China’s new civil law includes articles on technology transfer and development

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The third session of the 13th National People’s Congress (NPC) passed and adopted the “Civil Code of the People’s Republic of China” on May 28, 2020. This law will enter into force on January 1, 2021. Part III is devoted to contracts, with a significant portion dedicated to technology transfer and development contracts. The relevant articles of Part III deal with the provisions required in technology agreements as well as the duties and obligations of parties to a technology agreement.

A brief summary of some of the provisions follows, while full details can be found in the attached Chinese Civil Law (Chinese only).

Functions

In accordance with Section 501, trade secrets or other information that must be kept secret during the contract signing process must not be disclosed or inappropriately used, whether or not the contract is signed. Anyone who discloses or improperly uses the trade secret or information to cause loss to the other party will be liable for compensation.

Under section 855, parties to a cooperative development contract must make investments in accordance with the agreement, including investments in technology; division of labor to participate in research and development; collaboration and cooperation in research and development.

Contract provisions

Section 845 provides suggested and required provisions for technology contracts, including technology development, transfer, licensing, consultation, etc. Specifically, the content of a technical contract usually includes the name, content, scope and requirements of the project, plan, location and method of execution, confidentiality of technical and other information, award technical achievements and income distribution method, and acceptance criteria and methods, terms and definitions of terms, etc.

Basic technical information, proof of concept and technical appraisal report, project mission and plan, technical standards, technical specifications, original design and process documents and other technical documents related to the execution of the contract can be used as body of the contract according to the agreement of the parties.

When a technological contract involves a patent, the name of the invention, the applicant and owner of the patent, the date of the application, the number of the application, the number of the patent and the period of validity of the patent right must be indicated.

Technological development agreements must be in written form in accordance with Article 851. The article describes these agreements as a contract concluded between parties concerning the research and development of new technologies, new products, new processes, new varieties or new materials and their systems. Technology development contracts include custom development contracts and cooperative development contracts.

Likewise, technology transfer agreements and technology license agreements must also be in written form in accordance with Section 863.

Breach of contract / Termination

Articles 854 and 856 state that if a party to a commissioned development contract or a cooperative development contract causes stagnation, delays or failure of research and development work, that party is liable for damages.

Section 857 allows termination if the technology that is the subject of a technology development contract has been made public by third parties, rendering the performance of the technology development contract meaningless.

According to section 858, if a technology development contract fails due to technological difficulties, if there is no agreement or if the agreement is not clear, the risks must be shared between the parties in a reasonable manner. When one of the parties notices the situation that could lead to failure or partial failure of research and development, it promptly informs the other party and takes the appropriate measures to reduce the damage; if he does not notify and take appropriate action in a timely manner, resulting in the extension of the damage, he will bear the responsibility.

Other

Section 600 provides that if an item protected by an intellectual property (IP) right is sold, the underlying IP right is not transferred with the product. Unfortunately, Section 600 is silent on the implicit license and how far downstream an implicit license could apply, for example, if the product is used downstream to manufacture a new product (for example, a chipset used in the assembly of a mobile phone).

Article 850 declares invalid technological contracts which illegally monopolize technology, hinder technological progress or undermine technological achievements.

© 2021 Schwegman, Lundberg & Woessner, PA All rights reserved.Revue nationale de droit, volume X, number 153


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