(Following Part I)

III. Criteria for “Reasonable Reward” 

Subject to the principle of “acting upon agreement or in case of no agreement, law” in the patent reward system, companies should consider if the content and form of the policies they agree onor formulate are reasonable so that they can be completely applicable to inventors and designers. Specifically, when companies are to agree on or formulate regulations, the agreed reward  standards may be higher or lower than the statutory standard. But the agreed standards lower  than the statutory standard may not necessarily be invalid.

According to the Guidelines of Shanghai High Court, the rewards can be given in any form and any amount that meet the “reasonable” standard provided by the Patent Law. The agreed amount, maybe higher or lower than the statutory standard, should be appropriate to the development status and the industry standard of the companies.

In legal practices, the agreed standards reasonably lower than the statutory standard can be applicable; if the agreed standards are unreasonably much lower than the legal standards, the judge shall decide at their discretion the specific amount of the reward or remuneration in single cases; if there is no agreed standard, the statutory standard shall apply generally . The “reasonable” standards cannot be found in any explicit provisions or guiding cases, but are still decided on a case-by-case basis by courts considering the nature of the company, the development status of the industry, the purpose of the patent application, the implementationcharacteristics of the patent and the company’s profits from the patent.Based on related cases over recent years, the reward polices may not be reasonable unless the content and form of the policies are legal and valid.

(I) The content of the policies should be reasonable.

As stated above, the reward standards agreed on or formulated by a company may be higher or reasonably lower than the statutory standard and found “reasonable” on a case-by-case basis. According to the Guidelines of Shanghai High Court, in general, the standard for service invention reward and remuneration agreed on by businesses considering their own natures such as R&D characteristics of the industry, the purpose of the patent application, patent implementation characteristics, etc. should be presumed to be reasonable3. Therefore, considering differences in nature and industry among businesses and their differences in R&D characteristics, purposes of patent applications and patent implementation characteristics, the standards formulated by the business shall be found reasonable as long as they conform to its own development law, and adapt to the industry status and the patent implementation.

In some cases the court decided the companies’ policies were not reasonable because there was a great difference between the related coefficient in the policies and 2%4in law or between the results calculated according to the company’s policies and the statutory standard. Therefore, companies may select the calculation basis and coefficients in the policies by comprehensively measuring the difference with the statutory standards.

(II) The formulation procedure of the policies should be reasonable.

Valid reward standards regulated in a company’s policies should also comply with specific procedures. According to the Guidelines of Shanghai High Court 6, where reward and remuneration for service inventions are stipulated in the policies formulated in accordance with the law, the legality of the formulation procedure of the policies shall be reviewed mainly based on relevant provisions of Company Law and Labor Contract Law. Therefore, companies may refer to relevant provisions of Company Law and Employment Contract Law to ensure the legality of the formulating procedure by following the democratic formulation procedure, announcing the policies to employees, and other manners for them to know, including but not limited toannouncing them to all staff in the form of business rules, explaining them to inventors or designers by email or on meetings, etc.

To some extent the courts may find that “all service invention reward policies formulated in accordance with law are reasonable”, which means the reasonable contents of the policies can be reflected by the legal formulation procedures. Therefore, to decide whether the policies are applicable, the court will focus on examining the legality of their formulation procedure. Only if they meet legal conditions will the court find the policies applicable. For example, in the case Shenzhen Ocean King Illumination Engineering Co., Ltd. v Zhong Hui, Etc. re. service invention reward, Guangdong High Court pointed out that “the form and the amount of rewards for inventors in the policies must: i. be subject to the democratic formulation procedure, ii. comply with laws, rules and policies and iii. be published to employees and any provisions that rule out or impose unreasonable extra conditions on the exercise of inventors’ legal rights shall be found invalid”. This case can help employers formulate the formulation procedure of the policies. The validity of the policies can be decided on the basis of the three points above.

IV. Conclusion

Service invention reward policies only accounts for a small proportion in the provisions of the Patent Law, but it play an important role in intellectual property right construction and management of companies. With the increase of technology businesses over recent years, formulating a set of reward policies that can balance the interests of inventors, designers and the business through contracts or bylaws is crucial for the thriving of a business and the overall efficiency of an industry. Businesses should follow the principle of “acting upon agreement or in case of no agreement, law” in the patent reward system, formulate reasonable patent rewardpolicies, the content and form of which shall comply with mandatory provisions in law and serve to gain profits in the industry, to improve the human resources level and innovation ability of businesses.