The good faith test

Rulings in patent ownership disputes have provided useful guidance on how China’s courts interpret the determination of rights, explains Ruo Cao and Mengxuan Zhang of China Patent Agent (HK) Ltd.

With the increasing awareness of the importance of protection of scientific and technical achievements among inventors and technology owners, China has seen a growing number of disputes and even actions involving patent ownership in practice.

To address such disputes, the parties concerned and the relevant authorities have gradually developed a set of practical rules.

The term “ownership” here encompasses not only granted “patent rights” but also “patent application rights” that are in the process of application, and even the “right to apply for a patent” that has not yet entered the application process.

According to the annual report by the Supreme People’s Court of China, the Intellectual Property Court of the Supreme People’s Court of China, established in 2019, had accepted a total of 981 civil second-instance cases involving disputes over patent application rights and patent ownership from 2019 to 2023, wherein 213 cases were accepted in 2021, 312 cases in 2022, and 285 cases in 2023.

Combined with data from local courts, the overall number of cases involving patent ownership has shown a steady upward trend year by year.

Types of disputes

According to Chinese practice, the factors leading to patent ownership disputes primarily include technology licensing, cooperation or commissioning in technical development, disputes over service inventions, etc.

These disputes usually arise due to ambiguous ownership provisions or breaches of clauses in the agreements between the parties concerned.

In particular, in cases where the patent ownership dispute is caused by the technology licensing, a common factual scenario is that the licensor grants a licence for the invented technology to the licensee, while the licensee subsequently misuses the licensed technology by filing a patent application without any authorisation or by making further inventions based on the licensed technology and applying for patent rights on the resulting technology.

For such patent ownership disputes, in the past, Chinese courts have typically adopted the criteria of determining the inventorship based on whether the substantive creative contributions have been made to the technical solution of the patent application.

In such cases, the courts have held that since the patent discloses and uses the licensor’s technology, the licensor has rights to the patent; but also, since the licensee has made creative contributions to certain parts of the technical solution based on the licensed technology, it is considered that both parties have made creative contributions, and in cases where the extent of contribution cannot be distinguished based on existing evidence, the patent or the patent application should be jointly owned by both licensor and licensee.

Noteworthy cases

A typical case (No. ZGFZMZ 871 (2020)) included in the “Annual Report on Intellectual Property Cases of the Supreme People’s Court (2020)” and the “Key Points of Judgments of the Intellectual Property Court of the Supreme People’s Court (2020)”, upheld this view.

At the end of 2024, the Intellectual Property Court of the Supreme People’s Court concluded a patent ownership dispute (No. ZGFZMZ 2951 (2022)) in the chemical industry, which changes the court’s long-standing viewpoint of “joint ownership by licensor and licensee”.

The case involved a technology licence between the licensor as the plaintiff and the licensee as the defendant. The defendant breached the confidentiality obligations stipulated in the licensing agreement by applying for a patent based on the licensed technology and subsequently obtaining the patent right.

Upon examination, the second instance court held that although the defendant made partial creative contributions to the additional technical features of the technical solution, the defendant was found to have acted with subjective fault, thereby undermining the plaintiff’s protection of its technology and the enforcement of its legitimate rights.

Consequently, the court determined that the patent right was solely owned by the plaintiff.

Back to the first instance of the case, the court held that since both parties contributed to the technical solution of the patent, the patent ownership should be jointly owned.

This judgment is in line with the previously prevailing judicial practice in China for similar ownership disputes, which focuses on whether the parties have made creative contributions to the substantive features of the invention.

As the second-instance court, the Intellectual Property Court of the Supreme People’s Court, however, overturned the first instance judgment, determining that even when the defendant made some improvements based on the plaintiff’s technical solution, filing a patent application violated the agreement, went against the plaintiff’s will, and deprived the plaintiff of the right to protect its intellectual property right when the technical solution was disclosed.

In such circumstances, granting a joint patent right would enjoin the plaintiff from exercising the patent right at his own will in the aspects of, eg, licensing, transfer and pledge, which would be unfair to the plaintiff.

Therefore, the second-instance court, considering subjective breach of the licensing agreement, determined that the patent should be solely owned by the plaintiff.

Taking a subjective view

Such judicial practice, which initially focused solely on the objective fact of whether the parties made substantive contributions to the technical solution, has evolved to also take account of the subjective fault of the licensee in breaching the agreement.

This approach helps prevent parties with clear faults from appropriating others’ technical solutions through patent applications, effectively protects the legitimate rights of technology providers in technology transactions, and safeguards technology providers’ decision-making right over the transformation of technological achievements.

Overall, this aligns with China’s policy of promoting the transformation and utilisation of intellectual property rights.

Summary

In summary, when adjudicating ownership disputes involving breach of agreement or confidentiality obligations, courts generally consider the following aspects: whether the parties have made creative contributions to the substantive features of the patent’s technical solution, the proportion of their contributions to the overall technical solution, the probative value of evidence for creative contributions, whether the parties have subjective faults or even commit malicious acts that violate the principle of good faith, and whether the legitimate rights of the trade secret owner can still be protected, etc.

In practice, patent ownership disputes often focus more on an objective technical evaluation, and the subjective faults of parties who violate confidentiality obligations are sometimes overlooked.

Now, the Intellectual Property Court of the Supreme People’s Court takes into account the subjective aspects of the actors when determining ownership, and ultimately grants the relevant rights to their true owners mainly on the grounds of violation of the principle of good faith—a fundamental principle in the legal framework.

Ruo Cao is the manager of the Legal Affairs Department and a patent attorney at China Patent Agent (HK) Ltd. He can be contacted at cruo@cpahkltd.com

Mengxuan Zhang is a legal associate in the Legal Affairs Department at China Patent Agent (HK) Ltd. She can be contacted at zmengxuan@cpahkltd.com