The Delicate Issue of Employee Inventor · PDF fileThe Delicate Issue of Employee Inventor...

Dr. Thomas Marx Award 2013

The Delicate Issue of Employee

Inventor Compensation

May 31, 2013

Elodie BAUDRAS

13 rue Lafayette 31000 Toulouse 05.62.27.50.50

[email protected]

France

The Delicate Issue of Employee Inventor Compensation

2

Table of Contents

I. Introduction……………………………………………………………………………………………………………….3

II. Overview of the main systems of employee inventor compensation ………………………..6

1. Legal system of employee Invention in China…………………………………………………6

2. Legal system of employee Invention in United State of America (USA)…………. 8

3. Legal system of employee Invention in Japan ………………………………………………10

4. Legal system of employee Invention in Germany…………………………………………11

5. Legal system of employee Invention in India………………………………………………..13

6. Legal system of employee Invention in Brazil……………………………………………….14

7. Legal system of employee Invention in United Kingdom……………………………...16

8. Legal system of employee Invention in France…………………………………………..…17

9. Legal system of employee Invention in South Africa………………………………......19

III. Panorama and reflection on litigation employee inventors………………………………………20

1. Observations about the worldwide legal systems………………………………………..20

2. The place for litigation ………………………………………………………………………………...21

a) Prior conciliation stage……………………………………………………………….…….21

b) The competent Courts……………………………………………………………………...23

3. Worldwide illustrations of the judicial outcome in relation to litigation relating

to employee inventions…………………………………………………..……………………………24

4. What future for the litigation of employee inventors?....................................26

IV. Conclusion……………………………………………………………………………………………………………….28

V. Acknowledgements……………………………………………………………………………………………….…29

VI. Bibliography…………………………………………………………………………………………………………….29


3

I. Introduction

At different scales, and to give some examples, accelerating economic development

of "emerging" countries, investment in innovative fields, issuing economic stakes regarding

the scarcity of resources, the democratization of access to knowledge and information

through the internet or even the velocity of technology, there are a multitude of factors

whose interaction produce a world that is changing at an accelerating speed. The world

reinvents itself every day, and at the heart of this constant transformation, innovation is a

major challenge for governments and the companies active in their economies.

Innovation is source of novelties, it will change the technological, organizational, economic,

and even social factors and structure of economies, and will to a large extent form the

societies of tomorrow and determine what will happen in the future. Innovation is at the

center of government policies, and it is the crux of worldwide business.

The number of patents filed in a country is indicative of energy and investments

made by firms and reflects the results of an innovation policy. In the era of technological and

scientific revolutions, the patent has become an indispensable tool as evidenced by the

annual number of patent applications worldwide, which has doubled between 1995 and

2011, going from 1.05 to 2.14 million1.

This constant and global rise in the number of patents is mainly due to the increase in

international trade. Innovations travel, evolve and change to adapt to the final consumer.

Abraham Lincoln, in “Second Lecture on Discoveries and Inventions”, describes the

six major steps of the History of Liberty. The last of these milestones, according to him, is the

copyright and patents: “These began in England in 1624; and, in this country, with the

adoption of our constitution. Before these, any man might instantly use what another had

invented; so that the inventor had no special advantage from his own invention. The patent

system changed this; secured to the inventor, for a limited time, the exclusive use of his

1 WIPO Economics & Statistics Series, 2012 : World Intellectual Property Indicators.


4

invention; and thereby added the fuel of interest to the fire of genius, in the discovery and

production of new and useful things”.

Originally created to encourage innovation, the patent has now become first and

foremost a formidable weapon for industry. Companies invest millions of dollars in research

and development to try to find the technology that will change tomorrow. The protection

conferred by the patent is then a tool to ensure maximum return on investment. This right

to exclude others from the use of patented inventions becomes paradoxically the sine qua

non condition for companies to engage in research and participate in the evolution of

science and society.

Nevertheless, at a time of ruthless corporate patent wars (as illustrated by the high-

profile litigation Smartphone’s manufacturers) another more discreet source of litigation is

becoming increasingly important: litigation for employee inventors compensation.

The boom in this area of litigation is the corollary of the rise in the number of patents

granted worldwide. Although often overlooked, the employee inventor is nevertheless the

primary source of the patent world since this is the source of nearly 90% of patents;

however, contrary to what Lincoln wrote, the employee inventor does not always have a

“special advantage from his own invention”.

Although the individual’s contribution to advances in science and technology is necessary,

there is far less agreement when it comes to the question of compensation as employer

companies seem generally quite reluctant when it comes to paying the employee inventor.

The legislator has intervened in many countries to establish a system of

compensation of employee inventors in order to find a balance between what creates an

invention on the one hand and the industrial, commercial and financial risks assumed by the

employer company on the other hand. However, these laws are often not recognized and

incorrectly enforced, and, generally, respond only partially to the complex problems of the

remuneration of the employee inventors.


5

I have selected a number of countries to see how everyone handles this delicate issue

of employee inventor compensation. This study is obviously not exhaustive, and is

essentially focused on the main patent filing countries that are the first to be confronted

with this issue.

Despite the implementation of remuneration systems for employee inventors, we see that

litigation on this issue is becoming more frequent and that the outcome surprising, and, a

fortiori, disturbing for business.


6

II. Overview of the main systems of employee inventor compensation

Some countries distinguish between the private sector and the public sector, and

generally the employee inventors of the public sector enjoy more advantages and

recognition. The employee inventors of public sector, however, may encounter some

obstacles in securing their remuneration, but, I will only deal with the private sector since it

represents the majority of patent applications and it gives rise to more difficulties than the

public sector.

It is interesting to note that the main depositor countries of patent applications have

almost all a more or less complex and comprehensive system of compensation for employee

inventors. However, the rights of employee inventors is far from being equal from one

country to another.

