The importance of building an IP Portfolio

Today this entry is about the importance of building an IP portfolio in China. In fact legal protection of intellectual property (IP) is of extreme importance when doing business in China. This legal protection is provided by four mechanisms, namely: 1) patents (both utility and design), 2) trademarks, 3) copyrights, and, 4) trade secrets.

To develop and maintain an effective IP portfolio, one must carefully consider protection under each of these mechanisms.

The IP strategy the company adopts needs to be tailored to the particular business model the company follows at a particular time.

An effective IP portfolio may include any combination of elements of the four legal mechanisms of IP protection. Since much of the decision on building the proper IP portfolio depends on the market, the value and importance of each element may differ from one company to another or even from one product to another.

It is important to keep in mind that the features do not need to be technologically complicated to justify spending the resources to obtain the legal protection. Rather, the features should be such that the customers consider them to be valuable.

A patent portfolio strategy may vary from company to company: for example large companies that have significant financial resources often pursue a strategy of procuring and maintaining a large quantity of patents.

In contrast, for SME, developing and building a comprehensive patent portfolio can be prohibitively expensive. However, with an understanding of some basic principles of patent strategies and early planning, small and medium companies can devise and execute a patent strategy to develop a cost-effective patent portfolio. For example SME can develop an effective patent portfolio by focusing on obtaining a few quality patents that cover key products and technologies, in alignment with their business objectives.

Organizing intellectual assets involves working with key company executives to ensure that the patent strategy closely links with the company’s business objectives.

Often, these individuals assist with developing a budget for the patent  strategy, as well as making arrangements to get access to resources for executing the patent strategy.

Organizing intellectual assets also involves gathering key company documented materials. Examples of documented materials include business plans, company procedures and policies, investor presentations, marketing presentations and publications, product specifications, technical schematics. It may also include contractual agreements such as employment agreements, license agreements, non-disclosure and confidentiality agreements, investor agreements, and consulting agreements.

Such materials provide information used to determine ownership  issues and the scope of patent or other intellectual property  rights that are available for the company

Chinese IP environment

China in 2011 surpassed the United States and Japan in terms of patent filing.

Although China is a patent champion it is only ranked 29th on the 2011 Global Innovation Index (a ranking that measures innovation in each country), but it has progressed 14 places in one year and has taken the lead for emerging markets.

Since 2006, State Intellectual Property Office (SIPO) registrations have increased by 16.7% on average per year (climbing from 171,000 to nearly 314,000 (in 2010).

This shows exceptional growth, which should continue over the next years to reach 500,000 patents filed in 2015 in China.

The new (draft) Regulations from the State Intellectual Property Office (“SIPO”)

Only a few months ago, On November 12, 2012, China’s State Intellectual Property Office (“SIPO”) released for public comment a draft regulation governing employment inventions (the “Draft Regulation,” an English version is available at the following web-site: http://chinaipr.com/2012/11/12/new-draft-of-service-inventor-remuneration-regulations-open-for-public-comment/). The term “employment invention,” sometimes translated as “service invention,” is defined similarly as in the Patent Law and the Implementing Rules of Patent Law. If implemented in its current draft version, the Regulation on Employment Inventions would affect all companies conducting research and development in China. The Draft Regulation would apply not only to patentable inventions, but also to other types of intellectual property, including trade secrets and Integrated Circuit layout design, among others.

According to SIPO’s explanation accompanying the draft (the Chinese version is available at the following web-site: http://www.amchamchina.org/article/10705) , the Regulation on Employment Inventions is designed to encourage the discovery and exploitation of employment inventions and protect and balance the rights of employers and employees by providing detailed rules and adding process requirements governing employment inventions. SIPO began working on the regulation in late 2010 and completed a draft for discussion in late 2011. In mid-2012, SIPO released a preliminary draft of the regulation to a select group of stakeholders, including industry groups representing foreign companies conducting research in China. The preliminary draft granted significant rights to employee inventors, prompting several industry stakeholders to submit comments, some of which were incorporated into the new draft.

