This article was originally published on IAM Media

For patented or patentable inventions, it is best practice to execute an agreement for a patent assignment that compensates the employee for the invention separately from their usual employment compensation. In case of inadequacies in the IP transfer provisions in the existing employment agreement, such a practice can provide the necessary basis and consideration to validate the transfer.

Alternatively, if the invention is subject to patent protection and the employee owns it, the employer may license the use of the invention from the employee. In addition, the employer may be entitled to a 'shop right'; that is, a non-exclusive and non-transferable royalty-free licence. A shop right may be implied under principles of equity and fairness, depending on the relevant circumstances. However, it is important to note that the shop right doctrine merely creates a defence to patent infringement and does not constitute an ownership interest.

In our hypothetical situation in the previous article, when Yuki was hired as a helpdesk technician, it was appropriate to have a contract that discussed a helpdesk technician's duties as this was her sole focus at the company. However, when she moved into her new role developing R&D, it would have been best to examine that contract and determine whether it was appropriate to her new work. The roles and duties of a helpdesk technician and a developer are vastly different; therefore, if it does not discuss matters appropriate to Yuki as an inventor, it is essential to develop and have her sign a new contract appropriate to her new role.

In our experience, many companies miss this step – through lack of knowledge, or too many other priorities, or they are avoiding a discussion that might result in having to increase the employee's compensation.

What about compensation for inventions?

In the case of Yuki, it would be assumed that since she was developing R&D outside the scope of her regular employment duties as a helpdesk technician, and these developments were crucial to the company, she should be remunerated for her efforts. However, it is not necessarily the case that an employee is remunerated for their inventions.

In the United Kingdom, the Patents Act 1977 simply states that remuneration should be a "fair share", taking into account the circumstances and the benefit the employer derived or is expected to derive from:

  • the invention;
  • the patent for the invention; or
  • the assignment of property or right in the invention.

In a contextual analysis such as this one, it is very rare for a court to order remuneration. There have only been two established cases in the United Kingdom in which an employee has been granted inventor compensation.

In the United States, there are no legal provisions in place that entitle employees to remuneration, financial compensation or reward for inventions. However, employers may put such a system in place to compensate inventors as an incentive to facilitate the creation and disclosure of inventions by employees. This can be done by including contractual provisions for compensation in their employment contracts. Any such agreements will be subject to the individual contractual negotiations between the employer and employee. Similar to Canada, such contractual provisions may consider factors such as the number of inventions generated, patent applications filed or patents issued, or on the revenue generated from the inventions.

Checklist for avoiding patent ownership issues

Here are some steps that employers can take to avoid disruptive issues over the ownership of intellectual property that employees create.

Make sure that employee contracts are in place. There has been more than one case in which a start-up hires employees informally, without employment contracts. Depending on your company's history, it is wise to check the records for each employee to ensure that there is an employment agreement in place.

Keep employment contracts in tune with current roles. Whenever an employee is promoted or moves into a new role, ensure that their new duties match what is in their employment contract – particularly if that new role includes creating new intellectual property. If so, draw up and have them sign new contracts.

Compensate employees separately for creations and inventions. Do not be grateful yet cheap. If an employee (such as Yuki) creates something valuable for the company that is not in their job description, prepare an agreement and purchase the asset, paying the employee separately from their usual compensation package. Such a practice will often incentivise other employees to innovate, all to the benefit of the company.

Be able to prove the origin of work done on your company's behalf – including storing records centrally and keeping control over who has access to them. This includes work done by both employees and by third-party independent contractors brought in for a specific project.

Make an invention disclosure policy, through which each invention your company works on is described in detail. This is a document often written by a scientist or engineer. These should be prepared around the same time that the invention was made and updated if new improvements are added later. Emphasise in your policy that the company will own all inventions described in invention disclosures.

Compensate inventors for completing invention disclosure statements. Money motivates many people to go the extra mile, so numerous companies pay bonuses for completed invention disclosure statements. You can also offer further compensation if you end up filing for patent protection on that invention or generating revenue from the invention.

Get invention-specific assignments signed by the inventors right away. Often, substantial time passes between creating the invention and deciding to apply for a patent. In that intervening period, it is very common for one or more inventors of the technology to leave the company. Once no longer employees, inventors can be difficult to track down or to persuade to sign documentation for their old employer. Get their signatures right after the invention is finalised, or at least before they leave the company. This practice saves a lot of time and expense later.