1. Legal system of employee Invention in China

With 526.4122 patent applications in 2011, China took first place in the table of

applicants for patents in the world.

The Patent Law of the People’s Republic China, which is a general patent law, was

adopted on March 12, 1984 and was revised for the last time on December 27, 2008. The

Implementing Regulations of the Patent Law, promulgated by Decree on June 15, 2001, was

modified on January 9, 2010, in particular to complete the employee inventor legal system.

Most of the rules contained in these texts are mandatory.

There are two (2) types of employee inventions: the service inventions and the free

inventions.

According to the Article 6 of the Patent Law, the service inventions are those

“accomplished in the course of performing the duties of an employee, or mainly by using the

material and technical conditions of an employer”; since the inventor has an employment

invention, the ownership of patent rights belong to the employer.



7

First, the employer shall reward the inventor of service invention within three (3) months of

the announcement of the grant of the patent rights. Secondly, the remuneration is reviewed

annually over the life of the patent and, pursuant to Article 16, “after such patent is

exploited, the inventor … shall be given a reasonable amount of remuneration according to

the scope of application and the economic results”.

With regard to the manner and amount of the reward and remuneration, the

Implementing Regulations provide that the employer and employee can “enter into

contract” or they can “provide it in its rules and regulations formulated in accordance with

the laws” (Article 76). In the absence of specific provision, the standards of the articles 77

and 78 of the Implementing Regulations will be applicable. According these provisions “the

sum of money prize for a patent for invention shall not be less than RMB 3, 000 Yuan” (380 €

or 490$) (and a supplement monetary award on favorable terms if the invention is made on

the basis of an inventor’s proposal) and an annual remuneration superior or equal to 2%

from the profits from exploitation of the invention or a percentage of not less than 10% of

royalties in case of licensing.

Moreover, Rule 326 of the Contract Law (adopted on March 15, 1999) provides also in the

case of a contract to use or to transfer rights on a service-related technology (including

patent) by a legal person, the latter shall deduct a certain percentage of the proceeds

derived from using and transferring the service-related technological result so as to give

awards or remuneration to the person achieving the service-related technological result.

Therefore, according to all these provisions, a contract between employer and employee

which provides that the employee’s salary includes the reward and the remuneration for the

invention or stipulates that there is no reward and remuneration, will be held to invalid.

As concerns non-employment invention (free invention), the employee inventor is

the owner of the patent rights and “no unit or individual shall prevent the inventor or

designer from filing a patent application for a non-employment invention” (Article 7).

Nonetheless, the Patent law provides that if the employee has used the material and

technical conditions of an employer to accomplish the invention (entity’s money,

equipment, spare parts, raw materials or technical data…), and a contract was concluded

with the employer, the contractual provisions shall prevail.


8

2. Legal system of employee Invention in United State of America (USA)

The USA is the country with the second largest number of patent applicant in 2011,

with 503.5823 patent applications.

Nevertheless, and in contrast to the copyright, there is no federal law about the

employer rights to patents. Legislative remedies protecting employee inventors have been

proposed in Congress (Brown Bill, Moss Bill…) but none have been adopted and they remain

dormant since 1984.

Therefore, state common law or statute can provide a legal system providing for the

ownership of patent rights ro employee inventions, but it’s not an obligation; some are

mandatory and others are simply “default” rules.

In absence of an express or implied contracts between employee and employer, the

common law of patent ownership can be applied. While this may change from one state to

another, in general there are three (3) solutions:

- If the inventor had been specifically hired to invent, or has been assigned tasks to

resolve a particular problem in the course of employment, the employer has

ownership;

- If the inventor is not employed to invent and creates due to the contribution of

resources by the employer (i.e. using materials and equipment, during his or her

hours of employment…), the employee is the owner but the employer may receive a

shop right which is a non-exclusive, non-assignable, royalty-free license for the

employer to use the invention for the duration of the patent;

- If the inventor was not hired to invent, or if the invention was conceived

independently of his or her job or if it has nothing to do with the company's business,

the employee will be the owner only if he proves that the invention was not made in

pursuance of guidance and instruction of the employer.



9

Nevertheless, the application of the common law is minimal since the majority of the

companies have established contracts with their employees.

To protect themselves from competition and the non-fulfillment of their potential

ownership of patent rights, the employer requests the employee to sign contracts assigning

their patent rights as a condition of their employment. These contracts are widely in favor of

the employers and it permits them to draft extensive provisions that are rarely overturned

by the Court .

Generally, in the individual employment contract, the employee inventor waives his or her

rights, and in particular any legal right to additional compensation beyond the normal salary.

This solution was approved by the US judicial system which considers that the individual’s

employment is sufficient consideration to support a legally binding contract4.

In a typical agreement the employee inventor undertakes, without any additional

compensation, to transfer all patent right in consideration of employment, to disclose

immediately all inventive ideas and to assist employer in the patent filing process. Sometime

there is an award, but it can vary greatly from employer to employer and it’s not a

generality.

Some states like Illinois, California, Kansas, Washington or Minnesota have state laws5 that

require the employee be informed by writing of the state’s restrictions on an employer’s

rights to obtain an assignment of employee invention. The non-fulfillment of this obligation

could affect the validity of the contract. For example, the state of Illinois enacted the

Employee Patent Act (765 ILCS 1060) which restricts the types of inventions an employer can

require an employee to contractually assign and prevents the employer from introducing an

unlimited transfer of rights of the inventor employee.

Even in most of the other states, pre-invention assignments cannot be grossly unfair since

the employers want their pre-invention assignment agreements to be legally enforceable;

sometimes the assignments are based on the provisions of the rules applicable in the other

states mentioned above.

