Patent ownership is something every inventor and innovator boasts of. It symbolizes their innovative prowess and patent royalties provide them with financial security. However, not every inventor is able to claim ownership over their brainchild, especially in the case of R&D organization employees.
When it comes to inventions by employees, they can be of two types:
Service inventions. These inventions are either made in connection with employment, public service-related activities, or tasks that the employee must perform, or based, to a significant degree, on the employer’s expertise or activities.
Free inventions. These are all other inventions.
In case of service inventions, the patent ownership is usually enjoyed by the employer provided that the inventor must be an employee and not an independent contractor and the work must be created in the pursuance of the terms of their employment.
If the work done is outside the scope of employment and the employee has not used the company’s resources, then his inventions belong to him. This was also established in the Bombay HC case of Darius Rutton Kavasmaneck v Gharda Chemicals Ltd & ors (2014). The court held that the defendant managing director, Dr. Gharda, did not owe a duty to his principal company to register the patents in the company's name, as he was not under a duty to invent in his capacity as managing director. Dr. Gharda had acted in his individual capacity while conceiving the inventions which were the subject of the patents, and had not done so as part of his duties to the company or in his capacity as managing director, thus the nature of his work came under free invention.
So, employees get autonomy over patent royalties when it comes to free inventions. In case of service inventions, most employing companies form contracts, which contain a clause specifying that ownership of all intellectual property created during the course of employment is assigned to the employer. Thus, when it comes to inventions in R&D organizations it is a quid pro quo relationship, employers depend upon employees’ skills and employees depend upon the employer to provide resources for the breakthrough. However, in the case of exceptional inventions employers rake in millions from service inventions of employees, and employees are left with no share in those royalties.
Such employees’ efforts were recognized in the UK Patents Act, 1977. Section 40 of the 1977 Act stated that the court may make an award of compensation to an employee inventor. For patents filed before 1 January 2005, the court may award an employee compensation to be paid by the employer if:
· The employee has made an invention belonging to the employer for which a patent has been granted.
· The patent is of outstanding benefit to the employer.
In 2009 the English Patents Court made the first-ever court award of compensation to employee inventors under the Patents Act 1977 (1977 Act) in the case of James Duncan Kelly and Kwok Wai Chiu v.GE Healthcare Limited. The claimants were research scientists who co-invented a tool that detects heart defects. It was patented and became a highly successful product for their employer by bringing in profits of up to £50 million. The court acknowledged that the patent and the resulting invention had brought substantial financial benefit, conservatively estimated at £50 million, to the employer. As a result, it awarded 2% and 1% to the claimants respectively.
Similarly, in the case of Shanks v. Unilever, Prof. Shanks developed a technology that is now used in most glucose testing products. He also accepted that IP rights to his invention belonged to CRL under the Patent Act 1977 (“Act”), as it had been created during the course of his normal employee duties (these rights were later assigned to the wider company group, Unilever plc.) many companies from the medical sector were willing to pay millions of pounds to acquire that technology and had provided his former employer with “outstanding benefit” because the company earned £24m from that.
Prof. Shanks asked for compensation since his invention proved to be of “outstanding benefit” for his employer and stated that he is entitled to a fair share in those £24m profits. The UK Supreme court ruled in his favour and granted him £2m in compensation because his invention generated a very high rate of return and stood out in comparison with the benefit Unilever derived from other patents.
In the case of James Duncan Kelly and Kwok Wai Chiu v.GE Healthcare Limited, the court also outlined the following concepts:
· Compensation is for inventors who contribute to the formulation of the inventive concept set out in the patent, not for those who merely contribute to the process.
· The court must: ask whether the patent (or the invention, under the amended legislation) was a cause of some benefit; decide how much of the benefit was attributable to the patent (or invention); and consider whether that benefit is outstanding.
· ‘Outstanding benefit’ has not been explicitly defined, but it includes something special or out of the ordinary; more than one would normally expect from the employee’s paid duties and more than substantial, significant or good.
· The court must estimate the situation as if there had been no patent and make a comparison.
· The disparity between the employer’s benefit and employee’s remuneration (or other benefits) should be extreme.
Germany has also taken measures to ensure employee inventors are compensated. Under the German Employees’ Invention Act, an employee inventor has to notify his invention to the employer, who then has 4 months to claim ownership. If the employer does so, the employee is entitled to compensation based on participation in the employer’s economic advantage derived from the invention.
In Japan, the amount of compensation depends upon the profit which employer gains from such inventions and the extent of contribution of the employer in the process. In China, the company holding the patent right is required to compensate the inventor in exchange for exploiting the patent. In India currently, there is no law to bind private entities to give incentives to employees for inventions of ‘outstanding benefit’.
Thus, employee inventor compensation is a relatively new domain and many countries are yet to incorporate it into their IP laws but judging from the recent trend we can be hopeful for positive results i.e. employees’ share in patent royalties.
References:
Gyanveer Singh, Employee vs Employer: Country Wise Ownership Rights on IP, KHURANA & KHURANA, (Accessed on June 10, 2020, 9:45 AM)https://www.khuranaandkhurana.com/2016/05/31/employee-vs-employer-country-wise-ownership-rights-on-ip/
Yann Robin, When Is An Invention Of Outstanding Benefit?, MONDAQ, (Accessed on June 10, 2020, 10:30 AM) https://www.mondaq.com/uk/patent/696118/when-is-an-invention-of-outstanding-benefit
Case law: compensation paid to employees whose patented invention was 'of outstanding benefit', MARSDENRAWSTHORN SOLICITORS, (Accessed on June 10, 2020, 12:30 PM), https://www.marsdenrawsthorn.com/law-news/Case-law-compensation-paid-to-employees-whose-patented-invention-was-of-outstanding-benefit.html
Adam McCulloch, Supreme Court rules in favour of inventor in Unilever diabetes case, PERSONNEL TODAY, (Accessed on June 10, 2020, 7:30 PM)https://www.personneltoday.com/hr/supreme-court-rules-in-favour-of-employee-inventor/
Jeremy Morton, Fasken Martineau LLP, Employee inventor compensation: the tide has turned, THOMSON REUTERS, (Accessed on June 10, 2020, 10 PM) https://uk.practicallaw.thomsonreuters.com/7-385-0933?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1