Case
Plaintiff: Qian Ming
Defendant: Shanghai Angfeng Mining Machinery Technology Co.,Ltd.
On March 29th 2005, plaintiff and defendant entered into a Patent Utilization Agreement (the Agreement). According to Article 1 of the Agreement, the patents developed by plaintiff, based on his years of work experience and theoretical knowledge, in connection with defendant’s product needs during his service at defendant, and secured in the name of defendant should be covered by the Agreement. Other patents should be plaintiff’s non-service patents. Article 4 provided that during plaintiff’s service, or upon termination of his service but with nonexclusive use of the patent, defendant should pay plaintiff a royalty by 1% of the sale price of the product (including complete set, or parts of the patented product). Defendant should settle the account and pay the royalty plaintiff deserved in every January for the previous year. But the annual royalty for each patent should be 10,000 yuan at minimum, or 30,000 yuan at maximum. Article 6 provided that the Agreement should be effective during the patent, and that the Agreement was not to extend to any patent that has expired.
On July 15th 2005 defendant filed with the State Intellectual Property Office of China (SIPO) applications for “Double Liquid Flow Automatic Control Valve,” (Patent 1), “Automatic Control Valve Block of Double Fluid Flow Differential Cylinder” (Patent 6), “Remote Control Reversing Electro- Hydraulic Grab Bucket” (Patent 8), and “Electro- Hydraulic Grab with Electromagnetic Cartridge Valve Control Structure” (Patent 10).
On April 20th 2010 defendant entered into □ By Ling Zongliang Ling Zongliang, Judge of Shanghai Second Intermediate People’s Court [Case] Plaintiff: Qian Ming Defendant: Shanghai Angfeng Mining Machinery Technology Co.,Ltd. Agreement for the Improvement of Remote Control Grab Bucket with Dongguan ZhongkePower Co., Ltd. (Zhongke). Zhongke approved the improvement, and paid defendant an additional 50,000 yuan improvement fee.
At trial, defendant introduced sale data of AMG, AMGD and AMG-F series of hydraulic grab bucket, which showed. The sale figures of each of the hydraulic grab bucket as 5,648,000 yuan, 1,640,800 yuan and 1,242,500 yuan (starting from April 13th 2010), 8,781,130 yuan, 1,549,800 yuan, and 4,132,039 yuan in 2011 and 7,126,000 yuan, 280,000 yuan and 2,812,000 yuan in 2012, respectively.
Defendant argued at trial that it did not use the patents asserted by plaintiff for its AMG, AMGD and AMG-F series of hydraulic grab buckets, but instead made some technologic improvement over the patents; it did not use Patent 8 either although it tested Patent 8 and Patent 10, without success, in the process of making improvements for Zhongke. To drive home its arguments, defendant introduced the actual automatic control valve used for AMG, AMGD and AMG-F series it produced, and the hydraulic schematic for its AMG product.
Plaintiff contended that he had been Chief Engineer at the defendant’s from 2003 to June 2011; that he developed and obtained several patents for defendant in March 2005; that defendant’s AMG, AMGD and AMG-F products had used Patents 1, 6 and 10; that Patents 8 and 10 were used in improving the grab bucket for Zhongke; that defendant was obligated to pay the corresponding royalty to him under their Agreement. And that this action was brought because defendant, despite several notices, failed to pay. Plaintiff therefore sought judgment in its favor for defendant’s immediate payment of 250,000 yuan of patent royalty for the period of January 2010 through August 2012.
Defendant countered by stating that, firstly, the two parties did indeed enter into the Agreement, but they never acted on it, with reward being paid to plaintiff not in the nature of patent royalty or remuneration; and that second, although it did use some of the patents at issue prior to 2009, after 2010, it never used any of them due to technical improvement made by itself. Therefore, defendant was not obligated to pay the so-called patent remuneration to plaintiff, and sought dismissal of plaintiff’s claims.