4 Buckingham Products Co. v. McAleer Mfg. Co., 108 F. 2d 192 (1939); Hebbard v. American Zinc, Lead, and

Smelting Co., 161 F. 2d 339 (1947) 5 i.e. Cal. Lab. Code 2870-2871; Del. Code. Ann. 805; 765 Ill. Code 1060; Minn. Stat. 181.78; N.C. Gen.Stat. 66-

57.1; Wash. Rev. Code 49.44.140…


10

To summarize, it can be a significant disparity for employee inventors between the different

states and also between the companies.

3. Legal system of employee Invention in Japan

342.6106 patent applications were filed in Japan in 2011.

The subject of employee inventor is treated by the Japan Patent Act No. 121 of April

13, 1959 (as last amended by Act No. 16 of April 18, 2008) which has been completed as

concerns this question by the 2004 Amendment.

The Section 35 of Patent Act is devoted to the employee invention. Japanese law

treats only the employee invention which is defined as invention “falls within the scope of

the business of the said employer, etc. and was achieved by an act(s) categorized as a

present or past duty of the said employee, etc. performed for the employer”. This employee

invention belongs to the employee.

Nevertheless the employer “shall have a non-exclusive license on the said patent

right” (i.e., the shop right) without paying compensation (as in the U.S.) and the employee in

whom “vests the right to obtain a patent or the patent right for an employee invention in the

employer, etc., or grants an exclusive license therefor to the employer, etc., the said

employee, etc. shall have the right to receive reasonable value” (as in Germany) in

accordance with any agreement, employment regulation or any other stipulation.

The expression of “reasonable value” is not defined; therefore the terms of the

contracts are very important. The Patent Act specifies though that in the case of a

contractual provision in an agreement about this subject, “the payment of value in

accordance with the said provision(s) shall not be considered unreasonable in light of

circumstances where a negotiation between the employer, etc. and the employee, etc. had

taken place in order to set standards for the determination of the said value, the set

standards had been disclosed, the opinions of the employee, etc. on the calculation of the

amount of the value had been received and any other relevant circumstances”.



11

There are several compensation methods used by Japanese firms, but the most

typical takes place in two times:

- Fixed nominal compensation is paid at the time of filing a patent application or

patent registration;

- Revenue-based payment for the inventions that generate value (i.e. realized sales,

profits, or royalty income) which may be a percentage of sales revenue or a fixed

amount of money paid out when a performance measure achieved a certain

milestone.

This compensation method has been implemented very recently; before the Japanese firms

simply just paid a fixed nominal compensation.

Article 35 (5) specifies that where there is no agreement or if the relevant provision is

unreasonable, the compensation shall be determined by taking into consideration:

- the amount of profit to be received by the employer from the invention;

- the employer's costs and contribution to the invention’s development;

- treatment of the employee;

- any other circumstances relating to the invention.

Otherwise, as concerns the inventions that are not considered as employee inventions

(as defined previously), Article 35 (2) specifies that a prior agreement cannot provide for the

transfer of patent rights and licensing to the employer of these inventions.

4. Legal system of employee Invention in Germany

59.4447 patent applications were filed in Germany in 2011, which places it at the

forefront of European applicants.

German law on employee inventions, "Arbeitnehmererfindungsgesetz" of 25 July

1957, as amended in 1994, provides a specific system of compensation for employee



12

inventors. The German legislator adopted a dualistic classification of employee inventions

distinguishing service inventions and free inventions.

The employee is in any case obliged to immediately notify the employer in writing.

The employer then has three months to contest the classification proposed by the

employee. In practice, the qualification of the invention generates little conflict.

The service inventions are defined as inventions made during the course of the

employment contract and that meet one of the following two (2) conditions:

- They are the result of the activity of the employee in the company;

- They are mainly based on company’s experience or business.

The employer has a maximum of four (4) months to claim the right to exploit the service

invention. The claim must be in writing and may be total (ownership) or partial (license).

If the employer claims the whole of the service invention, it has an obligation to file a patent,

otherwise the employee may do so, and he must pay the employee inventor.

The compensation system is essentially based on the profitability of the invention.

The law establishes the principle of adequate financial compensation and specifies the

amount to be determined by three (3) elements:

- The economic value of the invention,

- The employee's duties,

- The role of the company in the invention process.

For the method of calculating the financial compensation, the law refers to the 1959

Ministerial Directives, which, despite the absence of a normative character, are widely used.

According to these Directives, the financial compensation is calculated by multiplying the

value by a factor of "participation" in the form of a coefficient which measures the

contribution of the inventor between 0.01 to 0.99. This coefficient is fixed on average

between 0.1 and 0.2. Several methods of calculating the value of the invention are

proposed, including the analogy with licensing and the profit for the company. The first

method is the most commonly used: the inventor then receives royalties, that is to say, a

certain percentage of sales related to the invention which varies depending on industries.

This percentage is an average of 0.075%, being usually between 0.005% and 0.5%.


13

If the employer fails to claim the invention, it will be considered a free invention.

Free inventions are defined by default since it is all those that are not regarded as

service inventions. The employee inventor may dispose of it. However, the employer can

make a claim, the "Inanspruchnahme", which must be exercised within a maximum period of

three (3) months and which, if successful, can reclassify the invention as a "service "

invention. For this, it is imperative that the invention falls within the field of activity of the

company and if the employer wishes to be awarded ownership, he must also prove that the

invention was created by the employee during working hours. If the invention is requalified

as a service invention, the system of financial compensation described above will apply.

The Republic of Korea has been very much inspired by the German system and has

adopted a similar system in 2006 in its enactment of the Invention Promotion Act.

5. Legal system of employee Invention in India

42.2918 patents applications were filed in India in 2011.

