Research and development centers are being set up across China. How can one ensure that the company instead of the employees owns the rights to what is developed?
While U.S. investors may be familiar with the concept of “work for hire” – when an employer owns the rights to what employees develop – things are different in China. It may come as a surprise, but in China the employer may not necessarily own all rights and in fact may have to pay the employee extra for these creative works including inventions, software, pictures and Chinese translations. But there may be some ways around this.
In China, employers usually own the rights to copyrighted works created by employees, such as software, technical designs and other practical works. The employer will only lose ownership if employees use their own materials or facilities to create works and the works fall outside the scope of employment.
One problem that could sneak up on employers is what happens to creative works, such as pictures and music, if employees use their personal equipment and facilities to create the works. If this is the case, the employers only have a two-year right to use a copyrighted work within the scope of normal business activities of the employer.
Even if an employee creates a work to fulfill a specifically assigned task (e.g., taking pictures of an event to be used in an advertisement), the employer may still only get a two-year right. If the employers want to use the works beyond two years, they must obtain the rights from the employees in a contract. The deciding factor can be whether the tools (e.g., computers, pens and paper, cameras, instruments) used to create the work were provided by the employer. An exception to the two-year rule is software. Under Chinese law, the copyright in software generally remains with the employer from the date of creation.
Tips for employers to help them capture copyrights:
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Require employees to carry out creative tasks using employer facilities and materials;
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Sign contracts with employees that cover works created by the employee without use of employer resources;
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Consider developing a system to verify the legality of company uses of employee created copyrights.
Rights in employee-created inventions, e.g., patents) are also generally owned by the employer. Current regulations allow an employer to adopt a reporting system in which employees can claim inventions they create. An employer may file for a patent on the invention, keep the invention as know-how or publish the invention.
The claiming process should be quick and easy, but the employer does have to lay the groundwork by adopting a claiming policy. Claiming systems in China emulate the German patent system and a new, more enforceable version of it is being considered by the Chinese government. Employers may also have rights in inventions created by employees up to one year after an employee is terminated or resigns.
Chinese national regulations, however, require that employers provide monetary rewards when employees claim inventions and pay employees 2 percent of profits and 10 percent of royalties earned from the inventions, although employers may be able to pay lower compensation amounts via company policies or contracts with employees. Pending regulations would increase the compensation requirements in most cases and provide a way for employees to reclaim the rights in inventions they create that are not used by employers.
The pending service invention regulations indicate that employers own the right to know-how created by employees and require that employees be compensated. Such a compensation requirement may pose large burdens on employers because the scope of knowhow could be very broad and result in claims for compensation by employees for developments that are inconsequential to the business of the employer.
Jeffrey Wilson is counsel with Jun He Law Offices in Shanghai. Joshua Schroeder was a visiting extern from Lewis & Clark Law School at Jun He.
This article appears in the January/February 2013 issue of Insight, which is the magazine of the American Chamber of Commerce in Shanghai.