How to Set the Service Invention Reward and Remuneration Rationally

The ‘Detailed Rules for the Implementation of the Patent Law’ has prescribed that the agreement on the reward and remuneration for service invention (hereinafter refers to ‘Service Invention Rewards’) shall prevail, which further prescribed that an employer could make an agreement with the employee, or prescribe in the internal rules and regulations on the payment methods and amount of ‘Service Invention Rewards’.( hereinafter refers to ‘Agreement’) (Note: the internal rules and regulations are determined after the consultation with the labor union or employee representative on the basis of equality, so it is essentially a supplementary to the labor contract)

Recently, more and more disputes related to the ‘Service Invention Rewards’ nowadays, in order to prevent the employer from paying the ‘Service Invention Rewards’ in the statutory standard, more and more employers have made the agreement with the employees or stipulated in the internal rules and regulations on the standard. Since the relevant laws and regulations have not set the limit on the payment methods and minimal amount of the agreed ‘Service Invention Rewards’. For a long time, many companies set the standard of the ‘Service Invention Rewards’ at their own discretion.

However, since the status of the employer and employee is not equal, in view of the principle of fairness, in the individual cases, the court might adjust such ‘Agreement’. The typical case is the dispute on the ‘Service Invention Rewards’ between 3M Company and its employee, which is ordered by Shanghai High People’s Court in 2015. (See [2014] Shanghai Gao Min Three (Zhi) Zhong Zi No. 120 Civil Judgment)
Then here comes the inquiry, whether the standard prescribed in such ‘Agreement’ shall be close to the statutory standard, otherwise such agreement would be deemed as unreasonable?

The answer is no. For different industries, different companies in the same industry, the rationality of a ‘Service Invention Rewards’ ‘Agreement’ could be different.

According to the ‘Detailed Rules for the Implementation of the Patent Law’, the employer and employee could make an agreement on the payment methods and amount of the ‘Service Invention Rewards’.

Since the current laws and regulations have not prescribed or limited the payment methods, the employer could apply other methods despite of the cash. For example, the ‘Guideline on Hearing the Disputes on the Remuneration and Rewards of the Service Invention-Creation’ released by Shanghai High Court, which has mentioned the payment methods, such as the equity, share option, promotion, raises, paid leave and etc.. The employer could take these payments methods into consideration.

For an employer, it would be better to comprehensively analyze its industry, business model and competitive position and etc.., then make its plan on the ‘Service Invention Rewards’, and finally design reasonable rules on the payment methods and amount. In addition, on calculating the ‘Service Invention Rewards’ in cash, in order to set a more reasonable amount, the employer could take the value margins released by its industry association or recognized by the public of its industry into consideration.