Even if the Indian law is often based on the UK law, as concerns the employee

invention, Indian law is silent. Neither the Indian Patent Act of 1970 nor the Indian Patent

Rules of 2003 provide for any provision on this subject.

The owner of the employee invention depends upon the eventual provisions in a

contract of employment or an independent contract. In this case, it is the Indian Law of

Contract from 1872 that applies. However, where an undue restraint is imposed by a

contract upon an employee in the exercise of his profession or calling, the contract may be

invalid due to the application of the doctrine of restraint of trade.

The employee has a duty of loyalty to his employer, he is under an implied obligation

not to disclose any professional or trade secret which he comes to learn about by reason of

his employment; this eventually includes a patentable invention. The non-fulfillment of this

obligation may be sanctioned by damages.



14

If there is no specific contract, the employee invention belongs to the employee,

even if it was made during the employee’s working time and with the employer’s materials.

Nevertheless, according to the Law of Contract, due to the implicit fidelity and good faith

duties owed by the employee, an obligation may be inferred as arising from the employment

contract that the employee should hold the patent granted for the invention as trustee for

his employer. All circumstances must be considered in this case, in particular if the obligation

to invent is a term of his or her employment.

The non-compliance by an employee of his or her obligations to the employer can be

enforced by an action for breach of employment agreement. The court may order to the

employee to do all acts reasonably require by the employer to file a patent and the

employer may not be obliged to indicate the employee inventor’s name.

If an employee obtains a patent in his or her own name for an invention made during

his or her employment, the employer may bring an action for an order that the patent

should be assigned to him.

The question of payment of employee compensation is only a contractual question.

However, in absence of any specific agreement, the employer may be entitled to the patent

rights, and the quantum of compensation, if any, can be determined by the Court based on

the circumstances of the employee’s invention.

6. Legal system of employee Invention in Brazil

Brazil files the largest number of patents in South American, with 22.6869 patent

applications in 2011.

Articles 88 to 93, and 121 of Brazilian Industrial Property Law of May 14, 1996

(n°9279/96) regulate the relation between the employee and the employer as concerns

invention, and these provisions cannot be changed by the parties in the employment

contract. Moreover, the employee invention provisions in an employment contract must



15

comply the Brazilian Labour Law Consolidation which regulates in particular the definition of

employee contractual duties and rights.

Once again, the IP Law distinguishes three types of employee’s invention: service

inventions, free inventions, and inventions related to the company.

The service inventions are those which result from a work contract where the

employee has the mission to research or exercise inventive activity, these inventions belong

to the employer (Article 88) and the remuneration is limited to the employee’s salary, except

a contrary provision in a contract.

The free inventions are the inventions unconnected to the work contract and when it

does not result from the use of resources, means, data, materials, installations or equipment

of the employer. The employee is the only owner of the patent rights (Article 90).

The last category of invention relates to inventions made without any mission to

invent included in the employment contract but derived from the use of the employer’s

resources (Article 91). In this case, except in the case of an express provision in the contract

to the contrary, the ownership of the patent rights shall be common, in equal parts. The

employer has an exclusive right of license for exploitation and the employee has a fair

remuneration in return in the form of royalties or periodic amount. Moreover, if the

employment’s contract of the employee includes an assignment, a reward may be done at

once, at the moment of assignment. Unless otherwise agreed, the employer has one year

from the date of granting the patent to begin the exploitation of the invention, under

penalty of the ownership of the patent being transferred as an exclusive right to the

employee, except where there are legitimate reasons for the failure to exploit. At last, in the

case of the assignment of the patent, the co-titleholders, under the same conditions, may

exercise the right of preference.


16

7. Legal system of employee Invention in United-Kingdom

22.25910 patent applications were filed in the United Kingdom in 2011.

Five (5) articles of the Patent Act on 1977, amended in 2004, are devoted to

employee inventors. Once again, the legislator makes a tripartite distinction between

inventions based on the framework of the employment contract of the employee inventor.

Thus, inventions made in the course of normal duties or particular mission and that

result from the employee's professional duties belong to the employer.

It is the same for inventions made in the course of employment (but independent of

professional obligations) when the employee is specifically obliged to serve the interests of

the company with regard to the nature of his position and responsibilities.

In these two first cases, if the invention is the subject of a patent, the employee may receive

financial compensation if the invention produces a "windfall profit" for the employer, taking

into account among other things the size and the nature of the business.

Few collective agreements address this issue; in most cases, at the request of the employee,

the Intellectual Property Office or a specialized court 11 will determine the award and

compensation. The employee must submit his request within a period beginning on the date

of grant of the patent and ending one (1) year after the expiration of the effects of it, no

later than 21 years after the grant. The applicant may obtain payment of compensation in a

lump sum and / or monthly payments.

The financial compensation is a "fair share" of the benefit derived by the employer (or

reasonably expected) of the invention or patent. The compensation takes into account the

contributions of the employee inventor, third parties and the employer, including "the

nature of the employee's professional duties, remuneration and other benefits” that are

associated with his employment or that he has received due to the invention.

10

WIPO Economics & Statistics Series, 2012 : World Intellectual Property Indicators. 11

In England and Wales, it is either Patent Court, which is part of the High Court (which judge in the first instance the most important civil cases) or the Patent Court, created in 1990 in the trial court in London. Elsewhere in the United Kingdom is another court judge these cases.


17

Other inventions belong to the employee, regardless of the nature of the relationship

they have with the activity of the inventor in the company. The employee may use it with his

or her discretion and may also transfer the patent to his or her employer.

In the event that the employee inventor who holds a patent in relation to his invention

decides to assign his rights to his employer, financial compensation may be paid if the

benefit that he earns from the invention is insufficient compared to the employer.

Determining the amount of financial compensation will be taking into account in particular

the contribution of third parties and the employer as well as comparing the revenues that

each party earns from the invention.

