Research & Development in China - How to Address IP Issues

Research & Development in China
- How to Address IP Issues
Tony Chen
Jones Day Shanghai
[email protected]
April 25, 2007
AmCham Shanghai
Science & Technology Committee
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Topics
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Non-Compete Agreement
Patent Filing for Inventions made in China
Remuneration of Inventor
Ownership of IP from Joint Development
Trend in IP Litigation
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Non-Compete Agreement
Departing employees can not compete or serve a competitor
for a period of time. Notice issued by former Ministry of
Labor:
•
Length - usually less than 3 years
•
Reasonable compensation
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Non-Compete Agreement
Compensation requirement
• Shanghai: “may pay”
• Beijing Zhongguancun Science Park: ½ of the annual
income
• Shenzhen: 2/3 of the annual income
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Non-Compete Agreement
Draft Labor Contract Law (2nd revision)
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•
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No more than two years
Compensation not specified
Limited to (1) management, (2) senior technical personnel, and
(3) those privy to trade secrets.
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Portman Electronic Devices v. Liang (2004)
Shenzhen Intermediate Court
• No compensation specified in “Termination Agreement” related
to Non-Compete clause, the Non-Compete provision is invalid.
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Kingdee Co. Ltd. v. Liao (2006)
Shenzhen Nanshan District Court
• Fact:
- Compensation for Non-Compete Agreement is included in
monthly salary;
- Compensation is less than 2/3 annual income.
• Judgment:
- Liao cannot work for competitor for one year; and
- Liao to pay compensation to Kingdee
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Employer Due Diligence in Lateral
Hiring
• Request exit testimonial from former employer
• Reps. and warranties from lateral hires
• Keep record of reverse engineering and notarize them as
necessary
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Criminal Liability for Trade Secret
Misappropriation
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Direct economy loss of half a million RMB
Bankruptcy of the trade secret holder
Other serious consequences
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Huawei v. Wang et al
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• Aug-Sep 2001,Wang et al left Huawei and registered Shanghai
Huke Tech Co. Ltd. 3 months later
• Oct 2002, Huawei filed a civil action against Huke for a damage
claim of 2 million RMB.
• Nov 2002, Huawei filed a criminal claim and Wang, Liu and Qin
were retained in Hangzhou.
• Dec 7, 2004, District Court Judgment: two employees received
sentences for three years, and one for two years.
• May 19, 2005, affirmed by Shenzhen Intermediate Court
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How to Prove Trade Secrets
“Business secrecy“ means technical information and business
information, which is
• Unknown by the public,
• May create business benefits or profit for its legal
owner, and
• Kept secret by its legal owner
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How to Prove Trade Secrets Misappropriation
• Meets the statutory requirement
• Defendant is in possession of product/information that
is the same or substantially similar to proprietor’s trade
secret
• Defendant used unfair means in acquiring the trade
secret materials
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Patent First Filing Requirement in China
Article 20.
Where any Chinese entity or individual intends to file an
application in a foreign country for a patent for inventioncreation made in China, it or he shall file first an application
for patent with the patent administration department under
the State Council.
“中国单位或者个人 ”
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Penalty for Violation
Article 64 Foreign filing in violation of Article 20 which
divulged State Secret shall be subject to
• disciplinary sanction…
• even criminal liability
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1:Commissioned R&D
• Article 8
…the right to apply for a patent belongs, unless otherwise
agreed upon, to the entity or individual that made, or to
the entities or individuals that jointly made, the inventioncreation. After the application is approved, the entity or
individual that applied for it shall be the patentee
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2. Filing a PCT application and designate China
• Lose one year term
• High fees from day one
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3rd Amendment of Chinese Patent Law
(Draft)
Article 4
• Any entity or individual
• Approved by the Patent Administrative department Under the State
Council.
