Draft Civil Code Technology Contract Law Available for Comment

The NPC has released a draft of the contract chapter of the draft civil code for public comment.  According to the NPC Observer, this is the second draft with the final round scheduled for consideration as early as March 2020.  Comments are being accepted by the NPC through January 26, 2020.

Chapter 20 of the contract chapter deals with technology contracts.    Based on a quick read, several provisions are directed to long-standing concerns, such as ownership of service invention compensation, ownership of improvements (grant backs), indemnities from infringement, and the relationship of contract regulation to China’s Antimonopoly Law and the recently amended Technology Import Export Regulations.

Some Key Substantive Provisions

Articles 632 and 633 address  service invention (employee inventor) compensation, noting that  employers “shall extract a certain percentage [emphasis supplied] from the proceeds obtained from the use and transfer of the service technical achievements  and award or reward individuals who have completed the service technical achievements.”  The draft law thereby appears to carry forward the ambiguity and debate regarding what amount of compensation is required, if any, in addition to salary and other benefits.  This had also been a focus of previous bilateral discussions.

第六百三十二条 职务技术成果的使用权、转让权属于法人 或者非法人组织的,法人或者非法人组织可以就该项职务技术成 果订立技术合同。法人或者非法人组织应当从使用和转让该项职 务技术成果所取得的收益中提取一定比例,对完成该项职务技术 成果的个人给予奖励或者报酬。法人或者非法人组织订立技术合 同转让职务技术成果时,职务技术成果的完成人享有以同等条件 优先受让的权利。 职务技术成果是执行法人或者非法人组织的工作任务,或者 主要是利用法人或者非法人组织的物质技术条件所完成的技术成 果。

第六百三十三条 非职务技术成果的使用权、转让权属于完 成技术成果的个人,完成技术成果的个人可以就该项非职务技术 成果订立技术合同。 第六百三十四条 完成技术成果的个人有在有关技术成果文 件上写明自己是技术成果完成者的权利和取得荣誉证书、奖励的 权利。

Article 632 Where the right to use or transfer a service technical achievement belongs to a legal person or an unincorporated organization, the legal person or unincorporated organization may conclude a technical contract for the service technical achievement. A legal person or an unincorporated organization shall extract a certain percentage from the proceeds obtained from the use and transfer of the service technical achievements and award or reward individuals who have completed the service technical achievements. When a legal person or an unincorporated organization concludes a technology contract to transfer service technology achievements, the person who completed the service technology achievements has the right to receive priority transfer on equal terms. The service technical results are the technical results of performing the work tasks of a legal person or an unincorporated organization or mainly using the material and technical conditions of a legal person or an unincorporated organization.

Article 633 The right to use or transfer a non-service technical achievement belongs to the individual who completed the technology achievement, and the individual who completed the technology achievement may conclude a technology contract for the non-service technological achievement. 

Article 659 addresses ownership of improvements, providing further detail on the implications of the removal of Article 27  in the recently revised Administration of Technology Import Export Regulations (TIER). This provision also supports freedom of contract, by providing that the improving party owns the improvements unless the parties stipulate otherwise.

第六百五十九条 当事人可以按照互利的原则,在合同中约 定实施专利、使用技术秘密后续改进的技术成果的分享办法。没 有约定或者约定不明确,依照本法第三百零一条的规定仍不能确 定的,一方后续改进的技术成果,其他各方无权分享。

Article 659 The parties may agree in the contract in accordance with the principle of mutual benefit and determine how to share the technical results of implementing patents and using technological secrets for subsequent improvements. If there is no agreement or the agreement is not clear, and it is still uncertain according to the provisions of Article 301 of this Law 【regarding  supplemental contractual language】 then the technical results of subsequent improvement by one party shall not be shared by the other parties.

