Interpretation of The Main Points of The Second Review of The Draft Amendment to The Patent Law: Multiple Measures to Promote Patent Implementation

The draft review of the Patent Law clarified the establishment of a new open patent licensing system and the establishment of an incentive mechanism for service inventions and creations, a series of new regulations on statutory damages for infringement, protection of partial designs, etc., adding further assistance to strengthen the protection of intellectual property rights and expand the breadth of development.


On June 28, the second review of the draft amendment to the Patent Law (referred to as Draft Amendment) was submitted to the 20th meeting of the 13th National People's Congress for deliberation, and the full text of the Draft Amendment was announced. The draft promotes the implementation and use of patents by establishing a new open patent licensing system and clarifying the unit's disposal rights for service inventions and creations, and promotes the implementation and use of patents, and transforms innovation results into productivity. At the same time, the draft also actively responds to the latest domestic and foreign concerns, stipulates the protection of partial designs of products and the amount of legal compensation for patent infringement, and strengthens patent protection in multiple dimensions. China IP interviewed IP professionals in the academic and business circles, interpreting highlights, sharing opinions, and making suggestions for the details of the Draft Amendment that are of general concern to the public.


New open licensing system to improve patent operations

According to information from the CNIPA, the draft amendment has newly established an open patent licensing system. Where the patentee declares in writing to the patent administration department of the State Council that he is willing to license any entity or individual to exploit his patent, and clarifies the payment method and standard of the license fee, the patent administration department of the State Council shall make an announcement and implement an open license. If any unit or individual intends to implement an open-licensed patent, it shall notify the patentee in writing and pay the license fee in accordance with the method and standard of the announcement, and then obtain the patent implementation license. The draft also stipulates that during the open license period, the patentee may also grant a standard license after negotiating with the licensee on the license fee but shall not grant an exclusive or exclusive license for the patent.

Yin Fenglin, associate professor of the Department of Law and Intellectual Property of the University of Chinese Academy of Sciences, said in the interview with China IP that the source of the open licensing system is the license of right under Article 46 of the British Patent Law. According to this article, the right holder can register with The Intellectual Property Office of the United Kingdom as a "licensing commitment" after obtaining the patent right. After the patent owner has made the registration, anyone else can request the patent owner to obtain a general license. The patent owner shall not refuse, but the user shall pay the patent owner a reasonable royalty. "The open licensing system is essentially a promise. The patentee is registered with the Patent Office or the Industrial Bureau, but the license fee needs to be reported and decided by the patentee and related agencies through negotiation."

The IP industry generally believes that the patent open licensing system is of positive significance to the application and promotion of patent technologies. Official data show that from 2007 to 2019, the number of valid invention patents in China (excluding Hong Kong, Macao and Taiwan) increased from 84,000 to 1.862 million; in 2018, the national patent-intensive industry added value reached 10.7 trillion yuan, accounting for 11.6% of GDP; the total import and export amount of intellectual property royalties increased from US$8.5 billion in 2007 to US$41 billion in 2019. Although the number of patent applications and authorizations in my country is relatively high, the phenomenon of "focus on application, not use" of patent rights has always existed. In this regard, Wang Zhenkai, senior director of the Intellectual Property Department of CloudMinds, pointed out that the domestic patent licensing market has much room for development, and the introduction of the open patent licensing system is a beneficial attempt. "Compared with the higher cost of one-to-one negotiations in the past, open licensing may help reduce the cost of obtaining patent licenses. However, at present, Chinese people are not accustomed to realizing technology transactions through licensing. Open licensing will help the patented technology to be better transformed into productivity, and it will also help the patentee better to recover the investment in innovation and research and development, thereby stimulating the innovation vitality of enterprises and individuals."

However, Yin Fenglin said bluntly that the establishment of an open licensing system is actually a restriction on the rights of patentees, and how to encourage them to join this commitment has become a key issue in the implementation of the system. "Open licensing registration means that the right holder no longer enjoys an absolute dominance over the granting of patent licenses, especially for the granting of patent licenses against competitors, the right holders may be caught in a dilemma." According to the introduction, in order to encourage companies to register for licensing commitments, the British authorities eliminate the possibility of companies abusing intellectual property rights and stipulate that the annual patent fees of registered companies are halved. But at present, the draft does not make explicit provisions on the implementation details of the open licensing system.

People worry that China is still at an early stage in constructing a trustworthy environment for actively paying patent royalties. Whether open licensing will have a negative impact on patent protection is debatable. Wang Zhenkai believes that the implementation of the system is closely related to the level of economic and technological development, and not all industries apply the open licensing system. It is recommended that China conduct demonstration trials in certain areas. "The measurement of results should not only be based on the actual amount of profit made by the patentee but also evaluate the health and positive growth of the industry from an industrial perspective. This approach of measurement reflects the importance of open licensing in promoting high-quality and sustainable development of the industry." Therefore, some members of the committee suggested adding two points about open licensing to Article 51 of the draft, namely: China encourages scientific research institutes and institutions of higher learning established with financial funds to implement open licensing for their patents; for patents involving major public health and public social interests, patent owners are encouraged to implement open licenses.