Main features of the SIPO’s new Regulations:

Employer’s freedom to contract out of the default regime limited:

As under the existing patent regime, the Draft Regulation would allow the employer and employee to agree to an amount of reward and remuneration that would supersede the regulatory default minimums.

However, the Draft Regulation adds a new limitation that the agreement may not “eliminate” or “limit” the employee’s rights under the regulation. It is unclear what level of reward and remuneration would be considered to “limit” the employee’s rights under the Draft Regulation. The draft only provides a general guideline that in setting the amount of reward and remuneration, the employer must take into account the employee’s opinion and the potential profit from the employment invention.

Increased default amount for reward and remuneration:

Under the current Patent Law and Rules for the Implementation of the Patent Law, in the absence of an agreement, employers are required to provide a default minimum of between RMB 1000 and 3000 (approximately $160 and $480) to the employee inventor as a reward for his or her patented invention, plus a default minimum of between 0.2% and 2% of the operating profit from exploiting such patent, or a comparable lump sum, as remuneration.

The Draft Regulation would increase the default minimum reward for patentable employment inventions to twice the average monthly salary of the company’s employees. The draft would

also increase the default minimum remuneration for a patentable invention to 5% of the operating profit earned from exploiting such invention, or 0.5% of sales revenue from exploiting the invention, or a comparable lump sum or multiple of the employee’s salary.

A report/response regime for inventions imposed:

The Draft Regulation creates a default notice scheme, under which the employee is first required to report the invention to the employer within two months of discovering the invention (unless otherwise stipulated by the employer or agreed with the employee). In this notice, the employee must disclose whether he or she believes the invention is an employment invention (and thus belongs to the employer) or whether he or she believes that the invention is unrelated to the employment (and thus belongs to the employee).

If the employee claims that the invention is not an employment invention, and the employer does not respond within two months, the invention is deemed to be a non-employment invention belonging to the employee.

The employer should decide, within six months after the receiving the invention report from the inventor, whether to apply for IP protection in China, protect as trade secret or publish, and should notify the inventor of the decision.

While SIPO maintained some employee entitlements from the preliminary draft, it considerably scaled back others, apparently in response to comments from industry groups:

Unregistered IP is automatically protected as a trade secret:

Unregistered IP (such as patentable inventions for which a company has not applied for a patent) is protected as a trade secret without the company having to give any formal notice to the employee inventor. The preliminary draft required the employer to inform the employee within a certain period of time whether the employer would register the IP, keep the IP as a trade secret, or disclose the IP to the public. If the employer failed to provide such notice, the IP rights would be deemed assigned to the employee.

An abandoned patent does not automatically revert to the employee:

If the employer intends to abandon a patent application or patent relating to an employment invention, it must give the employee inventor one month’s notice, and the employer and the employee inventor should negotiate the ownership of the rights related to the invention. The preliminary draft provided that the employee inventor may claim all rights relating to abandoned patent applications or abandoned patents.

The employer does not automatically lose rights to an invention not exploited within three years:

The new draft also amends a provision addressing an employer who does not exploit the invention within three years of being granted intellectual property rights over the invention. Under the preliminary draft, all employers who did not exploit the invention within three years were required to pay compensation to the employee or else face the automatic transfer of the implementation rights to the employee. Under the new draft, this provision applies to state-owned employers only and allows the employee, in accordance with his or her agreement with the employer, to implement the invention if the employer is not prepared to exploit the invention within three years.

(See also the following web-site for further explanatory notes: http://www.employmentlawalliance.com/firms/junhe/articles/China-draft-regulations-employee-created-inventions).

The aim of this entry was to highlight the importance of building an IP portfolio for companies doing business in China. IP is a very important aspect of all businesses so a reasoned and well planned strategy to protect these rights it is a must when entering this particular market. Just to complete the description of this theme, in the next entry it will be exposed the policies adopted by the Chinese government in order to favor IP in China.

Cristiano Rizzi

Published by admin on May 20th, 2013 tagged China News


One Response to “The importance of building an IP Portfolio”

  1. Dean Says:

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