Chapter 18: Contracts For Technology | Doing Business with China

Section 1: General Rules

Article 322 A technology contract refers to a contract that the parties conclude for purpose of establishing rights and obligations of the parties regarding technology development, technology transfer, technical consultancy and technical services.

Article 323 The conclusion of a technology contract must facilitate the progress of science and technology, accelerate the commercialisation, application and dissemination of the achievements of science and technology.

Article 324 The contents of a technology contract shall be agreed upon by the parties, and shall contain the following clauses in general:

title of the project;
contents, scope and requirements of the targeted object;
plan, schedule, time period, place, areas covered and manner of performance;
maintenance of confidentiality of technical information and materials;
sharing of liability for risks;
ownership of technological achievements and method of sharing proceeds;
standards and method of inspection and acceptance;
price, remuneration or royalties and method of payment;
damages for breach of contract or method for calculating the amount of compensation for losses;
methods for settlement of disputes; and
interpretation of technical terms and expressions.

Background materials on the technology, reports on feasibility studies and technological appraisals , project descriptions and plans, technological standards, technological specifications, original designs and documents on technological processes, as well as other technology files relevant to the performance of the contract may be deemed as an integral part of the contract as agreed upon by the parties in the contract.

Where a technology contract involves patents, the title of the invention or creation, the patent applicant and the patentee, the date and number of application, the patent number as well as the valid time period of patent rights shall be indicated.

Article 325 The method of payment of price, remuneration or royalties in the technology contract shall be agreed upon by the parties. The parties may agree on the method of an overall calculation and one time payment, or of an overall calculation and payment by instalment. They may also agree on the method of proportionate payment or such payment plus an advance payment of entrance fee.

Where the method of proportionate payment is agreed upon in the contract, the payment may be made according to a specific proportion to the price of the product, to the increased value of output derived from exploitation of the patent or from use of the know-how, to the profit or to the sales. They may also agree on other methods of calculation. The proportion may be a fixed proportion, or a proportion with yearly progressive increase or decrease.

Where the proportionate payment is agreed upon, the parties shall agree in the contract on the methods of checking on the relevant accounting books.

Article 326 Where the right to use or to transfer a jobrelated technological achievement belongs to the legal person or other organization, the legal person or other organization may conclude technology contracts with regard to the job-related technological achievement. The legal person or other organisation shall extract a certain proportion from the proceeds acquired from the use and transfer of such job-related technological achievement to reward or remunerate the individual who accomplished this technological achievement. Where a legal person other organization concludes a technology contract to transfer the job- related technological achievement, the individual who accomplished this technological achievement shall have the priority to be the transferee on equal conditions.

A job-related technological achievement refers to a technological achievement accomplished in the process of carrying out the task of the legal person, or other organisation, or mainly through using the materials and technological means thereof.

Article 327 The right to use or transfer a non-job- related technological achievement belongs to the individual who accomplished it. The individual may conclude a technology contract on such non-job-related technological achievement.

Article 328 An individual who has accomplished a technological achievement shall have the right to be named as such in the documents related to the technological achievement and the right to receive certificates of honour and awards.

Article 329 A technology contract which monopolises the technology or impedes the technological progress, or which infringes upon the technological achievement of others shall be null and void.

Section 2: Contracts For Technology Development

Article 330 A technology development contract refers to a contract concluded between the parties for purpose of conducting research in and development of new technologies, new products, new processes and new materials as well as their systems.

Technology development contracts include commissioned development contracts and cooperative development contracts.

A technology development contract shall be in written form.

A contract concluded between the parties for purpose of application or commercialisation of certain technological achievement which has potential value for industrial application shall apply the provisions concerning technology development contracts mutatis mutandis.

Article 331 The commissioning party to a commissioned development contract shall pay for the research and development expenses and the remuneration, supply technological materials and original data, accomplish coordinating tasks and accept the result of research and development on time according to the terms of the contract.

Article 332 The party responsible for research and development shall, according to the terms of the contract, formulate and implement a research and development plan, use the research and development budget in a reasonable way, complete the research and development on time, deliver the achievement according to the schedule, provide relevant technological materials and necessary technical guidance and assist the commissioning party in mastering the achievement of the research and development.

Article 333 Where the commissioning party violates the contract and causes a standstill, delay or failure in the research and development work, such party shall be liable for the breach of contract.

Article 334 Where the party responsible for research and development violates the contract and causes a standstill, delay or failure in the research and development work, such party shall be liable for the breach of contract.

