This article was originally published on IAM Media.

The success of IP transactions is rooted in the IP asset in play. But what if your company suddenly discovers it no longer actually owns the right, despite it being created by employees? As a patent practitioner, I spend a lot of time securing assignments from inventor employees on patent applications, so that their employers can apply for and own the resulting intellectual property. Many people assume that inventions of full-time employees are automatically owned by the company, but this is not always the case. In fact, practices can differ widely depending on the type of employee and the jurisdiction at issue, in particular, there are key differences in legal implications and practices in Canada, the United States and the United Kingdom.

To start, let us say that you have hired an IT helpdesk technician named Yuki on an employment contract appropriate for a full-time helpdesk employee.

Yuki gets inspired by your company's learning culture and promote-from-within policies to build her technical skills. She starts doing work that supports the company's R&D efforts, in addition to her helpdesk duties. Soon, she finds passion in developing R&D and is off the helpdesk and doing R&D full time. You find her work to be of such high quality that you start entrusting her with creating some key parts of your product's mechanism.

Yuki does such great work that it is no surprise when she informs you that she has been headhunted by another company to work in their R&D department.

You are disappointed to be losing a key employee, but you are reassured that at least you have full ownership of the inventions she created while she was an employee of your company.

But this may not be the case.

Depending on the situation, maybe you will find that, in fact, Yuki owns the rights to her inventions. Hence, you find yourself negotiating to buy those rights from your ex-employee, who is in a great negotiating position as she is now well aware of how important those inventions are to you and your business.

The importance of employment contracts that match the role

Situations involving employment contracts for employees are different, and dealing with them requires professional advice. But experience supporting employers in such situations prompts a question – what was in the employment contract Yuki signed? And when she started doing R&D work, did she sign a new contract appropriate to her new role, which contained the appropriate assignments of intellectual property to your company?

Many people assume that work created on the employer's time and using employer resources will be owned by the employer. While this appears reasonable, it is a misconception. The basic presumption in Canadian law is that the employee owns everything they create.

In Canada, ownership will go to the company only if:

  • there is a specific agreement with the employee providing that anything the employee invents of a specific type is going to be owned by the company; or
  • the employee was "hired to innovate" – this often results in a grey area, which requires expensive assessment and resolution by a court or arbitrator.

In the United Kingdom this differs, and the company will acquire ownership if:

  • it was made in the course of the employee's normal duties or in the course of duties that fall outside their normal duties but were specifically assigned to them, and the circumstances were such that an invention might reasonably be expected to result from the carrying out of their duties; or
  • it was made in the course of the employee's duties and at the time of making the invention, because of the nature of employment and particular responsibilities, they had a special obligation to further the interests of the employer's undertaking.

Any situation that falls outside the scope of these two situations would give rise to the employee owning their invention.

On the other hand, in the United States, the inventor of an invention is presumed to be the owner of a patent application and any resulting granted patent, unless there is an assignment of rights, which should be recorded with the USPTO. Even if the employment contract provides for an automatic assignment of patent rights to the employer, and legal title is conveyed to the employer upon creation of the invention, it is still necessary to record ownership in the USPTO. Alternatively, an employer and employee may enter into an agreement for the purchase and sale of any IP asset.

There is also a common law rule established in United States v Dubliner Condenser Corp (1933), known as the hired-to-invent doctrine, which states that the employee inventor has a legal obligation to assign any patent rights in relation to an invention to their employer if the employee is specifically hired to invent, and if the invention is the precise subject of their employment contract. The hired-to-invent doctrine is subject to an examination of the nature of the employment relationship at the time of the inventive work. The employment contract will not be construed as requiring an assignment of the patent to the employer if the employee's employment is general to a field of work and the invention was conceived in performance of the work within that field. However, if they are given a specific task of developing an invention, they are more likely to be required to cede ownership of any invention resulting from that task to the employer. 

The problem with relying on the hired-to-invent doctrine is the grey area that often results. Like the hired to innovate doctrine in Canada, it is possible for reasonable parties to interpret the situation and facts differently, which can then require expensive third-party adjudication to resolve. Having clear agreements in place is a much better way of avoiding these issues.