One Case a Day | China: Compensation for Service Inventions - (2019) Supreme People's Court Intellectual Property Civil Final No. 230

Case Introduction

The Patent Law stipulates: "The entity granted the patent right shall reward the inventor or designer of the service invention-creation; after the invention-creation patent is implemented, based on the scope of its promotion and application and the economic benefits obtained, reasonable compensation shall be given to the inventor or designer."

In this case, the inventor sued his former employer nearly 10 years after leaving, requesting payment of this compensation, and was awarded 200,000 yuan. This case provides guidance on the determination of service inventions, the statute of limitations, the calculation of compensation for service inventions, and the determination of patent implementation. In particular, the second-instance court's reaffirmation of the method for determining the starting point of the statute of limitations has guiding significance.

Case Information

• Application Number: 200720051806.9
• Filing Date: May 23, 2007
• Grant Date: May 7, 2008
• Invention Name: Portable Rechargeable Spray Bottle
• Inventors: Xu Yiming, Zeng Yongfu (employed from June 2006 to October 2008), Wang Zhi
• Patentee: Yixin Company
• First Instance Information: (2017) Yue 73 Min Chu No. 3581 (filed on October 11, 2017)
• Second Instance Judgment Date: July 21, 2020
• Second Instance Judgment: (2019) Supreme People's Court Intellectual Property Civil Final No. 230

Basic Facts

During his employment, Zeng Yongfu held positions such as Engineering Department Section Chief and Deputy Project Manager.

Regarding the division of labor among the three inventors of the involved patent, Wang Zhi stated during the original trial that he was responsible for providing the conceptual principle, Xu Yiming helped provide the concept, and Zeng Yongfu was responsible for specific implementation; Xu Yiming believed that he provided funding and development conditions, and the concept of the involved patent was jointly completed by him and Wang Zhi, while Zeng Yongfu was only responsible for follow-up coordination and did not directly participate in technical design, with specific implementation being the responsibility of engineers under Zeng Yongfu's jurisdiction; Zeng Yongfu agreed with Wang Zhi's description of the division of labor and believed that the specific implementation work was led by him, with subordinate engineers only assisting.

Zeng Yongfu filed this lawsuit on October 11, 2017, claiming compensation for the service invention. Another inventor, Wang Zhi, claimed that Yixin Company only paid normal wages and did not pay any compensation or reward for the involved patent; Yixin Company claimed that the involved patent was not implemented, so no compensation or reward was paid to Wang Zhi.

From 2011 to 2016, Yixin Company filed multiple infringement lawsuits against different defendants based on alleged infringement of the involved patent rights. According to Yixin Company's own statistics, the total amount of infringement damages supported by court judgments in these lawsuits was 1,125,000 yuan.

First Instance Court's Opinion

The controversial issues in this case are the following three questions.

(I) Whether Zeng Yongfu's filing of this lawsuit has exceeded the statute of limitations period

Regarding the starting point of the statute of limitations period. Article 76 and Article 78 of the Implementing Regulations of the Patent Law stipulate that the entity granted the patent right may agree with the inventor or designer or stipulate in its legally established rules and regulations the method and amount of compensation. If there is no agreement between the parties and no stipulation in its rules and regulations regarding the method and amount of compensation, during the valid term of the patent right, after the invention-creation patent is implemented, the entity granted the patent right shall pay compensation to the inventor or designer annually, or give the inventor or designer a one-time compensation. In this case, since neither party submitted evidence proving an agreement between them regarding the payment of compensation for service inventions or that Yixin Company's rules and regulations contained relevant content on compensation for service inventions, according to the above provisions, after the involved patent was implemented, during the valid term of the patent right, Yixin Company should pay compensation to the inventor. Now Zeng Yongfu requests Yixin Company to pay a one-time compensation, and the statute of limitations period for his claim should be calculated from the expiration of the valid term of the involved patent right, i.e., May 23, 2017. Therefore, Zeng Yongfu filed the lawsuit with the original trial court on October 11, 2017, which did not exceed the three-year statute of limitations period stipulated in Article 188 of the General Principles of Civil Law, and his litigation rights are protected by law.