Article 335 Parties to a cooperative development contract shall, make the investment according to the terms of the contract including making investment by way of technology contribution, taking part in the research and development in light of the division of labor according to the terms of the contract, and cooperating with other parties to the contract in the research and development work.

Article 336 Where a party to a cooperative development contract violates the contract and causes a standstill, delay or failure in the research and development work, such party shall be liable for the breach of contract.

Article 337 Where the targeted technology in a technology development contract has been made public by others, which makes the performance of this technology development contract meaningless, the parties may rescind the contract.

Article 338 The liability for risks involved in a failure or partial failure in the research and development resulting from insurmountable technical difficulties occurring in the process of performing a technology development contract shall be agreed upon by the parties to the contract. In the absence of such an agreement in the contract or in case of ambiguity of such agreement, nor can it be determined according to the provisions of Article 61 of this Law, such risk liability shall be shared reasonably by the parties.

Where one party discovers that the situation stipulated in the preceding paragraph is likely to result in a failure or partial failure in the research and development, the party shall promptly inform the other party of the situation and take appropriate measures to reduce losses. Where the party fails in making the notice and taking appropriate measures, and thus enlarging the losses, it shall be liable for the enlarged losses.

Article 339 With respect to inventions and creations achieved in the performance of a commissioned development, the right to apply for a patent belongs to the party that undertakes the research and development, except as otherwise agreed upon by the parties. Where the party that undertakes the research and development is granted a patent right, the commissioning party may exploit the patent for free.

Where the party undertaking the research and development transfers the right to apply for a patent, the commissioning party shall have the right to priority in acquiring such right on equal conditions.

Article 340 With respect to inventions and creations in cooperative development, the right to apply for a patent shall be jointly owned by the parties who participated in the cooperative development, except as otherwise agreed upon by the parties. Where one party transfers its part of the jointly owned right to apply for a patent, the other party or parties may have the right to priority in acquiring such right on equal conditions.

Where one party to the cooperative development contract declares that it renounces its part of the shared right to apply for a patent, the other party may apply for it alone or the other parties may apply for it jointly. Where a patent is granted to the applicant, the party that renounced its right to apply for a patent may exploit the patent for free.

Where one party to a cooperative development contract does not agree to apply for a patent, the other party or parties may not apply for it.

Article 341 The right to use or to transfer the knowhow achieved in the commissioned development or cooperative development, and the method of distributing the proceeds derived shall be agreed upon by the parties in the contract. In the absence of such agreement or in case of ambiguity of such agreement, nor can it be determined according to the provisions of Article 61 of this law, either party has the right to use and transfer it. However, the party undertaking the research and development under a commissioned development contract may not transfer the result of the research and development to a third party before delivering them to the commissioning party.

Section 3: Contracts For Technology Transfer

Article 342 Technology transfer contracts include contracts on patent transfer, contracts on transfer of the right to apply for a patent, contracts on transfer of know-how and contracts on the licensing of patent exploitation.

A technology transfer contract shall be in written form.

Article 343 The scope of the exploitation of a patent or the use of the know-how by the transferor and the transferee may be agreed upon in a technology transfer contract provided that no restriction may be imposed on technological competition and technological development.

Article 344 A contract for the licensing of patent exploitation shall be valid only within the valid period of the patent right. Once the patent right expires or it is declared as invalid, the patentee may not conclude any contract with others for licensing of the exploitation of the said patent.

Article 345 The transferor of a patent exploitation licensing contract shall, according to the terms of the contract, permit the transferee to exploit the patent, submit the technological materials relevant to the exploitation of the patent and provide necessary technical guidance.

Article 346 The transferee of a patent exploitation licensing contract shall exploit the patent according to the terms of the contract, and may not permit any third party other than as provided for in the contract to exploit such patent, and shall pay the royalties according to the terms of the contract.

Article 347 The transferor of a know-how transfer contract shall, as agreed upon in the contract, supply technological materials, conduct technical guidance and ensure the practical applicability and reliability of the know-how as well as undertake the obligation of maintaining confidentiality.

Article 348 The transferee of a know-how transfer contract shall use the know-how, pay the royalties and undertake the obligation of maintaining confidentiality according to the terms of the contract.

Article 349 The transferor of a technology transfer contract shall guarantee that he/she is the lawful owner of the supplied technology and that the supplied technology is complete, without mistakes, effective and able to accomplish the agreed goal.