Article 76
• Without approval…, the application regarding such invention can
not be granted in China…
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Remuneration of Inventor
• Article 16. The patentee shall award the inventor of a service
invention; upon exploitation of the patented invention, shall pay
the inventor a reasonable remuneration based on the extent of
application and economic benefits.
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Technology Co-development
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Patent Law
• Article 8. the right to apply for a patent belongs, unless
otherwise agreed upon, to the entity or individual that made, or
to the entities or individuals that jointly made, the inventioncreation”.
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Contract Law
• Article 339 In commissioned development, the right to apply for
a patent belongs to the party that undertakes the research and
development, except as otherwise agreed upon by the parties.
Where the party that undertakes the research and development is
granted a patent right, the commissioning party may exploit the
patent for free.”
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Contract Law
• Article 340 In cooperative development, the right to apply for a
patent are jointly owned by the parties who participated in the
cooperative development, except as otherwise agreed upon by the
parties. Where one party transfers its part of the jointly owned right
to apply for a patent, the other party or parties may have the
priority right in acquiring such right on equal conditions. “
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Contract Law
Article 341 The right to use or to transfer the know-how
achieved in the commissioned development or cooperative
development, and the method of distributing the proceeds
derived shall be agreed upon by the parties in the contract. In the
absence of such agreement or in case of ambiguity of such
agreement, …, either party has the right to use and transfer it.
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Terms to Avoid
• Article 329 of Contract Law: A technology contract which
monopolizes the technology or impedes the technological
progress, or which infringes upon the technological
achievement of others shall be null and void.
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Supreme Court Interpretation
• Restricting licensee from conducting improvement research;
• Restricting licensee from using the improved technology,
• Exchanging the improved technologies with each other under
non-reciprocal agreement, e.g., requiring licensee to gratuitously
provide licensor with the improved technology, to transfer the
improved technology to licensor non-reciprocally.
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Latest Trend in IP Litigation
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2005 Accepted Cases
1st instance Cases
Civil
Action
in 2005
1st
Instance
Cases
Involving
Foreign
Parties
Accepted
Compare
with 2004
Closed
Compare
with 2004
13424
26.00%
13393*
38.04%
3016
3.04%
449
1st Instance Cases Involving
(3.35%of 1st
Foreign Parties
instance
Foreign
268
23.01%
77.48%
Hong Kong & Macau
108
-2.70%
Taiwan
73
25.86%
Copyright Cases
6096
42.96%
Patent Right Cases
Trademark Right Cases
Unfair-Competition Cases
Technology Contract Cases
Right of New Plant Variety
Cases
Other IP Cases
2947
1782
1303
636
15.61%
34.49%
-2.10%
0.95%
156
-10.26%
504
31.59%
2nd instance Cases
3114
2.40%
Retrial Cases
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1st
Instance
Cases by
Case
Types
Total Accepted Cases
28
16583
44
20.66%
16453
29.60%
2006 Accepted Cases
1st instance Cases
Civil
Action
in 2006
Accepted
Compare
with 2004
Closed
Compare
with 2004
14219
5.92%
14056*
4.95%
1st Instance Cases Involving
Foreign Parties
1st Instance
Cases
Involving
Foreign
Parties
Foreign
Hong Kong & M acau
Taiwan
1st Instance
Cases by
Case Types
Copyright Cases
5719
5751
Patent Right Cases
3196
2521
1256
681
3227
2378
1188
668
846
844
Trademark Right Cases
Unfair-Competition Cases
Technology Contract Cases
Right of New Plant Variety Cases
Other IP Cases
2nd instance Cases
2686
Retrial Cases
Total Accepted Cases
29
-13.74%
2652
-12.07%
Civil Action
• Most IP cases (65.38% in 2005) were filed in Guangdong,
Beijing, Shanghai, Jiangsu, Zhejiang, and Shandong
• Settlement of 1st instance cases - 7,247, about 54% of the total
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Criminal Action
• In 2006, 3508 individuals were found guilty
• In 2005, 2963 individuals were found guilty.
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