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On the other hand, under China’s Patent Law, the party • Dispute resolution: Plan ahead, just in case
who makes improvements to a technology based on Like any other contract, the licence agreement should
the licensed patent or technology automatically owns specify the law that governs the disputes of the
the IPR on such improvements. The licensee can enter agreement (in this case, foreign law or Chinese law),
into a separate agreement to assign or license its rights along with the chosen methods of dispute resolution.
to the improvements back to the licensor. However, if It is important to note, however, that while disputes on
the technology covered in the improvements falls into the performance and interpretation of the contract in
the ‘prohibited for exportation’ category as outlined in general can be governed by foreign law, the sections
the official guide, China’s Ministry of Commerce will not in the contract relating to the protection and dealings
approve such a transaction, and the improvements will with IPR in China specifically, should as a general rule
not be granted back to the licensor. be governed by Chinese law. Other mandatory Chinese
laws (e.g. technological import and export regulations)
• Assignments or transfers: Prevent your IPR from may also apply. If your contract adopts arbitration* or
being transferred to third parties without your other non-judicial methods of dispute resolution, it is
permission also important to include a clause that permits you to file
To protect your IPR from being passed to unauthorised in courts where you can seek injunctive relief* or claim
third parties, clauses on the control of assignments and damages against IP infringement.
transfers of the contract must be included. For example,
clauses can be included to restrict and prohibit the • Termination: Specify what happens when the
contract from being assigned and transferred without agreement comes to an end
your express written authorisation, and you may add It is necessary to specify when and on what conditions
a further clause to bind all successive transferees and the agreement will terminate, e.g., upon the liquidation or
assignees* to your agreement. dissolution of one party. You should always include terms
on the consequences of termination; for example, the
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Free Business Tools to Manage your IPR in China
licensee shall cease to have access to, or must return, • Impose unreasonable non-compete and non-
all the licensed rights, or the licensee shall destroy or solicitation obligations upon employees; for example,
return all inventory bearing the licensed trade mark to the making non-compete obligations last for more than
licensor. two years.
• Waive monthly compensation to employees fulfilling
3. Important Contract Provisions to AVOID their non-compete obligations.
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Free Business Tools to Manage your IPR in China
Guide to Using Contracts to Protect Your Intellectual Property Rights in China
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Free Business Tools to Manage your IPR in China
The employer should enter into agreements with its Creator-Employee Remuneration
employees explicitly stating the employer’s ownership of Under China’s Patent Law, when an employee has
patents and patent improvements, in order to avoid any created something that subsequently results in the
misunderstanding or dispute, despite protection from granting of a patent to his or her employer (known as
China’s Patent Law. In addition, the employer should be ‘creator-employees’), the employer is required to award
made the applicant of any patents arising from employee remuneration to the creator-employee for the patented
creation, as patent rights are granted only to patent creation. Unless otherwise stated in the contract, the
applicants. remuneration to be awarded to the creator-employee
must be in accordance with the minimum requirements
Meanwhile, under China’s Copyright Law, the copyright provided in the Implementing Regulations of China’s
of a copyrightable work created by an employee when Patent Law. For this reason, employers should insert
fulfilling an assignment from an employer (known as in employment contracts a provision that quantifies
‘service work’) belongs to the employee, as he or the amount of remuneration to be awarded to creator-
she is the author, unless the service work is created employees for their patented creations. However, such
primarily with the materials and technical resources of remuneration must be ‘reasonable’; otherwise, the
the employer and the employer is responsible for the provision may be void (in some cases the entire contract
work, in which case the employer is the copyright owner. can be held void).
Nevertheless, the employee is still required to be named
as the author of such service work. In addition, if an employer wishes to transfer the rights
of a patent made by a creator-employee, the creator-
Since ownership of copyright does not automatically employee enjoys a pre-emptive right to acquire the
belong to the employer, it is extremely important for the creation. This means that the employer cannot transfer
employer to enter into agreements with its employees the creation to another party if the creator-employee
stating that all service work for which the employer is offers to purchase the creation under the same
responsible, or which are created using the employer’s conditions. However, employers can require employees
resources, belong to the employer. to waive the pre-emptive rights to any creations made
Background
In March 1999, Company A was preparing for the establishment of Company B, a wholly foreign owned company in
China. Company A entrusted Company C to hire programmers and organise the development of software projects
for Company B. The parties agreed that all rights and obligations created during the establishment of Company B
would belong to Company A and that such rights and obligations would be transferred from Company A to Company
B upon its establishment.