There is nevertheless a real gap between the law and its practical application since

few employees address requests for compensation in relation to their inventions to the

Office of Intellectual Property or the Patent Court, probably because when they do, this

approach rarely secures a favorable outcome.

8. Legal system of employee Invention in France

In 2011, 16.75412 patent applications were filed in France.

The specific law to employee inventors of 13 July 1978, amended by Act of 26

November 1990, provides a number of provisions that have been incorporated into the Code

of Intellectual Property Articles 611-7 et seq.

The French system distinguishes also three types of employee inventions : mission invention,

attributable off mission inventions and not attributable off mission inventions.

Whatever type of inventions, the employee has, the legal obligation to report

immediately in writing his invention to his employer while providing a classification thereof.

The employer then has two months to decide on the classification proposed by the

employee.

12

WIPO Economics & Statistics Series, 2012 : World Intellectual Property Indicators.


18

Mission inventions are defined as those performed by the employee under his

contract of employment and missions entrusted to him, these invention belonging to the

employer. The law provides that in return, the employer must pay an "additional

remuneration" to the employee, without fixing the amount or method of calculation. The

additional payment is then defined in accordance with the collective labor agreements,

company agreements and individual employment contracts which are often quite evasive

about it.

Typically, a few hundred dollars is paid at the time of the employer's decision to file a

patent application, and a second payment of a similar amount is paid if an international

extension of the original application is made. Finally, sometimes it happens that a third

premium is paid at the time of the launch of the commercial product. The average range of

additional compensation varies between 250 and 2500 € (323 at 3230 $).

Attributable Off mission inventions are the inventions made by the employee in the

course of his functions or in the field of activity of the company; they belong to the

employee but the employer has a right to claim for it.

This right of claim must be made within four months of the declaration of the

employee invention. Employers interested in the invention may claim ownership or use of

the invention, but in any case it is required to pay a "fair price" to the employee. The fair

price is determined based on "commercial and industrial utility of the invention" as well as

the initial contributions of one or the other of the parties, therefore presents some

economic benefit to the employee.

Finally, Non attributable off mission inventions are defined negatively as those inventions

that do not fit into the first two categories; they were conceived out of the employee's

mission and field of activity of the company and belong to the employee who can freely

dispose of them.

Despite the legal obligations imposed on the employer, a number of companies in

France not have put in place contractual compensation systemsor have set up a minimalist

system.


19

In addition, most Francophone African countries have adopted the same or similar

dispositions to those provided by the French system13.

9. Legal system of employee Invention in South Africa

South Africa has filed 7.24514 patent applications in 2011, and is the only African country

in the top 20 of countries worldwide filing patent applicants.

It is the South Africa Patent Act n°57 of April 26, 1978, modified on 2002, which regulates

the relation between employee inventor and employer.

Article 59 of the Patent Act is mandatory and provides that “any condition in a contract

of employment which requires an employee to assign to his employer an invention made by

him otherwise than within the course and scope of his employment or restricts the right of an

employee in an invention made by him more than one year after the termination of the

contract of employment, shall be null and void”.

According to this provision, and even if it is not expressly stipulated by the Patent Act, it

seems that an invention made by an employee “within course and scope of his employment”

would rightfully be the property of the employer.

In practice, the employers include specific dispositions in the employment contracts or in

regulations or institutional rules or statutes, as the case may be.

No provision authorizes the employee to file patent for his or her invention; however it is

not uncommon that the employment agreement provides the employee with the right to

protect the invention in his/her name if the employer has no commercial interest in the

invention.

The Patent Act does not provide for any compensation for the invention made in the

course of employment. This question has been addressed for the last time by the

government in 2005, but the final Patents Amendment Act No. 20 of December, 20 on 2005

did not contain any disposition about this subject.

13

http://www.oapi.int/index.php/es/propriete-intellectuelle/propriete-industrielle/brevets 14



20

Nonetheless, some companies, universities and research institutions provide some

compensation or rewards to employees for commercially successful intellectual property

created by them.

II. Panorama and reflection on litigation employee inventors

The approaches to the issue of compensation for employee inventors may vary from

one country to another, both the statutory law and the judicial approach of the Courts.

Nonetheless, there is a certain volume of jurisprudence in the countries analyzed that

illustrates the potential risk incurred by the companies that filed a patent and exploit it

thereafter, especially when it's a commercial success.

1. Observations about the worldwide legal systems

As we have seen in the first part, the issue of the compensation for the employee

inventors is not dealt with in the same way from country to country.

Some countries such as India have not envisaged any disposition of this subject.

Therefore, in this case, the civil law applies, in particular the contractual provisions.

Most countries have provided general dispositions on their Patent law and their application

require often the intervention of a contract between the employee and the employer in

particular to determine the amount of the compensation. Some countries like Switzerland,

approaches the subject briefly in their Code of obligations (i.e. article 332 of the Swiss Code

of Obligations).

Finally, some countries such as Germany or France have special law about the compensation

for the employee inventor.

Most countries differentiate two (majority) or three types of employee inventions.

The principal distinction is between inventions made in the employment contract and those

made outside this framework.


21

Nevertheless, the ownership of service inventions changes depending on the countries. In

most cases, the employer is the owner. Regarding those countries which provide that the

invention belongs to the employee, the law provides generally a right for the employer to

claim the ownership of this invention.

For the countries which provide an intermediate category of employee invention (invention

made outside the employee’s mission but in relation with the company’s activities), in

general the employee is the owner but the employer has also a right to claim the ownership.

As an exception, Brazil provides for joint ownership between the employee and the

employer.

The question of compensation is not approached in an identical manner in all

countries. The idea is often discussed in national laws, but the conditions of its application

can vary.

