Civil Code Article 868 Patent Invalidation

Retroactive Effect

Statutory rule prevents the automatic return of royalties and licensing fees that were paid in good faith before the patent was invalidated. Once a patent is declared void, it is considered non-existent from the beginning, but the law acknowledges the practical reality of the business relationship that existed during its perceived validity. The licensor is generally not required to refund any payments received as long as they did not act with malice or fraud.

This principle ensures that the licensor can use the income for research and operations without the constant fear of a sudden demand for total restitution. The licensee, in return, had the benefit of the exclusive right and the market protection provided by the patent during the term of the agreement. This balance of interests maintains the integrity of the licensing market by treating past payments as the price for the past benefit.

Only if the licensor knew the patent was invalid and hidden this fact will the court consider an order for a full refund.

Financial Restitution

Exceptions to the non-retroactivity rule are limited to cases where the enforcement of the original contract would be clearly unfair to the licensee. If the licensor received payments while being aware of a fatal flaw in the patent, the law provides a path for the licensee to recover those specific funds. The burden of proof is on the licensee to show that the licensor acted in bad faith or that the invalidation was the result of the licensor’s own intentional misconduct.

Another exception occurs when the invalidation results in an unjust enrichment that shocks the conscience of the court. In such rare instances, the court may order a partial or full return of fees to restore equity between the parties. This safety valve prevents the law from being used as a shield for dishonest actors who knowingly trade in worthless intellectual property.

For the vast majority of cases, however, the financial book remains closed once the patent is gone.

Contractual Indemnity

Negotiated clauses in the original licensing agreement can override the default protections of the civil code to provide the licensee with more security. Parties often include specific indemnity provisions that require the licensor to refund royalties if the patent is invalidated within a certain timeframe. These clauses are enforceable and allow the parties to allocate the risk of patent failure according to their own commercial priorities.

A strong indemnity clause might also cover the costs of any litigation the licensee faces from third parties as a result of the patent’s invalidity. This proactive drafting is essential for foreign companies entering into high-value technology transfers with Chinese entities. By setting their own rules for invalidation, the parties avoid the uncertainty of the statutory default.

The contract then acts as the primary source of rights, providing a clear path for resolving the financial fallout of a revoked patent.