Ms. Jane Zhenzhen Wang, Partner, Panawell & Partners

 

Patent licensing stands as one of the core driving forces behind technological innovation. It enables licensors to monetize their inventions while facilitating the refinement of technologies through practical implementation, and provides licensees with access to advanced technologies, mitigation of infringement risks, and improvement of market competitiveness. However, patent licensing, like all complex commercial arrangement, is prone to disputes. Within the framework of China’s intellectual property laws and practice, resolving patent licensing disputes requires a nuanced understanding of legal structure, procedural pathway, and strategic consideration. As practitioners, we frequently encounter disputes arising from issues like royalty calculation and payment, scope of licensing, validity and enforceability challenges, technology implementation, and recordal of license. Successfully navigating these conflicts demands not only legal expertise, but also a grasp of China’s unique enforcement realities and negotiation dynamics. This article explores viable approaches for both parties when negotiations reach an impasse, referencing the guidance on patent licensing provided by the China National Intellectual Property Administration (CNIPA), and examines strategies to achieve mutually beneficial outcomes.

 

I. The Cornerstone: License Contract

The single most critical tool for preventing and resolving disputes is an explicit, effective and enforceable license contract. Parties shall plan ahead by thoroughly considering potential contentious issues during contract drafting, and addressing them through clear contractual provisions to prevent future disputes.

 

According to the Measures for Recordal of Patent License Contracts promulgated by the CNIPA on 27 June 2011, parties entering into a patent license contract may use the standard contract template formulated by the CNIPA, and if other contract forms are adopted, they shall comply with the provisions of the Contract Section of the Civil Code. The current Standard Patent License Contract Template was released by the CNIPA on 27 June 2023, together with the Guidelines on common issues and dispute-prone matters in patent licensing.

 

1. Royalty Calculation & Payment

Common payment methods include free, fixed fee, milestone-based payment, and commission fee payment based on sales or profits.

 

For the fixed fee payment, aside from a one-time payment, installment payments are also an option. For the licensee, installment payment can alleviate financial pressure, incentivize the licensor to provide reliable post-license training, and allow for early termination in case of breach to minimize losses.

 

By milestone-based payment, the licensee shall pay fees upon achieving predefined milestones. Where the development and production process of the patented product is long-term and uncertain (e.g. pharmaceutical patents), milestone-based payments (e.g. partial payment upon obtaining marketing approval for a drug) can mitigate risks associated with product development failure.

 

Commission fee payment may include an upfront fee, sales-based royalties, or profit-based royalties. To minimize disputes over subsequent calculations, the contract should clearly define the definition of net sales or net profits, the sales entity (e.g. if sales are made through the licensee’s subsidiaries, the scope of "affiliates" shall be specified in the license contract), basis for calculation, scope of deduction, and audit rights (including which party bears audit costs and how discrepancies are handled).

 

2. Scope of Licensed Rights

(1) Licensed Territory

In addition to explicitly defining the licensed region, parties may consider including conditional clauses for territory expansion. Where the patented technology may be involved in multiple countries, the licensee may propose to extend the license to cover corresponding patent family members in relevant jurisdictions.

 

(2) Licensed Activities

Judicial practice indicates that when a licensor grants a specific right under a patent to a licensee, it may implicitly extend to related rights. For example, unless otherwise agreed, granting the "right to sell" may implicitly include the "right to offer for sale" and the "right to use". For method patents, granting the "right to use" may imply the "right to manufacture". Additionally, where academic institutions act as licensors, the agreement may stipulate that the license shall not restrict the licensor’s use of the patented technology for non-commercial academic research.

 

(3) Technology Improvement

Both parties may improve the licensed technology after execution of the contract. So it is necessary to first clarify whether either party may modify the patented technology and make a precise definition of "improvement". Further, regarding the improvement made by the licensor, the contract should specify whether the licensee automatically obtains rights to such improvements without additional fees; and for the improvement made by the licensee, terms should address whether the licensor retains patent application or license rights and whether cross-licensing applies.