Indeed, the additional remuneration is mandatory in countries such as China, Japan,

Germany, France, Poland, Republic of Korea, or Sweden. Nonetheless, countries such as

USA, India, Brazil, Canada, Australia, UK, South Africa, Spain, Denmark, Netherlands or

Switzerland do not provide additional mandatory compensation or only in case of “windfall

profits” since they consider that the salary is sufficient.

The compensation for employee inventions is an area of law where there is currently

a huge disparity from country to country across the world..

2. The place for litigation

The rules of procedure as regards litigation relating to employee inventions also vary

a lot between the different countries.

a) Prior conciliation stage

Sometimes, a prior conciliation stage is provided for but it is often not mandatory and

it is not necessary especially competent in the patent field.


22

For example, the Article 85 of the Implementing Regulations of the Patent Law of The

People's Republic of China provide for potential intervention of the administrative authority,

at the request of the parties, to mediate in particular “any dispute over the ownership of the

right to apply for patent and the patent right” or “any dispute over the award and

remuneration of the inventor or creator of a service invention-creation”.

The French law provides, for its part, the possibility to present any dispute concerning

employee invention to the National Commission for Employee’s Inventions which is chaired

by a judge assisted by two representatives, one for employers and one for employees.

In the South Africa, the parties may apply to the Commissioner of Patents (who is a

designated judge of the High Court of South Africa) to decide the matter. The Commissioner

may order a party to execute an assignment, and, if it appears to be just and equitable, may

order payment of compensation to a party.

Germany has a mandatory prior conciliation stage with the Federal Arbitral

Commission which strives to find amicable settlement and acquires binding force if

uncontested. This Commission is chaired by a lawyer of the Federal Patent Office, and

includes two experts from the Office (which have special expertise in the invention’s field)

and, only at the request of the parties, representative of employees and employer delegate.

The Brazilian Labour Law Consolidation provides also a mandatory conciliation stage.

Moreover, even if the opportunity of prior conciliation stage is not specifically

provides in the case of employee inventions, it is also possible in UK (where the Civil

Procedure Rule aims to promote the resolution of disputes as early and to avoid maximum

the need for court proceedings) or in Japan (according to the article 3 of Conciliation civil law

which provide that Summary Courts shall in principle have jurisdiction over civil conciliation).

The prior conciliation stage will be envisaged in India only if any “arbitration” clause

is contained in the “service” contract between the employer and employee.

Therefore the prior conciliation stage is regularly considered with more and less

precision in the most of countries and can be a good alternative to the judicial proceedings.


23

b) The competent Courts

If there is no conciliation to mediation procedure, or if the parties refuse mediation

or also if the mediation is not successful, the employee’s invention dispute can be brought

before the competent Court.

Once more, a difference can also be noted as concerns the competent Courts for any

disputes about employee’s invention.

Only a few countries have chosen the Labour Court to deal with this kind of dispute.

This is the case of Brazil where the tendency is to discuss this issue before the Labour Judge

since it considers that relevant aspects of the employment contract must necessarily be

examined by the judge to solve the dispute.

Most countries have decided to give jurisdiction of this dispute to the Courts that are

usually competent for intellectual property disputes or more generally for civil disputes.

In the United States of America, the District Courts are competent to discuss this matter in

the first instance. In Germany, the court may only be used if the Federal Patent Office has

refused jurisdiction.

Every Court in India is a Court of Equity as well as of Law. Therefore, the employee’s

invention dispute may be determined by the Court of Law (civil) in an equitable manner.

In China, according to rule 1 of “Several Provisions of the Supreme People’s Court on issues

relating application of Law to Adjudication Committee of the Supreme People’s Court”, the

People’s Courts are competent in first instance.

In Japan, this kind of litigation is dealt with by special Courts which deal with all intellectual

property disputes. France is in the same case since only ten District Courts, specializing in

intellectual property litigation, are competent in this issue15. United Kingdom has also

entrusted this task to the same courts that are competent to deal with other intellectual

property disputes (Patents Court, Patents County Court and in some instance, Chancery

15

Article L.615-21 of Intellectual Property Code


24

Division and Chancery District Registry, Patent Office)16.Finally, in South Africa it is also a

special Court which is competent since it is the Court of the Commissioner of Patents17.

3. Worldwide illustrations of the judicial outcome in relation to litigation

relating to employee inventions

The employer inventor’s litigation is not just hypothetic as will be illustrated in the

following examples. Even if claims are in general not usually and very successful, Judgments

can reach large amounts.

One of the largest convictions was pronounced in a case law in Japan: the

Nakamura/Nichia case. On January 30, 2004, the Tokyo District Court ordered in a first-

instance decision that Nichia pay a remuneration of 146 million € (189 million US$) to his

employee for the transfer of the rights in the invention relating to the blue light-emitting

diode (LED)18. Even if the Tokyo High Court later mediated the dispute, and a settlement was

reached, Nichia agreed to pay more of 6 million € (8.2 million $) to compensate the former

employee’s contribution which was estimated at 5% of the earnings attributable to the

patents concerned19. The year 2004 was not good for the Japanese companies (i.e. Hitachi

had to pay at his employee 1.13 million € [1.46 million $]20; Ajinomoto had to pay at first

instance to an employee 1.12 million € [1.45 million $])21. It is also in this context that the

Japanese law (Article 35) was amended in 2004 to reflect the decisions of the Tokyo High

Court relating to inventors disputes between employees and their employers, demanding a

determination of the amounts of additional compensation for inventions by a real

negotiation between inventors and employers.