(II) Whether Zeng Yongfu has the right to request Yixin Company to pay compensation for the service invention

Article 16 of the Patent Law of the People's Republic of China (hereinafter referred to as the Patent Law) stipulates: "The entity granted the patent right shall reward the inventor or designer of the service invention-creation; after the invention-creation patent is implemented, based on the scope of its promotion and application and the economic benefits obtained, reasonable compensation shall be given to the inventor or designer." According to the above provisions, the entity granted the patent right shall give compensation to the inventor or designer of the service invention-creation after the patent is implemented. In this case, the issues in dispute between the parties are: first, whether Zeng Yongfu is an inventor of the involved patent; second, whether the involved patent has been implemented.

Regarding whether Zeng Yongfu is an inventor of the involved patent. First, the information recorded in the patent bibliographic items has public announcement effect. In the absence of other contrary evidence to overturn it, the inventor recorded in the patent bibliographic items should be recognized as the actual inventor of the patent. Second, Yixin Company believes that Zeng Yongfu is not an inventor of the involved patent and should bear the burden of proof for this claim. The evidence submitted by Yixin Company is insufficient to prove its corresponding claim, and it should bear the adverse consequences of failure to provide evidence. Third, from the perspective of the completion time of the involved patent, the job positions and titles of the inventors, and the subject applying for the patent, the involved patent meets the formal requirements stipulated by law for service inventions. Based on the above, the original trial court determined that Zeng Yongfu is one of the inventors of the involved patent.

Regarding whether the involved patent has been implemented. First, Yixin Company claims that the involved patent has technical defects. However, these technical defects only involve additional technical features of some claims of the involved patent. In the patent claim book, each claim is a complete technical solution. It cannot prove that other claims of the patent also have technical problems, leading to the entire patent being unimplementable. Moreover, during the valid term of the involved patent, Yixin Company filed multiple lawsuits against different defendants based on alleged infringement of the involved patent rights. In the above cases, the allegedly infringing products actually purchased by Yixin Company in the market were found by the court to constitute infringement precisely because they used the involved patent, meaning that the involved patent can actually be implemented and put on the market. In summary, Yixin Company's defense that the involved patent has technical defects and cannot be implemented is clearly inconsistent with the facts, and the original trial court does not accept it. Second, Article 7 of the General Principles of Civil Law stipulates: "Civil subjects engaging in civil activities shall follow the principle of good faith, uphold honesty, and abide by commitments." As the most important basic principle of civil law, the principle of good faith requires civil subjects engaging in civil activities to be honest, keep promises, exercise rights and perform obligations in good faith, without fraud or deception, consistent in words and deeds, and keeping promises. Civil subjects engaging in any civil activity should abide by this principle, including civil litigation activities. In the above litigation cases, Yixin Company claimed that the involved patent had actually been put on the market for implementation, and its products were practical and had brought it economic benefits; in most of the above litigation cases, the court ultimately ordered each defendant to compensate Yixin Company for economic losses and reasonable expenses. Therefore, Yixin Company claimed in the lawsuits against others for infringement of the involved patent rights that the involved patent had actually been implemented and had generated economic benefits, but in this case, it claims that the involved patent was never implemented. Such behavior of inconsistent words and deeds before and after, abusing litigation rights, clearly violates the principle of good faith, and the original trial court does not support it.

(III) How to determine the amount of compensation for the service invention in this case

Article 78 of the Implementing Regulations of the Patent Law stipulates: "If the entity granted the patent right has not agreed with the inventor or designer nor stipulated in its legally established rules and regulations the method and amount of compensation referred to in Article 16 of the Patent Law, during the valid term of the patent right, after the invention-creation patent is implemented, it shall extract not less than 2% annually from the operating profit obtained from the implementation of the invention or utility model patent or not less than 0.2% from the operating profit obtained from the implementation of the design patent as compensation to the inventor or designer, or give the inventor or designer a one-time compensation with reference to the above proportion; if the entity granted the patent right licenses other entities or individuals to implement its patent, it shall extract not less than 10% from the collected usage fee as compensation to the inventor or designer."

In this case, the parties did not agree on the method and amount of compensation for the service invention, and Yixin Company did not stipulate the method and amount of compensation for the service invention in its rules and regulations. Moreover, neither party provided evidence to prove the specific operating profit generated by Yixin Company from the implementation of the involved patent. Therefore, when determining the amount of compensation, the original trial court comprehensively considered the following factors: 1. The type of the involved patent is a utility model patent; 2. The involved patent has three inventors, and the relevant compensation for the service invention-creation should be divided into three shares; 3. The amount of infringement damages determined by effective judgment documents in the litigation cases related to the involved patent filed by Yixin Company; 4. Yixin Company basically filed infringement damages lawsuits related to the involved patent every year from 2011 to 2016, which can prove the implementation period of the involved patent to a certain extent; 5. Yixin Company owns more than ten invention and utility model patents related to the technology of the involved patent, proving that the involved patent has a relatively important impact and value on the research, development, and improvement of Yixin Company's related technologies and products. Based on the above factors, the original trial court determined that Yixin Company should pay Zeng Yongfu a one-time compensation of 200,000 yuan for the involved patent.