Trial
The court of first instance at trial made the findings that plaintiff was the inventor of the patents at issue and entitled to protection by law for his legitimate rights to being rewarded for his service invention; that defendant’s AMG, AMGD and AMG-F series hydraulic grab buckets, upon comparison, were within the scope of protection under Patents 1, 6 and 10; that Zhongke’s approval of defendant’s improvement from Patent 8, and payment of the additional improvement fee of 50,000 yuan may be deemed as evidence of defendant’s utilizing Patent 8 in the improvement; that the Agreement was genuine consent between two willing parties, concluded under the law, and effective; that the expression of “patent royalty” as used in the Agreement was in essence, taken from the context of the Agreement, the remuneration fee for the service invention as prescribed by the Patent Law; and therefore, in the absence of any evidence for the termination of the Agreement , it would not be inappropriate for plaintiff to ask defendant for remuneration of his service invention according to the Agreement. According to Article 4 of the Agreement , defendant is obligated to pay 1% of the sale price of the product (including complete set, or parts of the patented product) as royalty to plaintiff during his service or upon termination of his service but with nonexclusive use of the patent; that defendant was to settle the account and pay plaintiff in every January for the previous year; and that the annual payment for each patent should be between 10, 000 and 30,000 yuan. Judging from the sale figures of defendant’s AMG, AMGD and AMG-F series products, the court entered a judgment that defendant pay to plaintiff 212,451 yuan as remuneration for service invention from January 2010 to August 2012 when plaintiff’s service was terminated, in accordance with Articles 16 and 42 of China’s Patent Law and Article 76 (1) of the Implementing Regulations of the Patent Law (the Implementing Regulations).
Defendant, dissatisfied with the first instance decision, appealed to Shanghai Higher People’s Court. The second instance court, upon examination, affirmed the court below for its finding of facts and application of law, and dismissed the appeal.
Analysis
The ownership of service inventions and the benefit reallocation scheme directly affect the willingness of an inventor and his employer in scientific and technological innovation and transformation, for which both the Patent Law and Implementing Regulations have provided relatively detailed provisions. That being said, these provisions are more substantive norms than procedural guarantees of remuneration for service inventions, and more so in terms of inequalities between the inventor and the employer for lack of full consideration of the burden of proof, with the result that the inventor often faces the difficulty of proving his case when dispute arises. The author intends, with a view to lend a firm footing for the substantive norms of service invention remuneration to the utmost, to provide responsive suggestions for difficulties and problems encountered in handling cases, by analyzing the difficulties of procedural protection of service invention remunerations, with a hope for better adjudication and legislation of the relevant disputes.
I. The basic conditions for achieving service invention remuneration
Under the Implementing Regulations, a corporate patent holder may enter into an agreement with the inventor or designer on the reward and remuneration for service invention-creation. Where there is such an agreement, reward and remuneration should be paid accordingly; where there is not, reward and remuneration should be determined according to the statutory provisions of the Implementing Regulations. With this, an agreement between the parties shall take priority for the determination of remuneration for service invention, in other words, “Agreement comes before statutory provision.” In the case at hand, there was an agreement on the conditions and the amount for the remuneration of service invention between the parties. However, the following conditions should be satisfied before the plaintiff, as an inventor, could eventually receive such remuneration.
First of all, the service invention has been put to work. A remuneration is different from a reward for service invention in terms of premises and conditions for payment. “The concensus is: once a service invention is completed, the employer should reward as the inventor; whereas a remuneration for the service invention depends on the result of the working and exploitation of the service invention.” Specific working of the service invention patent may include the employer’s use of the patent on its own products, and license to others for use of the invention. Both the Patent Law and the Implementing Regulations have prescribed detailed provisions for the ownership and benefit reallocation schemes, which nonetheless place emphasis on substantive norms over the procedural protection for achieving remuneration, or for assignment of service inventions for value. It is also a basic fact in the present case disputed by the parties, which needs to be clarified over whether defendant has used plaintiff’s patents in its products.