In the United States of America, recent case laws are especially at the District Courts

level. For an example, we can quote the case of Powell/ Home Depot, in California, where

the U.S District Judge ordered the employer to pay the employee 2.3 million € (3 million $) in

16

Civil Procedure Rule 63 and Practice Direction 63 17

Sections 18 and 28, Patents Act 18

Tokyo District Court, Case No. Heisei 13 (wa) 17772 19

The Japan Times, Jan 12, 2005 20

Tokyo High Court, Case No. Heisei 14 (ne) 6451 21

Intellectual Asset Management June/July 2005


25

punitive damages plus 773.000 € ($ 1 million) for interest per year since 2006, and 2.16

million €(2.8 million $) for Powell's attorneys22.

In Brazil, to illustrate, in 2008 Court ordered the employer to pay 26.000 € (33.059,13

$ ) to his employee as an "equitable remuneration" since “the employer provides his

intellectual activity and his personality shines in the creation and / or improvement of the

invention, the product will be donated to benefit the economic exploitation of the employer.

In this case, all evidence shows that the plaintiff, using their intellective skills, assisted in the

development and improvement of the machine called "a SC 30'' -" Project Hope "-

extrapolation its contractual obligations, to adapt to the permissive cool in the comment”23.

For the United Kingdom, where the principle is no compensation, the leading case

law, and the first of its kind, is the Kelly and Chiu v. GE Healthcare Limited of February 11,

2009 judged by the High Court. In this case, GE Healthcare has been ordered to pay

compensation of 1.78 million € (2.3 million $) to two of its former employees who invented a

diagnostic tool for detecting hearts defects24.

In France, the biggest conviction was ordered by the Commercial High Court, in

November 21, 2000 against the company HOECHST MARION ROUSSEL25. The employer had

to pay 650,000 € (830,000 $) to his employees for French and US patents relating to a

prostate cancer drug. In another case law in 2008, the District Court was ordered DRAKA

COMTEQ FRANCE to pay additional compensations for several service inventions to three of

its employees: 450.000 € (583,000 $) for one, 310.000 € (401,000 $) for another and

280.000 (362.000 $) for the last26.We can also illustrate the judicial trend with a recent case

before the Court of Appeal of Aix en Provence in May 9, 2012 against ARCELOR MITTAL

which was ordered to pay 320,000 € (414.000 $) plus legal interest since 1993, therefore

500,000 € (647.000 $) in total27.

While war raged between Samsung and Apple, Samsung has also been condemned

by a South Korean Court to pay a former engineer 10% of the revenue generated by

22

Palm Beach Post News on May 10, 2010 23

Recurso Ordinário 00474-2008-043-03-00-9 24

http://www.marks-clerk.com/uk/solicitors/news/newsitem.aspx?item=244 25

High Court Commercial Division 21 Novembre 2000 N° 98-11.900 26

District Court of Paris November 10, 2008 3rd

Division, 1st

section N° RG : 07/06280 27

Court of Appeal of Aix en Provence, 2nd

Division, May 9, 2012 n°2012/196


26

televisions designed from its patents, the compensation amounted 4.3 million € (5.5 million

$)28.

In Germany, which is often cited as an example of a system of compensation to

employee inventors that functions well, there are few case laws about the compensation for

the employee inventor. For example, the Düsseldorf Court ordered BE GmbH & Co. KG to

pay at his employer 823,671 € (1.07 million $)29.

4. What future for the litigation of employee inventors?

The previous cases were cited in order to show the potential financial risk for the

employer from the employee inventor; nonetheless, there does not appear to be a

significant volume of litigation in this area. ;

Indeed, in most of the countries the difficulties seem rare and the disputes restricted.

Even if sometimes the employee’s rights are not respected in all or in part, the employee

rarely brings an action against his employer.

The reasons of this relatively reduced number of the claims may be varied; we can

mention three main reasons.

A first reason may result simply from the fact that the national rules are well adapted to

these situations between the employer and the employee inventor.

A second reason may result from the ignorance of the employee inventors of their rights.

A third reason may be the existence of a real economic imbalance between the employers

and the employees. In this case, the employee hesitates a lot before contesting the

employer's decision while employed for fear of losing his job. Although in majority of

countries there is a limitation period for bringing claims, which is more or less long, when

the employee leaves the company it is often too late.

28

http://www.internationallawoffice.com/newsletters 29

OLG Düsseldorf, decision of 4 March2004, case n° 2U123/97


27

Moreover, a lawsuit is quite expensive and the employee has rarely the financial resources

to pursue it.

This fear of the cost and repercussions of the lawsuit is often reinforced by the

tendency of the Courts in these cases to render disappointing judgments for the employee.

We can cited for example the leading case laws Hupkens/Van Ginneken30 and TNO/Ter

Meulen31 in Netherland where the Supreme Court decided that the employee’s salary

provides in general adequate compensation in consideration of the invention (so, the

additional compensation is only awarded in very exceptional circumstances…).

For example, in France, this sort of litigation takes many years (sometimes up to twenty

years) and the amounts awarded by the Court are rarely very significant and usually barely

cover the cost of the proceedings.

Moreover, the contractual freedom is often privileged and the Court researches first

and foremost the willingness of the parties to resolve this question, even if there is a

relationship of subordination between the parties at the time of the signing of any

agreement.

On the other hand, it is important to keep in mind the increase in the grant of patents

in the world and, necessarily, the increase of the employee inventors and their potential

compensation to be claimed…

Furthermore, as we have seen with Japan, the laws may need to evolve to cope with

the increase in litigation and attempt to regulate the issue in clearer terms. Therefore, it is

possible that some national laws may not be completely adapted to this problem should

there be an increase in litigation in this area.

Finally, the publication in newspapers of the big compensation orders may contribute

to informing employee inventors of their rights and may encourage claims in the future , and

dreams of wealth…

30

HR 27 may 1994, NJ 1995,136 31

HR 1 march 2002, NJ 2003, 210


28

IV. Conclusion

The question of the compensation for the employee inventor arises from the fact

that in most countries the law provides that the inventor is the owner of his or her invention.

