Who owns an employee invention?

30 September 2015

There is a commonly held belief that a global employer will automatically own the inventions produced by its employees. The reasoning goes that an employer is legally “covered” because its employees have signed a standard US-style Intellectual Property Agreement (IPA) granting the company ownership.

The reality is that in most countries the employee will be the legal owner of a workplace invention, and a US-style IPA — in which all future workplace inventions are assigned to the employer — will be powerless to grant ownership to the company. It is therefore essential for multinationals to have an appreciation of host-country laws and processes in order to attain and secure valuable intellectual property (IP).

In this article we aim to dispel some common IP misconceptions, provide insight into global IP laws, and provide guidance on how an employer can ensure it has the best possible chance of securing IP.

Reviewing local IP laws

The first step in protecting your valuable IP is reviewing related laws in all your countries of operation. You’ll need to determine the initial owner of an invention under local law. If ownership vests in the employee, then you’ll need to understand exactly what is required to switch ownership to the company, including the associated financial and administrative burdens.  

Determining the initial owner of the invention

A number of countries — including Sweden, France, Mexico and Brazil — determine ownership of an invention based on three distinct groups: “research,” “work-related” and “free.” The table below provides descriptions and ownership rights.

Other countries do not have a legal “research invention” category, and simply classify inventions as either “free” or “workplace” (also called “work for hire”). In these jurisdictions, the definition of a workplace invention is relatively broad and includes all inventions resulting from an employee performing his or her duties. Country-specific laws will determine whether these inventions are owned by the employer or employee.

In order to increase the potential for inventions to be classified as research inventions, employers should strongly consider including language in their employment contracts indicating that inventive output is a principal employee duty. In countries that legally categorize inventions in this way, only those inventions produced by employees hired to invent are automatically the property of the employer. These are so called “research inventions” (category one, above). Employers often underestimate how narrowly defined this category is, so it’s worth reiterating that a research invention is the output of an employee whose principal part of their role is to invent. A failure to understand this distinction can create misguided assumptions of ownership, particularly with regard to work-related inventions (category two). In such cases, an employer may not understand its rights and obligations, and so may fail to formally apply for an assignment by a certain deadline. This can in turn lead to a loss of IP.

The UK and Switzerland are examples of jurisdictions where the employer will own work for hire inventions, and their respective courts have traditionally taken a strong position on upholding the principle. By contrast, Austria, South Korea and India all fall into the camp of countries that recognize the employee as the owner of a work for hire inventions.

In many other countries the position is less clear. Japan, for example, recognizes “shop rights.” This means that despite the fact that a work for hire invention is owned by the employee, the employer is granted a free license to use it. In Germany, a work for hire invention is owned by the employee, but it is deemed to automatically transfer to the employer on creation (i.e., rather than the employer being the owner from the outset there is an initial period where the employee is the owner).

Securing employer ownership

Given that works for hire in many countries will be initially owned by the employee, it follows that employers will want to improve on this position by having their employees sign an IPA. Most standard IPAs (and certainly those drafted initially for US application) purport to assign to the employer the ownership to “all future works for hire produced by an employee.” This is known as a “pre-invention assignment.” In many countries, however, an agreement of this kind is unenforceable. For example, in most European countries an agreement will only have legal force if it improves on the employee’s statutory position. Since a pre-invention assignment improves the employer’s position, the provision is worthless in those countries.

A pre-invention assignment is also of limited value in countries where an assignment of ownership is conditional on specific actions that can only take place at the time the invention is created. For example, in France and Sweden the employee must formally notify the employer, and the latter has four months to then claim the invention. An employer with no knowledge of this process that blindly relies on the terms of an existing IPA will no doubt miss the deadline and forgo their right to the IP.

Process alone, however, will often be insufficient to transfer ownership of an invention — additional compensation is also required.

In China, employee compensation must be paid within three months of the issuance of a patent, and the compensation amount must be reviewed annually over the life of the patent. The parties are free to agree contractually to the amount payable for the invention; should they fail to do so, then statute stipulates that an annual remuneration is payable of at least 2% of the profits resulting from the invention’s exploitation, or 10% in the case of a license. Given the potential for huge payouts, it is wise to fix an amount in a contract.

In Germany, compensation takes into account the economic value of the invention. The amount paid to the employee will depend on the level of his or her contribution and the degree of inventiveness required of his or her role. As a result, those hired to invent in circumstances where the employer has played a pivotal role will receive minimal compensation.

In most of these examples, an IPA stating that normal salary payments are full and valuable consideration for future inventions will obviously be in conflict with local law and unenforceable. It is an unpalatable truth for employers that in most countries the employee inventor must be compensated for his or her endeavors.

Understanding jurisdiction and choice of law

Given that these IP-related laws tend to favor the employee, an employer may ask: Can all of this be avoided by a choice-of-law clause applying the law of a country with a more favorable position (such as the laws of many US states)?

Multinationals will regret to hear that the answer is “No.” For EU member states, the Rome I Convention ensures that a choice of law cannot deprive an employee of the mandatory laws applicable in the country in which he or she works. And in other countries the underlying position is generally that an employee’s statutory rights cannot be derogated by a choice-of-law clause.

Summary recommendations

Given the high stakes involved, in order to minimize the risk of lost IP you need specialist advice for each country of operation. That said, I’ll conclude this post with some general steps you should take to reasonably ensure company ownership of inventions.

  1. For each country of operation, understand the difference between employer- and employee-owned inventions.
  2. For countries that recognize research inventions (which the employer owns) maximize your chances by ensuring that your employment contracts appropriately record inventiveness as a core duty.
  3. Understand but don’t blindly rely on pre-invention assignment clauses ( see 4 and 5 below)
  4. In many countries you will have a limited timeframe in which to claim an invention; ensure that you have clear internal protocols so that any employee notification is met with a rapid response. (Note that in Germany a text from an employee can be acceptable notice.)
  5. An otherwise valid patent will be overturned if it transpires that the employee did not receive compensation per local law; ensure that you budget for compensation for any new invention, and consider compensating employees for prior inventions.