Second Instance Court's Opinion

The controversial issues in this case are the following four questions.

(I) Whether Zeng Yongfu has the right to claim compensation for the service invention

Article 16 of the Patent Law stipulates: "The entity granted the patent right shall reward the inventor or designer of the service invention-creation; after the invention-creation patent is implemented, based on the scope of its promotion and application and the economic benefits obtained, reasonable compensation shall be given to the inventor or designer." Therefore, the obligated party to pay compensation for the service invention is the entity granted the patent right, and the payment object is the inventor or designer of the service invention-creation. According to the recorded items of the involved patent bibliographic information, Yixin Company is the entity granted the involved patent right, and Zeng Yongfu is one of the three inventors of the involved patent. Based on facts such as the completion time of the involved patent, Zeng Yongfu's employment time, job position, title, and statements of other inventors, it is sufficient to determine that Zeng Yongfu is one of the inventors of the service invention of the involved patent. Therefore, he has the right to claim compensation from Yixin Company for the service invention in accordance with legal provisions or agreements between the parties.

(II) Whether Yixin Company should pay compensation for the service invention to Zeng Yongfu

Regarding whether it cannot be implemented, the second-instance court believes: In infringement lawsuits filed by Yixin Company against third parties for producing and selling products infringing the involved patent, it also submitted purchased allegedly infringing products. The court also determined that the allegedly infringing technical solution fell within the protection scope of the involved patent right and accordingly ordered the alleged infringer to bear damages and other infringement liabilities. Therefore, it is difficult to agree with Yixin Company's claim that the involved patent has technical structural defects and cannot be implemented.

Regarding whether it has been implemented, the second-instance court believes: According to the provisions of Article 11 of the Patent Law, the patentee not only has the right to implement the patent itself but also has the right to prohibit others from implementing the patent without permission. Moreover, for prohibiting others from implementing the patent without permission, it is not a necessary condition for the patentee to have facts of implementing the patent to protect its rights. According to the facts ascertained in the trial, when Yixin Company protected its rights based on the fact of infringement of the involved patent right, it clearly claimed to the court that "after the involved patent product was put on the market, because the product has strong practicality and other characteristics, it is favored by consumers, bringing economic benefits to Yixin Company, and the alleged infringer implemented the involved patent without Yixin Company's permission." The above statement made by Yixin Company in the infringement lawsuit that the involved patent has been implemented and the patent product has economic benefits belongs to Yixin Company's statement of objective facts. According to the principle of good faith, it should be presumed that Yixin Company has facts of implementing the technical solution of the involved patent.

Regarding whether the compensation obtained from winning the infringement lawsuit of the involved patent should be recognized as income, the second-instance court believes: Article 16 of the Patent Law and Article 78 of the Implementing Regulations of the Patent Law stipulate that after the invention-creation patent is implemented, the entity granted the patent right shall give reasonable compensation to the inventor or designer based on the scope of its promotion and application and the economic benefits obtained. If the entity granted the patent right has not agreed with the inventor or designer nor stipulated in its legally established rules and regulations the method and amount of compensation, during the valid term of the patent right, after the invention-creation patent is implemented, it shall extract not less than 2% annually from the operating profit obtained from the implementation of the invention or utility model patent as compensation to the inventor... According to the above legal provisions, the entity granted the patent right should pay compensation to the inventor or designer of the service invention because the entity granted the patent right implements the patent and obtains economic benefits from the implementation, emphasizing that when the patent is implemented and utilized to generate economic benefits, the entity obtaining the economic benefits should give reasonable compensation to the inventor or designer. In this case, Yixin Company, as the entity granted the patent right, obtained damages based on the rights protection behavior of the involved patent, which is income obtained by the patentee from prohibiting others from implementing the patent without permission. After deducting necessary rights protection costs and expenses, this economic benefit should be regarded as the operating profit referred to in Article 78 of the Implementing Regulations of the Patent Law. Giving reasonable compensation to the inventor based on this has legal basis.