On the other hand, it seems normal that the employer can benefit of this invention when it

pays for its discovery and development. Most of the inventions will not be possible without

the employer’s resources.

The conciliation between the interests of the employer and the employee is quite difficult.

The compensation of the employee inventor is generally seen as the counterpart of

renunciation by the inventor of his rights to the invention but it can also be perceived as an

award which encourages the inventiveness of employees (as in China).

Notwithstanding this, whatever the applicable law , the companies must seek to to

clearly regulate their internal system for employee inventors, in particular in drafting

carefully an employment contract with a clause on the implementation of inventions that

may be created in the course of employment.

Moreover, to meet the requirements of the law, more and more companies, for example in

France, adopt company agreements which provide for the procedure to be followed in case

of invention and the amount of the compensation or the method to calculating the fair price.

Even if the amount of the compensation or the fair price is below the requirements of the

law, the simple award of the employee inventor permit in general to avoid litigation since it

is recognition of the inventiveness of the employee.

Otherwise, the amount of the salary may enter into account since sometimes there is

a great difference between countries. For example, while USA do not provide in general

additional compensation, the salary of scientists and engineers is much higher than in France

such that the absence of employee inventor’s compensation will not have the same impact

that in France.

In any event, the issue of the employee inventor’s compensation remains delicate

and could have a bright future…


29

V. Acknowledgements

I especially want to thank Kazuhiko Nishihara (Umegae Chuo Law Office), Donald J.

Ranft (Collen IP), Arthur Brandi Sobrinho and Paulo Lima de Campos Castro (Brandi Patners),

Alok Mahajan (Mahajan & Associates), Denis Schultheis (UP12 Legal), Nicola McNeely

(Capital Law), Ying Zhao (D & S Law Firm), Sebastiaan Palm and Romy Timmer (Marxman

Advocaten B.V.) for their help and the information they have given me about their respective

countries during my research.

I would like also to thank Julian Cockain Barère (Morvilliers Sentenac) for his support.

VI. Bibliography

“Second Lecture on Discoveries and Inventions” by Abraham Lincoln,


WIPO Economics & Statistics Series, 2012 : IP, Facts and Figure WIPO

WIPO LEX (http://www.wipo.int/wipolex/fr)

French Senate Report about Compensation for employee inventor in comparative law

CONSULEGIS IP HANDBOOK

Patent Law of the People’s Republic China on March 12, 1984

Implementing Regulations of Patent Law of the People’s Republic China on June 15

2001

Contract Law of the People’s Republic China on March 15, 1999

Japan Patent Act No. 121 of April 13, 1959

Illinois Employee Patent Act (765 ILCS 1060)

"Arbeitnehmererfindungsgesetz" of July 25, 1957 (German law to employee inventors)

Indian Law of Contract from April 25, 1872

Brazilian Industrial Property Law n°9279/96 of May 14, 1996

United Kingdom Patent Act of 1977

French law to employee inventors of 13 July 1978

South Africa Patent Act n°57 of April 26, 1978


30

Rights to Inventions: Employers v. Employees By Eric S. Freibrun, Esq

(http://www.freibrun.com/articles/articl11.htm)

Employee Inventor Compensation in Europe By Jeremy Morton, Simmons & Simmons,

(http://www.marketsandpatents.com/bulletin/IPB-08152007.html)

Employee Invention Rights in the Twenty-First Century by Neal Orkin and Sarah Burger

(http://www.pepperlaw.com/publications_article.aspx?ArticleKey=516)

Who Owns Patent Rights? Employer or Inventor? By David Badanes

(http://www.intellectualpropertylawfirms.com/resources/intellectual-

property/patents/employee-employer-patent-inventor.htm)

Who-owns-an-employee-invention in USA by D. C. Toedt (http://www.dctoedt.com)

"Employees’ Invention Remuneration—Money (f)or Nothing?" by Dr. Jürgen Meier, Dr.

Thure Schubert, Dr. Hans-Rainer Jaenichen of VOSSIUS &PARTNER

(http://www.vossiusandpartner.com/index.php?lang=EN)

Intellectual Asset Management Magazine June/July 2005 (www.iam-magazine.com)

REITI Discussion Paper Series 10-E-049 Incentive Pay or Windfalls: Remuneration for

employee inventions in Japan by ONISHI Koichiro and OWAN Hideo

Employee Inventions in Japan Nakamura v. Nichia Case by Kawaguti and Patners

(http://www.kawaguti.gr.jp/newsletter/2004/c04_01-1.html)

International association for the protection of Intellectual Property, Group Reports

about Employers’ rights to intellectual property (https://www.aippi.org )

French association for the employee inventors (http://www.inventionsalarie.com)

African Organisation of the Intellectual Property (http://www.oapi.int)

http://www.indiainbusiness.nic.in/investment/patents.htm

Home Depot called arrogant, ordered to pay ex-Boca Raton inventor millions more By

Jane Musgrave (http://www.palmbeachpost.com/news)

Landmark inventor compensation claim in healthcare battle by Gregor Grant and Will

James (http://www.marks-clerk.com/uk/solicitors/news/newsitem.aspx?item=244)

Employee Inventions, French Malaise by Pierre Breese (www.breese.blogs.com)

http://www.intellectualpropertylawfirms.com/resources/intellectual-property/patents/employee-employer-patent-inventor.htm

http://www.intellectualpropertylawfirms.com/resources/intellectual-property/patents/employee-employer-patent-inventor.htm

http://www.palmbeachpost.com/staff/jane-musgrave/

The Delicate Issue of Employee Inventor · PDF fileThe Delicate Issue of Employee Inventor...

Documents

Transcript of The Delicate Issue of Employee Inventor · PDF fileThe Delicate Issue of Employee Inventor...