Article 350 The transferee of a technology transfer contract shall, in conformity with the scope and the time period as agreed upon in the contract, assume the obligation of maintaining confidentiality for the undis- closed part of the technology supplied by the transferor.

Article 351 A transferor failing to transfer the technology according to the terms of the contract, shall return part or total of the royalties and be liable for the breach of contract. The party exploiting the patent or know-how exceeding the agreed scope, or unilaterally permit a third party to exploit the patent or use the know-how in violation of the contract, shall cease the act of breach of contract and be liable for the breach of contract. A party violating the agreed obligation of maintaining confidentiality shall be liable for the breach of contract.

Article 352 A transferee failing to pay the royalties according to the terms of the contract shall, make up such payment and pay the breach of contract damages as agreed upon. The transferee refusing to pay the overdue royalties or the breach of contract damages, shall cease the exploitation of the patent or the use of the know-how, return the technological materials and be liable for the breach of contract. A transferee exploiting the patent or using the know-how in a way exceeding the scope as agreed upon in the contract, or permitting a third party to exploit the patent or use the know-how without the consent of the transferor, shall cease the act of breach of contract and be liable for the breach of contract. A transferee violating the agreed obligation for maintaining confidentiality shall be liable for the breach of contract.

Article 353 Where the exploitation of a patent or the use of know-how by a transferee in accordance with the terms of the contract infringes upon the legitimate rights and interests of others, the transferor shall be liable, except as otherwise agreed upon by the parties.

Article 354 The parties may stipulate in a technology transfer contract, the method of sharing technological achievements obtained from the follow-up improvements made in the exploitation of a patent or the use of know-how in light of the principle of mutual benefit. Where there is no such agreement in the contract or such agreement is unclear, nor can it be determined according to the provisions of Article 61 of this Law, the other parties shall have no right to share the technological achievements made by one party in the follow- up improvement.

Article 355 Where the laws and administrative regulations stipulate otherwise on the technology import and export contracts, or patent contracts or contracts on application for patents, such provisions shall be followed.

Section 4: Contracts For Technical Consultancy And Technical Service

Article 356 Technical consultancy contracts include contracts whereby feasibility studies, technological forecasts, technical investigations and analytical evaluation reports shall be provided in respect of specific projects.

Technical service contracts refer to contracts whereby one party undertakes to solve specific technical prob-

lems by using its technical expertise for the other party, excluding contracts for construction projects and contracts for work.

Article 357 The commissioning party of a technical consultancy contract shall, as agreed upon in the contract, state clearly the questions raised for consultancy, supply technological background information and relevant technical materials and data, accept from the commissioned party the result of its work and pay the remuneration.

Article 358 The commissioned party of a technical consultancy contract shall complete the consultancy report or answer the questions raised by the commissioning party according to the agreed time limit. The consultancy report thus submitted shall meet the requirements as agreed upon in the contract.

Article 359 Where the commissioning party of a technical consultancy contract fails to supply the necessary materials and data according to the terms of the contract which consequently affects the progress and quality of the consultancy work, or does not accept the result of the work or accepts it beyond the time limit, the remuneration already paid may not be refunded, and the remuneration unpaid shall be paid in due amount.

Where the commissioned party of a technical consultancy contract fails to submit the consultancy report on time or the report thus submitted does not meet the requirements as agreed upon in the contract, the said party shall bear such liabilities for breach of contract as reducing or waiving the remuneration, etc

The losses resulting from decisions made by the commissioning party of a technical consultancy contract on the basis of the consultancy report and of the advice of the commissioned party that meet the requirements as agreed upon in the contract shall be borne by the commissioning party, except as otherwise agreed upon by the parties in the contract.

Article 360 The commissioning party of a technical service contract shall supply the work facilities and accomplish cooperative undertakings according to the terms of the contract, and accept the result of the work and pay the remuneration.

Article 361 The commissioned party of a technical service contract shall complete the services, solve the technical problems, guarantee the quality of its work and convey to the other party the knowledge on the solving of technical problems according to the terms of the contract.

Article 362 Where the commissioning party of a technical service contract fails to perform the contract or the performance is not in conformity with the terms of the contract, which consequently affects the progress and the quality of the work, or does not accept the result of the work or accepts it beyond the time limit, the remuneration already paid may not be refunded, and the remuneration unpaid shall be paid in due amount.

Where the commissioned party fails to complete the service work in conformity with the terms of the contract, the said party shall bear such liabilities for breach of contract as waiving the remuneration, etc.

