Employees and IP
Most companies rely on their innovation to succeed and many of the more successful companies go to great lengths to engender a culture of innovation. But what happens to employee inventions? And who owns these inventions? Employee Compensation for Certain Inventions.
As an employer you probably think that the answer to this question is pretty straightforward - and in the majority of cases it is. The first duty of an employee is to act in good faith by promoting the business interests of the employing firm. It therefore not unreasonable that any invention, which was made by an employee in the performance of his or her duties, should rest firmly with the employer. Company directors and senior employees are also under a clear fiduciary obligation to make a full disclosure of all inventions and to ensure that all IP rights are assigned appropriately to the company.
The matter of employee inventions is specifically addressed in s.39(1) of the UK Patents Act, 1977. Here it says that “an invention made by an employee shall, as between him and his employer, be taken to belong to his employer for the purposes of this Act and all other purposes if
(a) it was made in the course of the normal duties of the employee or in the course of duties falling outside his normal duties, but specifically assigned to him, and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties; or
(b) the invention was made in the course of the duties of the employee and, at the time of making the invention, because of the nature of his duties and the particular responsibilities arising from the nature of his duties he had a special obligation to further the interests of the employer's undertaking.”
So the matter is clear. Any invention made as part of an employees normal or assigned duties belongs to the employer.
But what about inventions made outside the course of an employees normal or special duties? - And just what are Shop Rights?
In these circumstances, and in the absence of a written agreement to the contrary, the invention will very likely belong to the employee. However, the employer may have what are called “shop rights”. These are unfettered rights to the manufacture, use and sale of the invention and come without any requirement to reimburse the inventor. Shop rights can be likened to a non-exclusive license between the employee and the employer. They also come with one very important proviso - namely, that employee is entitled to on-license the invention to competitors and to reap any financial rewards from the transaction by way of royalties and the like. Simply put, employees inventions made outside the course of their normal duties generally provide for the employer to work these inventions while the employees retain ownership of them.
It is important to be aware that the shop right arises regardless of the thrust of the invention in relation to the employer's business and is regardless of the employee's responsibilities. It is also not necessary for there be an employment agreement or that the employee be hired to invent for the shop right to exist.
Although specific details and statutes vary from country to country, in general most Countries will have some form of requirement to reimburse employees for their invention. This is particularly so, in the EU countries including Germany, France, Spain and Britain (ss40-41).
In Japan, patent law specifically governs compensation for employee inventions (s35) and compensation is generally paid in 3 stages – on the filing of a patent application, on grant of the patent, and when the patent is first used commercially. The compensation paid in such circumstances usually amounts only to nominal recognition of the inventor’s contribution to the art and rarely equates to its real book value. Nevertheless, the Japanese courts have in recent years granted significant pay-outs to injured inventors and employers are now much more aware of their obligations as to the meaning of that part of the statute which states:
“…[that] the amount of compensation will be decided by reference to profits that the employer makes from the invention and the amount of contribution that the employer made to the making of the invention”
In the US, most companies have rules regarding compensation for employee inventions. There is however, no statutory obligation to do so. The overriding feature regarding compensation for inventions is between the employer and the employee to decide and is generally covered in the Employment agreement.
In many cases it is prudent for the Employer company to own the invention in any case given that they have both the finances necessary to bring an invention from idea to saleable product and will be better able to protect the patent in infringement proceedings.
Finally in all patent applications the true and first inventors must be recorded for any invention so that the kudos that goes along with it is rightly afforded to them as inventors.
What steps should Employers/Employees take to ensure their Rights
Seek Legal advice of your IP Agent. Ownership of IP rights differs from country to country and according to the circumstances of the invention. Forewarned is forearmed. Use a clear written agreement or employment contract to ensure that the ownership of any IP right is clearly understood by all parties involved. This includes any material created by an employee, consultant, researcher or contractor. The agreement should stipulate whether a formal assignment of rights will take place and when, and will include any modifications or improvements to the invention. The agreement should also make reference as to who is allowed to exploit the invention, when and where it will be exploited and any compensation that may be paid. Have in place a Confidentiality or Non-Disclosure Agreement. Have in place a Non-Competition Agreement to cover Employee movement. The Non-competition provision may be part of the employment contract or may be a separate contract and is usually in response to the selling of trade-secrets, although they can impact on patents conceived during the employment period but put into practice later. Consider the usefulness of Assignment of all Rights to an invention as being part of an Employees termination package. Above all have the above agreements and understandings signed before the beginning of any employment or commissioned work is agreed.
Next - Franchising