Company C employed the defendants, X and S for Company B. Their employment contracts expressly provided
that the defendants would keep Company B’s trade secrets confidential. Furthermore, all products and technology
which the defendants had a role in researching and developing were to be owned by Company B. The defendants
were not allowed to use the relevant technology or disclose it to any third party without Company B’s prior approval.
The defendants were involved with important software development projects. In August 2000, Company B was
established and the defendants became its employees.
X was dissatisfied with Company B and considered joining a new company, Company D, and persuaded S to join
him. To secure their jobs with Company D, the defendants disclosed to Company D the latest version of the source
code for encrypting email systems, which had been developed by Company B.
Action Taken
Company B reported the defendants to the police after discovering the unauthorised disclosure of its trade secrets.
Outcome
The court found that the defendants were bound by their employment contract to keep the source code confidential,
as it was an important part of the software. By disclosing the source code to Company D for personal gain, the
defendants breached their confidentiality obligations under the employment contract and thus were held liable for
the unauthorised disclosure of trade secrets.
IP Lessons
To prevent material damage to the operations of your business, the duties of employees regarding confidentiality,
ownership of IPR, non-compete and non-solicitation, etc., should be expressly provided in the employment
agreement.
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Free Business Tools to Manage your IPR in China
Guide to Using Contracts to Protect Your Intellectual Property Rights in China
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Free Business Tools to Manage your IPR in China
Sample One-Way Non-Disclosure Agreement (NDA)
Whereas A and B enter into this non-disclosure agreement (‘Agreement’) relating to the confidential information to be
disclosed by A to B in connection with the Technology Licence Agreement entered into between A and B on _______
in which A is the licensor and B is the licensee (the ‘TLA’).
IT IS AGREED AS FOLLOWS:
1. For the purposes of this Agreement, ‘Confidential Information’ shall mean
any and all information, whether oral, written, graphic or in machine- Part 1: This definition of ‘Confidential
readable form, including, without limitation, software products, techniques, Information’ is very important, as it
blueprints, product plans, product designs, product and service will determine the scope of what will
developments, manufacture plans, comparative analyses of competitive be protected. If this is not sufficiently
products, technical plans and proposals, research and development plans, wide, it may miss works that are
progress and reports, business information, business policies, marketing important for your business.
strategies, pricing policies and lists, customer and user lists, procedures,
improvements, concepts and ideas, designs, drawings, artwork, equipment, processes, budgets and projections,
and information, trade secrets and/or any other information, materials, data or documents, in whole or in part,
now existing or later acquired or supplied by the disclosing Party, whether or not such information, materials, data
or documents qualify as ‘trade secrets’ under applicable laws or regulations or are classified by the disclosing
Party as confidential information and are marked as such or, by the nature of the circumstances surrounding
the disclosure, ought in good faith to be treated as proprietary and/or confidential information owned or created
by, or proprietary to, the disclosing Party or third parties to whom the disclosing Party owes a duty to maintain
confidentiality. The terms and conditions of this Agreement, and other information and content made available
during the Term of this Agreement and the TLA, are all deemed Confidential Information. The term ‘Confidential
Information’ shall not include any information properly, legally and independently developed by or for the
receiving Party without access to the Confidential Information of the disclosing Party.
(i) To maintain the same in confidence and to use it only for ____ and for
no other purpose and in particular, but without prejudice to the generality Part 2: The details in this section
of the foregoing, (a) not to make any other commercial use thereof, and (b) identify exactly what the receiving
not to use the same for the benefit of itself or of any third party other than party is allowed (and not allowed) to
pursuant to a further agreement with A; do with the Confidential Information.
(ii) Not to copy, reproduce or reduce to writing any part thereof except as
may be reasonably necessary for ______ and that any copies, reproductions or reductions to writing so made
shall be the property of A;
(iii) Not to disclose the Confidential Information to any third parties without express written consent of A except
for those employees who have a need to know the Confidential Information in order to understand, assess,
advise, consult, or decide on, disclose or fulfil _____; and
(iv) To inform each of its employees who may have access to the Confidential Information of the confidential
nature of that Information and to take reasonable endeavours to ensure that each employee complies with the
terms of this Agreement as if he or she were a party to it.
3. B shall:
IN WITNESS whereof, the parties hereof have duly executed this Agreement on the ____ day of ____.
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Free Business Tools to Manage your IPR in China
WWW.CHINA-IPRHELPDESK.EU
The China IPR SME Helpdesk provides free, confidential, business-focused advice relating to China IPR to European
Small and Medium Enterprises (SMEs).
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downloadable from the online portal.
The contents of this publication do not necessarily reflect the position or opinion of the European Commission. The
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the results of any actions made on the basis of its services. Before taking specific actions in relation to IPR protection
or enforcement all customers are advised to seek independent advice.