Recently, the Supreme People's Court (SPC) issued a final judgment in a series of disputes over patent ownership, upholding the first instance decision. The SPC made it clear that, where a senior corporate executive obtains a patent for themselves or for others in breach of their duties of loyalty and non-competition obligations, such patent lacks a legal basis. The SPC also confirmed that a total of eleven patents and patent applications, including the patent in question, constituted employee inventions.
Case Summary
Individual X served as the general manager of Company A, with leadership and management authority over major matters such as the company's operational direction, human resources, and organizational structure. The employment contract between X and Company A included confidentiality and non-competition clauses. In addition, X was the legal representative of Company B and the de facto controller of Company C.
In April 2020, Company B filed the disputed patent application with the China National Intellectual Property Administration (CNIPA), listing Y, son of X, as the inventor. In May 2021, Company B assigned the patent to Company C without compensation. Company A filed a lawsuit, claiming that the disputed patent was an employee invention of X and should belong to Company A.
The court of first instance found that before the filing date of the disputed patent, Company A had already completed preliminary research and development of a related product, and that product was close to the technical solution of the disputed patent. X was aware of, participated in, and guided the relevant technical improvement work at Company A before the filing date. In the absence of evidence proving that Y had actually developed the patent, the court determined that X was the true inventor of the disputed patent. The court held that the disputed patent was an employee invention and that the patent should belong to Company A. The court also found that Companies B and C had acted in bad faith by assigning the patent without compensation, and declared the assignment invalid. Companies B and C, as well as X and Y, appealed the first instance decision.
In the second instance, the SPC held that the acquisition of the disputed patent by Companies B and C lacked a legal basis and that the patent should be considered an employee invention of X and therefore belong to Company A. The SPC dismissed the appeal and upheld the original judgment. The main reasons were as follows.
First, during his tenure as general manager of Company A, X seriously violated his duties of loyalty and his non-competition obligations. Therefore, the patents acquired for Companies B and C through such unlawful conduct lacked a legal foundation. As a senior executive of Company A, X owed statutory duties of loyalty and diligence to the company. In addition, the employment contract contained confidentiality and non-competition clauses, which X was required to strictly observe. Instead, X used the resources at his disposal during his employment at Company A to support the development of his personally affiliated companies and attempted to take business opportunities that originally belonged or could have belonged to Company A, thereby encroaching on Company A's market share. Moreover, X used Company A's resources to develop patents for his personal benefit and claimed the patents for himself.
Second, the disputed patent qualified as an employee invention of X and should belong to Company A. X had a relevant technical background and held significant operational management authority during his employment at Company A, which allowed him to access the company's technical information and participate in technical improvement work. The product covered by the disputed patent belonged to the same product category as Company A's existing products. Before the filing date of the disputed patent, Company A had already carried out technical improvement work on the relevant technical solution. Product design drawings found in multiple email exchanges between X and Company A's employees were identical to some of the drawings in the specification of the disputed patent. Furthermore, the named inventor, Y, is X's son, and the two have an interest in each other. Y failed to provide any evidence of research and development work related to the disputed patent. At the same time, X had de facto control over Company B. Listing Y as the inventor and filing the patent application in the name of Company B was clearly a means to circumvent legal provisions and the terms of the employment contract.
Third, the assignment of the disputed patent from Company B to Company C was made without compensation and was carried out with the malicious intent to harm the legitimate interests of Company A. The first instance court's finding that the assignment was invalid had a factual and legal basis.
Guiding Significance
This second instance judgment further clarifies the criteria for determining employee inventions by senior corporate executives. Where a senior executive, during their term of office, operates a business of the same type as that of their employer for themselves or for others, and files a patent application either during their employment or within one year after leaving, naming themselves or a related person as the inventor and their own company or an affiliated company as the applicant, for a patent highly relevant to the business of their employer, such patent or patent application may be deemed an employee invention.
This decision provides a clear framework for determining the ownership of inventions made by senior corporate executives. It protects the innovative achievements of the original employer from being improperly taken, while also safeguarding the legitimate right of senior executives to be named as inventors. The ruling equally protects the lawful rights and interests of all parties involved. Moreover, through this fair adjudication, the judgment establishes clear rules of conduct and provides a useful reference for similar cases. It also sends a strong signal to market participants about the importance of good faith and lawful operation. The decision plays a positive role in promoting sound corporate governance and maintaining fair market competition, and serves as a vivid example of judicial practice that actively contributes to fostering a business environment governed by the rule of law.
(2023) Zui Gao Fa Zhi Min Zhong No. 2444
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