At the same time, there is a view that open patent licensing provides companies with a technology leader and avoids the marginalization of scientific research results and provides new business strategies. In 2015 and 2019, Toyota announced that it would open its more than 5,000 hydrogen fuel cell and more than 2,000 hybrid vehicle-related patents free of charge. In this regard, the industry believes that Toyota is using open licensing as a corporate competitive strategy. Wang Zhenkai said that open licensing provides a new way for the economic operation of enterprises: "Seemingly, the introduction of an open licensing system is a legal event, but when it is observed and practiced in a commercial environment, it is not difficult to find that providing free patents will affect the direction of industrial development, which helps attract other companies to follow its technological direction, and the industry return is far greater than the revenue from patent fees." However, Yin Fenglin emphasized that there is a fundamental difference between the opening of certain patent licenses by companies and the establishment of an open licensing system at the legal level. "There is much room for changes in the meaning of open patents by enterprises. For example, to publicly display patents to the society and allow other companies to use them for free is a kind of openness; negotiate with licensees to resolve matters such as royalties is a kind of openness; differentiated treatment to those who have use needs and to grant or deny permission is also a kind of openness. The open licensing system, as a new provision in the revision process of the Patent Law, will avoid uncertainty at the implementation level to a greater extent."


Establish an incentive mechanism for service invention and creation to promote the transformation of scientific and technological achievements 

The amendment draft clarifies that entities can dispose of the right to apply for patents and patent rights for their service inventions and creations in accordance with the law. And the draft promotes the implementation and application of related inventions and creations and stipulates that China encourages entities granted with patent rights to implement property rights incentives, adopting equity, options, dividends, etc., So that the inventor or designer can reasonably share the benefits of innovation.

Yin Fenglin interpreted the above regulations as China's particular attention to state-owned scientific research institutions and universities and other institutions, encouraging them to implement property rights incentives, aiming to solve the problem of the loss of state-owned assets. According to Article 6 of the current Patent Law of the People's Republic of China (Amendment), inventions and creations completed by performing the tasks of the unit or mainly using the material and technical conditions of the unit are service inventions. The right to apply for a patent for a service invention-creation belongs to the entity; after the application is approved, the entity is the patentee. Guo He, vice chairman of the China Intellectual Property Law Research Association, professor of the School of Intellectual Property of Renmin University of China, and a doctoral tutor, pointed out to China IP: "The Patent Law has stipulated the rewards and punishments for inventors and the implementation of rewards since 1984. The draft includes the property rights incentive policy. I believe that while releasing positive signals to promote the transformation of results, the initiative should be handed over to the enterprise and resolved by contract." Guo He took the smart-phone containing 170,000 patents as an example and believed that rewards for service inventions are implemented to all inventors, and there is still much room for discussion at the practical level.

The continuous deepening of the reform of the right to use, dispose of, and the right to the income of scientific and technological achievements have continued to increase the enthusiasm of scientific research personnel for innovation and the promotion of the transformation of scientific and technological achievements. Article 45 of the Law of the People's Republic of China on Promoting the Transformation of Scientific and Technological Achievements revised in 2015 stipulates that if the scientific and technological achievement completion unit has not stipulated or agreed with the scientific and technological personnel on the method and amount of rewards and remuneration, the completion and transformation of the job shall be performed in accordance with the standard that those who make significant contributions to scientific and technological achievements will be rewarded and paid. This regulation clarifies the scientific research personnel's right to benefit from innovation but does not give them ownership incentives. In 2016, the Several Opinions on Implementing Distribution Policy Oriented to Increase the Value of Knowledge proposed for the first time to explore granting scientific and technological achievements ownership or long-term use rights to scientific researchers; May 18, 2020, Notice by Nine Departments Including the Ministry of Science and Technology of Issuing the Implementation Plan for the Pilot Program of Conferring the Ownership or Rights of Long-Term Use of Job-Related Scientific and Technological Achievements on Scientific Researchers clarifies the promotion of the transformation of scientific and technological achievements through the property rights incentives of scientific and technological achievements. It is stipulated that the pilot unit can combine the actual situation of the unit, and assign the ownership of the scientific and technological achievements of the unit that are formed by the unit with financial funds or entrusted by enterprises or other social organizations and assigned to the accomplisher (team). The pilot unit and the accomplishment person (team) become the co-owner and can grant the scientific research personnel the long-term use right of the scientific and technological achievements of not less than ten years.