Second, the employer was economically benefited from exploitation of the service invention. An employer is obligated to remunerate only when in reality it makes a profit from exploiting the service invention; or it is not obligated to remunerate. Article 78 of Implementing Regulations provides that a corporation’s economic gains are mainly in the form of business benefit, that is, a corporate employer should make a profit from exploitation of the service absent agreement to that effect. However, the form of “economic gains” may be defined by agreement between the parties, which controls. For example, in the case at hand, the parties set forth the “sales price of product” in the Agreement, which means that once a sale is made by the employer, remuneration ought to be paid to the inventor, whether or not the employer has made any profit from the sale.
II. Procedural conundrum for achieving service invention remuneration
First, the inventor, being in a position inferior to his employer, can hardly, directly access the relevant evidence. In a dispute over service invention remuneration, the inventor is in fact an employee in a relatively weak position of employment relationship. Information such as whether the service invention patent has been used in the production of products, whether licensed to others, or transferred is essential to the emplyer’s business operation, for which the inventor, even during his employment can hardly have access thereto, let alone having access to copies of patent licensing agreement or assignment documents. The employer would be anything but actively provide such information to the inventor. What’s more, most inventors would assert their right to remuneration through litigation after leaving their jobs, making it all the more difficult to access such information as whether their service inventions have been put to use. In the present case, the plaintiff introduced merely some product photographs as evidence, which alone can hardly tell whether defendant had used the patents asserted by the plaintiff. The relevant facts would never have surfaced but for the defendant’s products it brought in court as evidence to establish the nonuse.
Second, the extravagant enforcement cost in effect sets up a barrier for the inventor to obtain relevant evidence. In cases where service invention patents are used in the production of products, the inventors, in order to get remunerated, usually had to purchase relevant products to make a comparison with the claim of the patent. It will be well beyond an inventor being an ordinary technical worker to bear the cost if the relevant product is as expensive as hundreds of thousands or millions of yuan, and without an actual product, it would be impossible for the inventor to prove whether the relevant product has incorporated the patents service invention as claimed by the inventor — not to mention sophisticated technologies, which might require judicial verification, also a burden to be borne by plaintiff inventor with prepayment — a considerable burden under the circumstances for the inventor.
Third, the relatively high hurdle of evidence preservation is a legal barrier for the inventors to obtain relevant evidence. It may be argued that even though the inventor may have direct access to relevant evidence, he may seek for the preservation of relevant products and financial books by way of pretrial or interlocutory freezing of assets under the Civil Procedure of China (Civil Procedure ) by holding up products and accounting books. In practice, however, to avoid mistaken freezing of assets from happening, there is usually a very high hurdle for the application of evidence preservation, by which the inventor would not only have to post a bond, but normally have to prove a prima facie case with evidence of likelihood of success on the merits. Such prima facie evidence is hard to come by since use of a patent requires complex technical comparison. As to seizure of accounting books relating to calculation of service invention remuneration, it is predicated on the established facts that the product has used the patent, absent which a court would rarely grant the request for a seizure.
III. The obligatory rationale in designing service invention remuneration scheme
A service invention is one made by a person in execution of the tasks of the employer, or made mainly by using the material and technical means of the employer. Therefore, there is generally an employment relationship between the inventor and the entity under the service invention remuneration scheme. In relation to the entity to which a right to patent is granted, the inventor is not only the executor of such invention, but also an employee for the employer. The dual identities of the inventor determine the specificity of subject statuses of both parties in the dispute on service invention remuneration. That is to say, there is both equal footing between the inventor and patentee and unequal footing between the employee and the employer. On the one hand, the inventor as an employee lacks the capacity, due to the objective facts of relative surplus of labor resources and the overflow of supply over demand in the labor market, to speak on a level plane with the employer; on the other hand, the inventor is powerless to confront the employer in a litigation in terms of economic strength or access to information or social resources. Therefore, the inventor as an employee is on the whole in an inferior position in seeking service invention remuneration.
