China's SPC has ruled on a dispute over employee invention remuneration, clarifying an important principle: payment for an employee invention is conditional on the invention having generated economic benefits after being put into practice.
Case Background
X joined Company A in 2016 as a senior director of formulation process development, and left the company in 2021. Company A held the patent at issue, and X was one of six inventors. The product embodying the patent was approved for market in November 2019.
According to revenue data submitted by Company A, its operating profit in 2019 was negative. From 2020 to 2024, cumulative operating profit reached approximately RMB 480 million. However, as of 2024, the overall operating profit remained in deficit.
X sued Company A, seeking payment of employee invention remuneration. The first-instance court found that the existing evidence could not establish the operating profit of the product itself, and that a special audit was needed. Since X bore the burden of proof but refused to advance the audit fees, the court dismissed the claim.
The Supreme Court's Decision
On appeal, the SPC ordered Company A to submit revenue and profit data for the product, and made three key findings.
First, the data submitted by Company A could serve as a basis for determining whether remuneration was owed and in what amount. There was no need for a separate audit to establish the product's operating profit. The first-instance court had erred in dismissing the claim solely because X was unwilling to advance the audit fees.
Second, Company A was required to pay X remuneration for the employee invention. Since Company A had generated actual operating profit each year from 2020 to 2024, it should pay the inventor a share of no less than five percent of the operating profit derived from implementing the technology, for a period of three to five consecutive years starting from the year the invention was successfully converted into production. The fact that the product as a whole remained in deficit was not a valid reason to refuse payment.
Third, the amount of remuneration should be determined by considering multiple factors, including the patent's contribution rate, the number of inventors, their technical contributions, and their contributions to implementation and conversion.
1) On the patent's contribution rate, the patent related to a formulation for the product and played a supporting role overall. Its successful conversion also depended on supporting production processes, and those responsible for converting the patent to production would have made corresponding contributions. Taking into account the respective contributions of antibodies and formulations, patented and non-patented production processes, and the patent inventors and implementation staff, the court determined the patent's contribution rate at 20 percent.
2) On the inventors' shares, the patent had six inventors. In the absence of evidence showing differing contributions, each inventor was presumed to have contributed equally, and the remuneration was to be divided equally among them.
3) On the calculation period and amount, the product began sales in 2020, so the remuneration period started from 2020. Considering Company A's research and development investment, the remaining term of the patent, and its profitability, the court set the payment period at five years, from 2020 to 2024, with a total operating profit base of RMB 480.18 million.
4) On the percentage, since Company A had no separate agreement on employee invention remuneration, the court applied the five percent rate under China's Law on Promoting the Transformation of Scientific and Technological Achievements.
Based on these factors, the SPC overturned the first-instance judgment and ordered Company A to pay X RMB 800,000 in remuneration for the employee invention.
Key Takeaways from the Ruling
Under Article 45,(1) of China's Law on Promoting the Transformation of Scientific and Technological Achievements, the determination of whether "economic benefits" have been obtained should generally be assessed on an annual basis, examining whether the entity generated operating profit in the relevant year of implementing the invention. The period begins in the year the patent was successfully converted into production, and the three-to-five-year period for extracting a share of operating profit should be determined by taking the profit situation into account.
Inventors are generally expected to prove that the employee invention has been implemented and converted, as well as the relevant operating profit. However, given that such evidence is typically held and controlled by the employer, and that inventors face practical difficulties and high costs in obtaining it, Chinese courts may order the employer to produce relevant evidence or apply rules on obstruction of proof to establish the facts.
(2024) Zui Gao Fa Zhi Min Zhong No. 907
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