The newly-revised Chinese Patent Law (which came into effect on 1 June 2021) introduced an open-licence system (sometimes known as licences of right elsewhere) to promote the use of patents.
The China National Intellectual Property Administration (CNIPA) released an Investigation Report on China’s Patent in 2021[1] in July 2022, which showed that the licensing rate of invention patents was 10.4%, an increase of 2.5 percentage points over the previous year. According to their statistics [2], 4,271 patent licence contracts were recorded before the CNIPA in 2021, in which invention, utility model, and design patents represented 51.8%, 35.5%, and 12.7%, respectively. In terms of the approach taken to the payment of licence fee, there were 2,748 licences paid for in fixed or convertible amounts, accounting for 64.3%, with a total contract value of RMB 10.66 billion. For these licences, the average licence contract was valued at about RMB 3.9 million, and the average licence term was 3.8 years. There were 307 licence contracts paid by royalty, accounting for 7.2% of the total, with an average licence term of 7.4 years. The remaining 1,216 licence contracts, accounting for 28.5%, were free of charge. It is expected or at least hoped that there will be a growth in the licensing rate after the implementation of the new open-licensing system.
1. General Provisions about the Open-licence System
Article 50 (of the Chinese Patent Law) stipulates that, where a patentee voluntarily makes a written declaration before the CNIPA that he is willing to licence any entity or individual to exploit his patent, and specifies the means and standard for the payment of licence fees, the CNIPA shall make a public announcement of the open licence.
As specified in Article 51, if any entity or individual intends to implement an open-licensed patent, he shall notify the patentee in writing, and obtain the licence after paying the licence fee in accordance with the announced open-licence declaration.
Article 52 provides for the settlement of disputes concerning open licences. Where the parties have a dispute over the implementation of an open licence, the parties shall negotiate to resolve them; if they are unwilling to negotiate or fail to reach an agreement, they may request mediation from the CNIPA, or file a lawsuit before the People’s Court.
2. Notes of Open-licence System
Whilst the newly-revised Chinese Patent Law came into effect on 1 June 2021, the necessary amendments to the Patent Implementing Regulations have not yet been released. Thus, whilst a patentee can file a written declaration of an open licence with the CNIPA per Article 50, the declaration will not be examined at present until the relevant provisions are provided in the amendments to the Patent Implementing Regulations. No official fees is likely to be charged for the examination and approval of the open-licence declaration.
For utility model and design patents, a Patent Evaluation Report issued by the CNIPA is required when submitting the open-licence declaration (Article 50).
The patentee is also allowed to withdraw the open-licence declaration, and the withdrawal request in writing should be submitted to the CNIPA, which will then announce the withdrawal later. The announcement of the withdrawal shall not affect the validity of any existing open licence.
The open licence should not be an exclusive or a sole licence. When the patentee already holds a valid exclusive or sole licence of a patent, it is not allowed to declare an open licence for the same patent.
3. Benefits of the Open-licence System
During the life of an open licence, the annual patent renewal fee paid by the patentee will be reduced or exempted. However, we do not yet know how much of a reduction to the annual fee can be obtained and what are the requirements for the exemption of the annual fee.
With the publication of the open-licence declaration in a CNIPA patent information system, potential users can easily find this licence information, which may reduce the cost of transactions and facilitate the signing of the licensing contracts.
The CNIPA recently released a Trial Program on Patent Open Licence, aiming to speed up full implementation of the patent open-licence system. Under the terms of the Program, by the end of 2022, over 100 universities, research institutes, and state-owned enterprises will join the trial. More than 1,000 patent licence agreements are expected to conclude. This program will provide practical experience in the operation of the open-licence system.
[1] https://www.cnipa.gov.cn/module/download/down.jsp?i_ID=176539&colID=88
[2] http://files.ctex.cn/uploadatt//demo/20220727/1658885831863.pdf
