, on one hand, it is necessary to do a good job of controlling confidentiality measures and non-competition restrictions, and on the other hand, it is also necessary to pay attention to preserving all kinds of information in the R&D process, and to record the specific business situation that the employee is in charge of in the project, so as to obtain a favourable result in case of disputes.

4. How to define “material and technical conditions of the organization”?

As mentioned above, the second category of service inventions is “inventions and creations made with the use of the organization’s material and technical conditions”. The content elements of such inventions and creations are not limited to those related to one’s own work or assigned tasks. Even if the invention is not related to one’s own work or assigned tasks but mainly makes use of one’s own material and technological conditions, it is still considered a service invention, except for cases where the organization and the inventor agree on the return of funds or the payment of royalties[5]. According to Article 12 of the Rules for the Implementation of the Patent Law, the material and technical conditions of the organization refer to the funds, equipment, spare parts, raw materials or technical data of the organization which are not open to the public.

In practice, if the plaintiff fails to prove that the patent involved was obtained within one year of the employee’s departure, the existence of the situation of “using the material and technical conditions of the organization to complete” will be taken into consideration when determining whether the patent involved belongs to the service invention and creation. In this case, if the plaintiff fails to prove the material and technological conditions on which the employee relied to make the invention, and fails to prove the actual material and technological support provided by the plaintiff to make the invention, it will be more difficult to be supported by the court. [6]

Generally speaking, the plaintiff might argue that the personal knowledge and skills acquired by the employee at the plaintiff company before leaving the company were the result of the use of the material and technical conditions of the former organization, but in fact, the court held that the role of personal knowledge and skills in the process of completing the invention was crucial, and that even if the employee had been working at the plaintiff company, it was natural that the experience gained from his work had been internalized into his personal knowledge and skills. After leaving the plaintiff company’s R&D position for many years, the employee’s relying upon his/her personal knowledge and skills and understanding of the existing technology to complete the invention of the patent involved is not an impossible task; the employee’s use of personal knowledge and skills in the process of invention cannot be considered as the use of the material and technical conditions of the former organization. [7]

II. Attribution of Patent Application Rights or Patent Rights in Commissioned Development and Cooperative Development

1. Legal provisions

In respect of patents for commissioned or cooperative development, according to Article 8 of the Patent Law, for inventions and creations completed by two or more organizations or individuals in co-operation, or for inventions and creations completed by one organization or individual commissioned by another organization or individual, the patent application right belongs to the organization or individual that has completed or jointly completed the invention or creation, unless otherwise agreed; and after the approval of the application, the organization or individual that has applied for the patent shall be the patentee. That is to say, if there is an agreement between the parties, the agreement shall be considered first, and in the absence of such agreement or such agreement is unclear, the right shall be vested in the party who has actually completed the invention or the parties who have actually completed the invention in common.

2. How to determine the agreement of the contract?

In the case of patents commissioned or cooperatively developed, there is usually a cooperation agreement, only that the contractual agreement is unclear, leading to the need for the court to analyse it explicitly. As far as judicial practice is concerned, the court, in determining whether there is an agreement between the parties, will mainly interpret the contract in accordance with the Contract Law (no longer in force) or relevant rules of the Civil Code on contract interpretation, i.e., to determine the true meaning of the terms in accordance with the words and phrases used in the contract, relevant terms of the contract, the purpose of the contract, the trading habits and the principle of good faith. For example, in the case of patent right ownership dispute between Beijing SRM Medical Technology Co., Ltd. and the Third Medical Centre of the General Hospital of the Chinese People’s Liberation Army [(2022) ZGFZMZ1453], the court analyzed the definition of the terms of the contract, the circumstances of the overall contract and the purpose for which the contract was concluded, and ultimately concluded that the true meaning of the agreement between the parties was that the patent rights were vested in one of the parties.

In addition, as shown in the case of patent right ownership dispute between Gong Jinjing and BCEG Road and Bridge Construction Group Co., Ltd. [(2020) ZGFZMZ1873], if there is an agreement in the contract that one party will file a patent application for the other party and the other party will pay the remuneration for it, the court will also consider that there is an agreement between the two parties on the ownership of the patent accordingly. If the party paying the remuneration fails to pay the remuneration in full and on time as agreed in the contract, the other party cannot claim that the patent right belongs to it.