Article 658 also supports freedom of contract by providing for a default but negotiable indemnity against third party infringements or torts.   This language is consistent with the revised Art. 24 of the TIER

第六百五十八条 受让人或者被许可人按照约定实施专利、 使用技术秘密侵害他人合法权益的,由让与人或者许可人承担责 任,但是当事人另有约定的除外。

Article 658 Where the assignee or the licensee implements a patent or uses proprietary technology  to infringe upon the legal rights and interests of others, the assignor or the licensor shall be held liable unless the parties agree otherwise.

Relationship with Other Laws

As indicated, the draft law must also be read in conjunction with the revisions of the Technology Import/Export Regulations and other laws and regulations.  As a higher level, more recent legislation, the Civil Code language would ultimately be more authoritative than the TIER in the event of any conflict.  Among the provisions that reference other laws and regulations is Article 660 which provides that these other laws shall normally govern.  However, Article 660 does not expressly restrict the Civil Code from  “gap-filling” these other laws and regulations.  It may thereby perpetuate the possibility of government intervention through vague language such as “mutual benefit”,  “hindering technological progress”, “certain percentage”  and default provisions that govern if another language is unclear.  If this provision is enacted as drafted, the immediate solution to this problem will be clear contractual drafting and/or revisions of prior license agreements.

第六百六十条 法律、行政法规对技术进出口合同或者专 利、专利申请合同另有规定的,依照其规

Article 660 If there are laws and administrative regulations on technology import and export contracts or contracts for patents or patent applications, such provisions shall be followed.

The draft law also contains vague references to competition and antimonopoly law.  Article 635 contains identical language to Article 329 of the Contract Law, and Article 648 is nearly identical to Article 343 of the Contract Law:

第六百三十五条 非法垄断技术、妨碍技术进步或者侵害他 人技术成果的技术合同无效

Article 635 A technology contract that illegally monopolizes technology, hinders technological progress, or infringes on the technological achievements of others is invalid.

第六百四十八条 技术转让合同和技术许可合同可以约定实 施专利或者使用技术秘密的范围,但是不得限制技术竞争和技术 发展。

Article 648 A technology transfer contract and a technology license contract may stipulate the scope of patent implementation or use of technology secrets, but they shall not restrict technology competition and technology development.

As with the prior Contract Law and TIER, the law does not clarify the difference between a covenant not to sue or a settlement of an infringement lawsuit on the one hand, and a patent license agreement.  Lawyers drafting such settlement agreements may wish to ensure that default provisions of the Civil Law, such as those regarding indemnities and ownership of improvements do not come into play.

These provisions also further underscore the importance of thorough monitoring of legislative changes on technology transfer from earlier in 2019 to ensure that they had the intended effect, particularly as operational implementation may now be more significant than legislative changes.

In addition to these revisions to China’s contract law in the proposed Civil Code, an Export Control Law has also been released for public comment by the NPC.  The draft law sets up a general export control system and specifically regulates both technologies and services (Art. 2).  Comments are also due January 26, 2020.

Happy New Year to all!

Note: all translations are based on machine translations with minor editing and are not intended to be authoritative.  Please provide any corrections or suggestions on these translations or any additional commentary to the author.

2 thoughts on “Draft Civil Code Technology Contract Law Available for Comment

  1. Changhao Wei says:

    Dear Professor Cohen, thanks for this very informative post and for linking to my blog. I just wanted to note that the Contracts Part has been incorporated into a complete draft Civil Code (https://npcobserver.files.wordpress.com/2019/12/civil-code-draft.pdf), in which the chapter on technology contracts starts with article 843 and on page 160 of the PDF. Some of the provisions you quoted above are slightly different from those in the newest draft. Happy New Year!

  2. Elisabeth Opie says:

    Dear Professor Cohen, thank you for sharing this information. Your blog continues to be a valuable reference point. Could you please advise if there is an official or unofficial English version of the draft Civil Code available. It be terrific if one is available, and make a review more efficient for many interested in this area. Thank you. I also take this opportunity to wish you a happy new year.

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