 

3. Patent Validity & Enforceability

To mitigate risks arising from patent termination, invalidation, or rejection of patent applications, the licensee may consider adding clauses like "if the licensed patent undergoes invalidation proceedings, the licensor shall obtain the licensee’s consent before amending or narrowing the claims", and "the royalties shall not be paid when the patent is declared invalid but the related lawsuit is still pending.

 

To mitigate risks arising from third-party infringement litigation, the license contract should clearly define which party is responsible for defending against third-party infringement claims, allocation of litigation costs, and liability for damages in case of an adverse ruling. In practice, parties may agree that one party takes the lead in litigation while the other provides necessary support.

 

Moreover, from the licensee’s perspective, the prerequisite for taking any action related to patent validity or enforceability is the right to be informed of the patent’s legal status. Thus, the contract should require the licensor to promptly notify the licensee of any official correspondence from the CNIPA or the courts, indicating changes, or potential changes, to the patent’s validity or enforceability.

 

4. Technology Implementation

For the licensee to effectively implement the patented technology, the licensor's provision of technical documentation alone is sometimes insufficient - personnel training and technical guidance are typically required as well. Consequently, patent license contracts usually specify the licensor's technical support obligations, including the manner in which technical services and training will be provided, standards for such services, and cost allocation arrangements.

 

Furthermore, licensees may request that licensors assume responsibility for the outcomes of technical assistance. For instance, contracts may include provisions where the licensor guarantees the licensee's successful production of licensed products, and achievement of specified production efficiency or quality standards. In such cases, licensors must exercise particular caution in drafting these clauses. While fulfilling their obligations reasonably and thoroughly, they should structure the language to avoid assuming excessive liability.

 

5. Obligations to Record the License

Recording the license contract with the CNIPA strengthens the establishment and protection of rights, and helps reducing potential disputes. But the recordal procedure is quite complicated, and requires extensive documentation such as supplementary declarations by both parties. Moreover, the CNIPA imposes different deadlines for updating recordation when licenses undergo modifications, extensions or terminations. Therefore, the license contract shall stipulate that both parties are responsible for recording and updating the license before the CNIPA within the prescribed timeframe, and use commercially reasonable efforts to complete the recordal of license.

 

6. Other Special Concerns of Each Party

If one party has particular concerns regarding certain special matters, these may be incorporated into the contract using enforceable language.

 

Here is an example - Peking University's patent licensing agreement with a biotechnology company, which is one of the "2024 Outstanding Cases of Patent Industrialization" listed by the CNIPA. Peking University made technological development in the ultrahigh spatiotemporal resolution miniaturized two-photon microscope, and built a high-value patent portfolio. It entered into an exclusive licensing agreement with a biotech company, which included an upfront payment of CNY 2.3 million, and royalties based on sales. According to the university, they added clauses regarding the scope and term of license to the contract, which provided flexibility for adjustments during implementation; and to achieve the goals of technology commercialization and research development, the license contract should incorporate specific terms to impel the licensee to sufficiently practice the technology. This partnership enables the licensor to find and address technical problems during the commercialization of patented technologies, while accelerating the licensor’s research and development activities. By the end of 2023, the licensed technology had generated approximately CNY 230 million in economic values.

 

II. Informal Resolution

Not every dispute must proceed to formal proceedings. Strategic pre-action steps can be also effective and efficient:

 

1.    Internal Review: Gather all relevant communication, records and documentation, to gain a comprehensive understanding of the disputed matter, for the purposes of prioritizing and planning the claims one can assert, preparing for the arguments the opposing party may insist or compromise, and anticipating possible outcomes of such disputes in view of latest cases and making contingency plans.

 

Preparing documentation may involve contractual audit. For example, where the core dispute pertains to payment issues, audit procedures will become necessary, subject to strict compliance with stipulated auditing scope. Audit findings serve to resolve factual disputes, supporting settlement negotiation and potential legal proceedings.