Furthermore, if the contract involves several technical points, uncertainty as to whether a certain technical point falls within the scope of the contract may also give rise to disputes. In such cases, the court may consider following factors[8]:

(1) Whether the technology involved was developed during the commissioned or cooperative development period;

(2) Whether the point of invention of the technology involved falls within the scope of the contractually agreed technical achievement;

(3) Whether the technology involved utilizes the technical achievements provided by one of the parties or whether it utilizes the technical achievements agreed by both parties in the contract;

(4) Whether the technology involved is closely related to the technological development agreed in the contract;

For example, in the case of patent right ownership dispute between Shandong Kanbosweet Inc. and Beijing HYTF Chemical Technology Development Co., Ltd. [(2021) ZGFZMZ993], the court pointed out that, in determining whether the patented technical solution involved was a new technical achievement completed in the course of the performance of the contract involved, the main judgement is to determine whether the technical solution is a new technical achievement completed by the appellant by making use of the technical service work submitted by the appellee company, or whether the technical solution is a new technical achievement completed by the appellant using the technical information and working conditions provided by the appellant company. And in the case of patent right ownership dispute between Guangdong Farina Technology Co., Ltd. and Shanghai Huanxin Electronic Technology Co., Ltd. [(2021) ZGFZMZ1319], the court held that the agreement between the two parties was that “the intellectual property rights relating to the rental of children’s pushchairs belong to the commissioning party”, and that although the technology involved could be used for both children’s pushchair rental equipment and shared umbrellas, the technical feature of the “mushroom-shaped fixing part” in Claim 1 of the patent was designed for the heavier features of children’s pushchairs, and therefore the technology involved was developed for the characteristics of children’s pushchairs, and it should be regarded as “intellectual property rights related to children’s pushchair for rent”. Therefore, the patent right involved should be attributed to the commissioning party under the contract.

3. How to determine the actual completion?

As mentioned above, in the absence of such agreement on the attribution of the patent right in the contract of commissioned or cooperative development, the patent right shall be attributed to the party who has actually completed the work, or to both parties if both parties have participated in the work. Therefore, in the absence of an agreement in the contract, the focus of the dispute is mainly on who is the party actually completing the development of the patented technology.

According to Article 13 of the Rules for the Implementation of the Patent Law, the inventor or designer referred to in the Patent Law means a person who has made creative contributions to the substantive features of the invention and creation. In the process of completing the invention and creation, a person who is only responsible for organizing the work, facilitating the utilization of material and technical conditions, or engaging in other auxiliary work, is not an inventor or designer. Although the law does not specify what exactly is meant by “a person who has made a creative contribution to the substantive features of the invention”, it points out oppositely circumstances under which the person is not an inventor.

In the case of patent right ownership dispute between Shanghai Dynaflox Technology Co., Ltd. and Shanghai Panda Machinery (Group) Co., Ltd. (2020) H73ZMC84, the court pointed out that both the plaintiff and defendant confirmed that there was a co-operation between them in designing and developing a new water meter pipe section, but there was no written agreement on the rights and obligations of the two parties during the period of co-operation and on the attribution of the achievements. Therefore, the rights of the patent involved should be attributed to the party who made creative contributions to the substantive features of the patented design. Combined with evidences such as the chat records and emails between both parties, the court concluded that the contribution made by the plaintiff in the R&D of water meter pipe section involved mainly concerns the function and effect of the product but not concerns the appearance design of the product, and it was Wu, an employee of the defendant, made substantial contributions to the appearance design of the water meter pipe section, therefore, without any objection from Wu against the application and ownership of the patent involved, the patent right involved shall be attributed to the defendant.

From the above, it can be seen that in the process of commissioned and cooperative development, the main cause of the dispute was the unclear agreement on the attribution of intellectual property rights of the technical achievements. The unclear agreement here should involve the attribution of the rights of the original technology, the attribution of the rights of the technology to be produced by the co-operation, the attribution of the rights of the technology related to the original technology, and the attribution of the rights of the technology related to the technology to be co-operated with. The enterprise needs to pay extra attention to the technology development agreement and try to describe the scope of the technology as clearly as possible, so as to avoid disputes.