(III) Whether Zeng Yongfu's filing of this lawsuit has exceeded the statute of limitations

The right to claim compensation for a service invention is a creditor's right claim. Its statute of limitations starts from when the entity granted the patent right should pay compensation and the inventor or designer knows or should know that they are entitled to compensation. In this case, the starting point for Zeng Yongfu to claim compensation should be calculated from when he knew or should have known that Yixin Company had implemented the involved patent and obtained economic benefits. Upon review, Zeng Yongfu filed this lawsuit on October 11, 2017, requesting a one-time payment of compensation for the service invention. Although the report submitted by Zeng Yongfu to the original trial court regarding Yixin Company's implementation of the involved patent was published in the Southern Metropolis Daily on October 21, 2013, there is no evidence proving that Zeng Yongfu learned the content of the report on the publication date and learned that Yixin Company had obtained license fees or operating profits. Therefore, the publication date of the report cannot yet be used as the starting point for Zeng Yongfu to claim the right to compensation in this case. Yixin Company also has no evidence proving that Zeng Yongfu knew about the implementation and profit of the involved patent in 2013. Therefore, its appeal claim that Zeng Yongfu's request for compensation should be for the period from January 1, 2015, to May 23, 2017, is not supported by this court.

As mentioned earlier, the fact that Yixin Company should pay Zeng Yongfu compensation for the service invention in this case also lies in that the damages obtained by Yixin Company from filing infringement lawsuits for the involved patent right should be included in the calculation basis for compensation for the service invention. According to the evidence in the case, the infringement lawsuits filed by Yixin Company for infringement of the involved patent right are all independent lawsuits, not continuous acts. Therefore, the statute of limitations for Zeng Yongfu's claim for payment of compensation for the service invention should be calculated from the date when he first made the request and Yixin Company refused to perform. His filing of this lawsuit with the original trial court requesting a one-time payment of compensation for the service invention did not exceed the statute of limitations and should be protected by law.

(IV) Whether the amount of compensation for the service invention determined by the original judgment is appropriate

Yixin Company and Zeng Yongfu did not agree on the method and amount of compensation for the service invention of the involved patent, and Yixin Company did not stipulate the method and amount of payment of compensation for the service invention in its rules and regulations. Regarding the payment method of compensation for the service invention, the Implementing Regulations of the Patent Law stipulate that two methods, annual payment and one-time payment, can be chosen, and the performance period for one-time payment is stipulated as "during the valid term of the patent right, after the patent is implemented." In this case, Zeng Yongfu requested compensation in the form of a one-time payment, which has legal basis.

Yixin Company appealed, claiming that the amount of compensation for the service invention determined by the original trial court was erroneous, arguing that it did not consider Yixin Company's rights protection costs and that it did not benefit from rights protection. This court believes that the original trial court did not use the amount of infringement damages supported by court judgments obtained by Yixin Company as Yixin Company's operating profit from implementing the involved patent to calculate the compensation for the service invention in this case. Therefore, there is no issue of not deducting rights protection costs or related expenses when calculating compensation. As mentioned earlier, Yixin Company has acts of implementing the involved patent and has obtained economic benefits. It also acknowledges that it has continuously improved technology on the involved patent technology and actually produced improved patent products. Regarding the implementation situation and operating profit of the involved patent, Yixin Company, as the entity granted the involved patent right, should master it itself. However, in this case, it denies implementing the involved patent and does not submit relevant evidence. Given that the operating profit obtained from implementing the involved patent is difficult to ascertain, and as mentioned earlier, the damages obtained by Yixin Company through patent rights protection behavior also belong to its economic benefits and should be regarded as the operating profit referred to in Article 78 of the Implementing Regulations of the Patent Law, thus serving as one of the factors for determining the amount of compensation for the service invention. Therefore, comprehensively considering multiple factors such as the type of the involved patent being a utility model patent, the involved patent involving three inventors, the valid term of the involved patent right being from May 23, 2007, to May 23, 2017, the impact and value of the involved patent on the research, development, and improvement of Yixin Company's related technology products, the inevitable expense expenditure of Yixin Company in rights protection lawsuits, and the actual receipt of infringement damages supported by court judgments obtained by Yixin Company after execution, the original trial court's determination that Yixin Company should pay Zeng Yongfu 200,000 yuan in compensation for the service invention is basically appropriate.