 

2.    Communication & Demand Letters: Formal written notice may specify the factual particulars of the alleged breach, the contractual provisions violated, supporting evidence, and remedial demands. The wording must be meticulously drafted to mitigate risks of defamation claims.

 

3.    Good Faith Negotiation: Most disputes can be solved in candid and friendly negotiation, through which the parties can explore creative solutions and reach mutually beneficial agreement.

 

III. Formal Resolution

1. Administrative Mediation for Open License

Introduced through the 2020 Patent Law amendments, China's open licensing system allows patentees to voluntarily submit a written statement to the CNIPA declaring their willingness (with specified royalty payment method and standard) to license their patents to any entity or individual, and any interested party to obtain the license simply by notifying the patentee and paying royalties according to the published terms. As a supporting measure for implementing the open licensing system, the CNIPA issued and implemented the Interim Measures for Mediation of Patent Open Licensing Disputes on 2 July 2024, and included a dedicated chapter of "Administrative Mediation of Patent Open Licensing Disputes" in the Measures for Administrative Adjudication and Mediation of Patent Disputes which took effect on 1 February 2025.

 

Under the administrative mediation process, where disputes arise between parties regarding an open license and the parties voluntarily agree to mediation, they shall submit a written request to the CNIPA; then the CNIPA shall complete the mediation within 30 working days from acceptance of the request (extendable if necessary), and during mediation, parties should truthfully state the facts of the dispute and submit all relevant evidence; finally, if the dispute is resolved through mediation, a mediation agreement may be drafted and retained by the parties and the CNIPA.

 

2. Arbitration & Mediation

It is not rare to seek voluntary arbitration and mediation through institutions like the CIETAC, local arbitration institutions, or court-annexed mediation programs. Chinese courts also strongly encourage mediation, which often yields faster, cheaper, and more satisfactory outcomes. Binding arbitration results are typically as enforceable as court rulings.

 

3. Litigation

If negotiation and mediation fail, legal proceedings will become necessary. Courts can award damages for breach of contract (including unpaid royalties and litigation costs), specific performance (e.g. to cease or perform an act), and even termination of the contract. Documentary evidence is particularly crucial in the litigation process, so it will be imperative to compile and safeguard all types of correspondence, all contracts, technical and financial documentation, and related evidentiary materials. Where critical evidence faces potential destruction, parties may petition the court for pre-trial evidence preservation measures.

 

​Conclusion

Patent licensing disputes in China are complex and manageable, although no universal remedy exists for such issues. The likelihood of successful resolution is contingent upon precautionary measures, such as a well-drafted license contract, circumspect documentation, and sufficient communication. Consensual dispute resolution mechanisms, notably negotiation and dialogue, are recommendable and can preserve valuable business relationship. But if all these means fail, parties can leverage the carefully chosen arbitration institution or the court to achieve resolution and justice. The Chinese patent system provides various options for solving a license dispute, and parties shall take a strategic, step-by-step approach to a satisfactory resolution and win-win outcome.

 

 

 

References

https://www.cnipa.gov.cn/art/2023/6/30/art_75_186010.html

https://www.cnipa.gov.cn/art/2024/5/30/art_3406_193094.html

https://www.cnipa.gov.cn/art/2024/7/15/art_545_193576.html

 

 

This article was first published on IAM and WTR in September 2025; for further in-depth analysis, please visit the IAM/WTR - Inside China's IP Market Digital Edition 2026.

 

Author

Jane Zhenzhen Wang

Ms. Wang received her BA in English from China Foreign Affairs University in 2009, and completed intellectual property law courses at the Law School of Renmin University of China in 2016. She is proficient in patent strategy, search, portfolio management, and prosecution compliance. After joining Panawell in 2009, Ms. Wang has provided extensive advisory services to domestic and international clients on patent strategies and procedures.