III. Some practical problems of litigation in patent ownership disputes

1. Is it possible to sue the inventor or sue on behalf of the inventor?

According to Articles 6 and 16 of the Patent Law and Article 13 of the Rules for the Implementation of the Patent Law, there may be inconsistencies between the inventor of a patent and the patentee of the patent, especially in the case of service inventions. Therefore, it is also important to find suitable defendants in patent ownership disputes. It should be noted that, in civil cases, disputes over patent ownership and disputes over the right to be named as inventor or designer of an invention belong to different cases, therefore, if it involves a change of inventor, it is necessary to add the inventor involved as a co-plaintiff or interested third party, or it may be necessary to deal with it in a separate case[9].

2. Is the statute of limitations applicable to patent ownership disputes?

According to Article 74 of the Patent Law, the statute of limitations for infringement of patent right is three years, but it does not specify the statute of limitations for disputes over patent ownership. According to judicial practice, the court generally considers that the statute of limitations applies to general claims, while claims based on rights in rem and personal relationships are not subject to the statute of limitations, and the dispute over patent ownership is a request for confirmation of the identity of the patentee but not a general claim, so the statute of limitations do not apply[10].

3. If either party abandons the patent right in bad faith, can it still file a lawsuit?

Although the current law does not explicitly provide for this, there is jurisprudence in judicial practice supporting the decision on the ownership of abandoned patent rights. The court held that in order to fully safeguard the legitimate rights and interests of the parties, it was still necessary to review and determine the attribution of the patent right involved before it was abandoned, so as to clarify the rights and obligations of the parties to stop disputes, and that infringement damages could be claimed for the act of abandoning the patent right in bad faith. [11]

As can be seen from the above, the resolution of patent disputes is not an easy task, and it is recommended that enterprises improve their internal R&D process, establish R&D files, take confidentiality measures, and supplement them with non-compete agreements and other ancillary measures, so as to prevent the problem before it occurs, and at the same time, retain evidence for the future dispute resolution.

[1]Article 6 of the Patent Law: Inventions and creations made by carrying out the tasks of the organization or mainly using the material and technical conditions of the organization are service inventions and creations. The patent application right for service inventions and creations belongs to the organization, who is the patentee after the application is approved. The organization may, in accordance with law, dispose of its right to apply for a patent for its service inventions and creations and its patent right, and promote the implementation and application of relevant inventions and creations. For non-service inventions and creations, the patent application right belongs to the inventor or designer; after the application is approved, the inventor or designer shall be the patentee. If the organization and the inventor or designer have entered into a contract on the patent application right and the attribution of the patent right in respect of an invention or creation accomplished by making use of the material and technical conditions of the organization, such contract shall prevail.
[2]See the Judgment [First Instance (2020) J73MC845] of patent right ownership dispute between Enji (Shanghai) International Trade Co., Ltd. and Chen Dongsheng.
[3]See the Judgment [Second Instance (2021) ZGFZMZ1155] of patent application right ownership dispute between Beijing Shuyu Technical Development Co., Ltd. and Bai Jubing.
[4]See the Judgment [Second Instance (2022) HMZ681] of patent right ownership dispute between Zhejiang Geely Holding Group Co., Ltd. and Weimar Automobile Technology Group Co., Ltd.
[5]See the Judgment [Second Instance (2021) ZGFZMZ1155] of patent application right ownership dispute between Beijing Shuyu Technical Development Co., Ltd. and Bai Jubing.
[6]See the Judgment [Second Instance (2022) ZGFZMZ1608] of patent right ownership dispute between Haimo Technology (Group) Co., Ltd. and Xi’an Mingdu Petrochemical Technology Co., Ltd.
[7]Ibid.
[8]See the Judgment (2021) ZGFZMZ993 and Judgment (2021) ZGFZMZ1319.
[9]See the Judgement (2021) ZGFZMZ235 of the patent right ownership dispute between Anhui Tangxing Machinery Equipment Co., Ltd. and China Chemical Engineering Third Construction Co., Ltd.
[10]See the Judgment (2022) ZGFZMZ930 of the patent right ownership dispute between Shenzhen Yunchongba Technology Co., Ltd. and Shenzhen Carku Technology Co., Ltd.
[11]See the Judgment (2021) ZGFZMZ1268 of the patent right ownership dispute between Dongguan Yueyi Musical Instrument Co., Ltd. and Lin Qiqiang.

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