Article 363 Any new technological achievement accomplished by the commissioned party in the performance of a technical consultancy contract or a technical service contract using the technological materials and work facilities supplied by the commissioning party, shall belong to the commissioned party, while any new technological achievement accomplished by the commissioning party using the results of the work of the commissioned party, shall belong to the commissioning party, except as otherwise agreed upon by the parties in the contract.

Article 364 Where the laws and regulations stipulate otherwise on technical intermediation contracts and technical training contracts, such provisions shall be followed.

Article 365 A storage contract refers to a contract whereby the safekeeping party keeps in store the article handed over by the storing party, and returns the said article.

Article 366 The storing party shall, according to the terms of the contract, pay to the safekeeping party the storage fee.

Where there is no agreement in the contract regarding the storage fee, or such agreement is unclear, nor can it be determined according to the provisions of Article 61 of this law, the storage shall be for free.

Article 367 A storage contract is established at the time when the article to be stored is handed over, except as otherwise agreed upon by the parties.

Article 368 When the storing party hands over the article to be stored to the safekeeping party, the safekeeping party shall issue a storage certificate, except as otherwise practised in transactions.

Article 369 The safekeeping party shall keep in appropriate store the articles to be stored.

The parties may agree on the site or method of storage. The site or method of storage may not be unilaterally changed except in case of emergency or for the purpose of protecting the interests of the storing party.

Article 370 Where an article handed over by the storing party for storage has defects, or special measures need to be taken due to the character of the article, the storing party shall inform the safekeeping party of such matters. Where the storing party fails to inform the safekeeping party of such matters and consequently causes damage to the stored article, the safekeeping party shall not be liable for damages. Where the safekeeping party suffers losses therefrom as a consequence, the storing party shall be liable for damages, except in the event the safekeeping party knows the situation or ought to know it but fails to take any remedial measures.

Article 371 The safekeeping party may not turn the article to be stored over to a third party for storage, except as otherwise agreed upon by the parties in the contract.

Where the safekeeping party violates the provisions of the preceding paragraph and turns the article to be stored over to a third party for storage, thus causing damage to the article, the said party shall be liable for damages.

Article 372 The safekeeping party may not use or permit a third party to use the stored article, except as otherwise agreed upon by the parties.

Article 373 Where a third party claims rights on the stored article, the safekeeping party shall perform the obligation to return the article to the storing party, except that a preservative measure or executive measure is taken according to law with regard to the stored article.

Where a third party brings a lawsuit against the safekeeping party or applies for a seizure by the stored article, the safekeeping party shall promptly inform the storing party of the case.

Article 374 Where during the period of storage, the stored article is damaged, destroyed or lost due to improper storage by the safekeeping party, the safekeeping party shall be liable for damages. However, where the storage is provided for free, and the safekeeping party proves that it has not acted with gross fault, it shall not be liable for damages.

Article 375 A storing party depositing currency, securities or other precious articles shall, declare the case to the safekeeping party, and the safekeeping party shall inspect and seal up the article for storage. Where the storing party fails to declare as such and the article is damaged, destroyed or lost afterwards, the safekeeping party may compensate for it as it is an ordinary article.

Article 376 A storing party may claim and get back the stored article at any time.

Where there is no agreement between the parties in the contract as to the time period of the storage, the safekeeping party may request the storing party to get back the stored article at any time. Where there is such agreement on the time period of the storage, the safekeeping party may not request the storing party to get back the stored article before the time period expires without special causes.

Article 377 On the expiry of the storage time period or when the storing party claims and gets back the article before the expiry, the safekeeping party shall return to the storing party the original article and the fruits generated therefrom.

Article 378 A safekeeping party keeping in store currency may return the currency of the same kind and in the same amount. In case of storing other replaceable articles, the safekeeping party may return to the storing party articles of the same category, quality and quantity according to the terms of the contract.

Article 379 With regard to non-gratuitous storage contracts, the storing party shall pay to the safekeeping party the storage fee according to the time limit as agreed upon by the parties.

Where there is no agreement as to the time limit for the payment in the contract or such agreement is unclear, nor can it be determined according to the provisions of Article 61 of this Law, the storage fee shall be paid at the same time when the stored article is claimed and taken back.

Article 380 Where a storing party fails to pay the storage fee and other expenses according to the terms of the contract, the safekeeping party is entitled to lien on the stored article, except as otherwise agreed upon by the parties.