1. The pledge contract and the creation of a patent pledge
Chinese law generally adopts a “contract plus publicity” model, through delivery or registration, for creating security rights. A contract to pledge patent rights is therefore an important requirement for creating a patent pledge.
Article 227(1) of the Property Law provides that a pledge over property rights in registered trademarks, patents, copyrights or other intellectual property requires a written contract. The pledge is created when the competent authority registers it.
The Property Law thus distinguishes the pledge contract from the creation of the pledge itself. The contract is a principal requirement, and its formation and effectiveness are governed by the Contract Law. Although an effective contract is necessary, the contract alone does not create the pledge: separate registration is required. Registration is a constitutive requirement, and creation of the pledge is governed by the Property Law.
These rules promote compliance with contracts and protect parties acting in good faith. Once concluded, a pledge contract takes effect provided it does not violate mandatory laws or administrative regulations or harm the public interest. Both parties must perform it. The pledgee is entitled under the agreement to require registration. If the pledgor refuses to cooperate with registration after the contract takes effect, that refusal constitutes a breach for which the pledgor is liable under the contract or the law.
2. Registration and the creation of the pledge
There are two basic legislative approaches to registration. Under the first, registration concerns enforceability against third parties. The pledge arises when the contract takes effect, but an unregistered pledge cannot be asserted against a third party acting in good faith. The article identifies the United States, France, the United Kingdom and Taiwan as examples of this approach.
Under the second approach, registration is necessary for the pledge to take effect. A contract alone is insufficient: the pledge does not arise until it is registered. Registration is therefore a constitutive requirement, and the pledge is created on the registration date. China and Japan follow this approach.
3. Registration and delivery of the patent certificate
Under the Property Law, registration is the means of giving public notice of a patent pledge. Transferring possession of a patent certificate is not a requirement for the pledge to take effect. Nor does the relationship between certificates, registration and publicity under patent law make delivery of a certificate an alternative means of public notice. The Property Law specifies registration as the method.
A patentee directly controls the patent rights and may assert them against others. As a matter of legal principle, rights with this effect against everyone must be made public. Registration and publication serve that function. A patent certificate evidences the patentee’s existing right; it is not the instrument that creates that right.
Registration is consequently sufficient to publicise the pledge. A prospective interested party can consult the patent register to learn of encumbrances on the patent. The certificate merely proves that the patent right exists. Transferring the certificate does not publicise a pledge over that right and is therefore ineffective as a means of giving notice of the pledge.