In recent years, China's scientific and technological innovation incentive reform has made positive progress. This draft revision is another enrichment of the content of the ownership of job innovation achievements. But in a specific practice, how should property rights incentives be implemented? Wang Zhenkai used the breakthrough practice of the "patent partner model" in the company he worked for and said: "The rewards and remunerations of patent rights should not be regarded as a one-way corporate burden, but should be considered from the integrity of the intellectual property system. According to reports, as an important part of the company's intellectual property strategy, the "patent partner model" includes rewards for service inventions, rewards for high-quality patents, and 10% rewards for patent utilization as a bonus, and has the characteristics of no cap and lifetime enjoyment. "The patent reward mechanism is the underlying logic in the operation of intellectual property rights in the commercial society and is strongly related to employee payment. Patent equity and listed stock equity are equal in value. Repaying the knowledge-creating employees within the enterprise can enhance their sense of ownership."

The draft encourages units to implement property rights incentives instead of compulsory regulations, and the industry has expressed their praise for this. "From the perspective of economic law, property rights incentives do not have the compulsory feature of criminal law or civil law. The main consideration is the role of market reconciliation." Wang Zhenkai proposed to create a pilot case to encourage more enterprises to devote themselves to the construction and practice of innovative income systems based on the pioneering achievements of model enterprises. "Enterprises are the smartest. Once they can see the boosting effect of the new regulations on their own high-quality development and the reward mechanism's positive promotion of patent creation, protection, application and commercialization, the company will implement the target independently."


Increase the breadth of patent protection and release positive signals

China's current Patent Law was formally implemented in 1985. In response to new situations and new problems in the patent field, three amendments were made in 1992, 2000 and 2008 respectively. It has been more than seven years since the CNIPA researched and drafted the "Draft Amendments to the Patent Law of the People's Republic of China (Draft for Comment)" in 2012, which opened the fourth revision of the Patent Law. The draft deliberations on a series of regulations, including the newly added statutory compensation for infringement and the protection of partial designs have added further assistance to strengthen the protection of intellectual property rights and expand the breadth of intellectual property development.

In view of the fact that a considerable proportion of patents (mainly utility models and designs) mentioned in the review have low market value and the original statutory damages limit of 100,000 yuan is too high, the draft plans to cancel the rule of statutory damages limit for patent infringement as 100,000 yuan. "There are some distributors or retailers who sell a limited number of products that infringe on patent rights, and the statutory damages limit of 100,000 yuan is much higher than the actual profit." Yin Fenglin expressed his understanding. "But cancelling the lower limit of compensation will greatly reduce the authority of protecting patents and the deterrence of combating infringement and will not achieve punitive purposes. I think a reasonable lower limit should be set, such as 10,000 yuan or 50,000 yuan." However, as to whether we should learn from the newly revised Trademark Law in April 2019, the standard of punitive damages raised from "more than one time and less than three times" to "one time and less than five times", Yin Fenglin pointed out: "Punitive damages are for malicious or deliberate infringement. It is in line with the general trend of strengthening patent protection. However, in accordance with the principle of filling in, it is not easy to calculate the number of infringement damages for intangible assets such as patent rights."

In addition, the draft intends to add provisions for patent protection for "partial" designs of products, which experts interpreted as an extension of the scope of protection for designs. The discussion on the introduction of a partial design system in China's legislation began in the early 21st century. Although the 2008 Patent Law was revised with multiple clauses to strengthen the protection of designs, the partial design system was not on the agenda for discussion. Fan Su, deputy general manager of PURPLEVINE Intellectual Property Management (Beijing) Co., Ltd. specifically mentioned: "In the 2015 draft of the Patent Law revised by the CNIPA and the Legal Affairs Office of the State Council for comments, a concept of partial design was proposed, but the 2019 draft deleted this article, and the relevant regulations were added again in 2020. Its importance is self-evident." According to reports, China is currently preparing to join The Hague Agreement concerning the International Deposit of Industrial Designs. The agreement requires that the contracting parties provide a patent protection period of no less than 15 years. The protection period of China's industrial design patents will also be extended from the current ten years, which will increase the protection of designs to a certain extent.

The 14th Five-Year Plan is about to march into its first year. CNIPA clearly stated that it is necessary to accelerate the formulation of the Intellectual Property Power Strategy Outline and the Intellectual Property "14th Five-Year Plan" and cooperate with the second review of the draft amendment to the Patent Law. The amendment to the Patent Law may hurry its pace. On July 15, China Intellectual Property Magazine, Beijing Intellectual Property Forum and Zhongguancun Intellectual Property New Association jointly sponsored the "Proposal for the Fourteenth Five-Year" Patent Law Amendment Seminar. WIPO China Office Consultant Lu Guoliang stated that China has established its patent system for nearly 40 years and has made progress that has attracted worldwide attention. One of the critical reasons is that it combines its own reality, fully considers its national conditions, and always faces the world with an open attitude. "As the world's second-largest economy, the revision of China's patent law will inevitably arouse the attention of major economies in the world. We must not only base ourselves on the actual situation in our country but also comply with internationally accepted rules and absorb advanced ideas of international legislation, reflecting a certain degree of foresight and proper advancement."