However, China’s current system of service invention remuneration is designed in line with the provisions of the Patent Law and the Implementing Regulations, which are in the nature of private law regulating equal subjects for their willing relationship. Although this fully respects the autonomy of will and equal consultation between the inventor and the entity, it lacks a consideration of the inequality in position between them, resulting in the impossibility of full realization of the idea such as equality, freedom and fairness embodied in the system. Intellectual property law is private law in category and the logic precondition for its system design is the equal status between parties. The specialty of service invention remuneration system is that its foundation is employment relationship although it is prescribed by the Patent Law. “As far as the foundation for the emergence of service invention, namely, the background of employment relationship is concerned, the inventor is an employee, a special civil subject other than a general civil subject.” It will bring about a congenital deficiency if the random norms for the regulation of legal relationship between equal subjects are used to govern the remuneration and payment relationship between the inventor and entity that are not equal. A scholar has pointed out in this regard that “it will be unbeneficial to employee if the rights to and interest of service invention are solely governed by private autonomous norms.”
To that end, there should be a full consideration of the specialty of dispute on service invention remuneration when designing a scheme for such remuneration, making it an embodiment of the equal civil relationship between the inventor and patentee and an acknowledgement of the unequal employment relationship between the employee and the entity. As far as the idea of system design is concerned, there should be a consideration of the weak position of the inventor in the dispute on service invention remuneration although the basic idea of private law, including IP law, should be the basis for such design. Therefore, the value and idea of inclined protection under labor law should be a reference for systematic design to give inclined systematic protection to the inventor in order to realize a reasonable allocation of regulation means between IP law and labor law. “The idea of equality under modern civil law for the protection of the weak has laid a foundation for the inventor and the entity to conduct an essentially free and equal negotiation between them. The principle of inclined protection for the employee under labor law has provided a comprehensive and strong safeguard for the fair and reasonable distribution of knowledge wealth between them.”
IV. Reasonable response in the current judicial practice
It can be seen from China’s current judicial practice that systematic design may center on the lowering of evidence preservation hurdles and timely application of evidence obstruction rule in order to decrease obstacles to minimization for the inventor to have his service invention remuneration paid.
1. The lowering of evidence preservation hurdles
After taking into account the inventor’s weak position in economic strength and ability to obtain evidence, the threshold for the inventor’s application of evidence preservation should be kept to a minimum so that he can obtain evidence on the one hand, and it should also be borne in the mind that such lowering still requires the inventor to submit prima facie evidence. However, it is possible that the inventor has no way to obtain such prima facie evidence in many cases. The author thinks that the court may accept the inventor’s application for evidence preservation on products or the accounting books of the employer if the inventor can show that he is the inventor of the relevant service invention patent and the employer is engaged in normal business operation even if he cannot provide an evidence that the patent has been truly used in specific product; that the court may lower the amount of bond at the same time; that the court may, according to China’s Civil Procedure, require the applicant to provide corresponding bond for his application of evidence preservation; and that the court may reduce such amount to an appropriate figure or require him to post a bond in a flexible manner after taking into account of the real condition of the inventor or require no bond if the inventor is indeed in a difficult economic situation whereas there is evidence that the employer should indeed pay remuneration to him for his service invention.
2. Timely application of evidence obstruction rule
Evidence obstruction means that the party having no burden of proof, through act or omission, hinders the other party having burden of proof to prove the facts and assertions raised by the other party. According to Article 75 of Some Provisions of the Supreme People’s Court on Evidence in Civil Procedures, where there is evidence proving that a party concerned refuses to provide without any justifiable reason the evidence that he actually has, and the opposite party alleges that contents of such evidence are disadvantageous to the evidence holder, such allegation can be construed as justifiable. Hence, the implementer of evidence obstruction shall bear the ensuing adverse consequences. In the trial of dispute on service invention remuneration, the court may decide to permit evidence preservation upon the inventor’s application, or, according to its duty, require the entity that is granted a right to patent to submit relevant products, financial books and other evidence to find the fact. The court may, after taking into account the reasonableness of the relevant claim in the litigation, construe such claim as justifiable and requiring no burden of proof for such fact once again if the entity refuses to provide, transfer or extinguish such evidence.
(Translated by Yuan Renhui)
