Law
Regarding the Rights to Inventions Made by Employees
A
business has a smart, creative employee, perhaps in its
engineering department. The employee finds the time and has
the inclination to tinker with the company's products or
manufacturing processes. Perhaps he works at this project on
his own time in the shop, perhaps he does it at home.
Finally, he has a breakthrough, and he comes up with a
process or an improvement to a machine that dramatically
reduces his employer's cost of manufacturing, or maybe his
idea results in a better product for his employer's
customers. With respect to the new device or process, does
the invention become the property of the employer or of the
employee? The employee used his initiative, but he used the
employer's resources, and even if he used his own tools and
time he would never have begun to work on the project if he
had not been exposed to it through his employment. Who owns
the patent to the new device or process if a patent is
subsequently issued? If faced with such a situation, you
would be wise to consult an experienced intellectual
property law attorney. Our firm has years of experience with
issues such as the one described above.
Patents and the Employment Relationship-Who Owns Them,
Employer or Employee?
The
general rule is that an employer, in the absence of an
agreement with its employees to the contrary, is entitled to
a nonexclusive license to use an invention devised by an
employee while he was employed by the employer. As the
United States Supreme Court has said, "where an [employee]
during his hours of employment, working with his
[employer's] materials and appliances, conceives and
perfects an invention for which he obtains a patent, he must
accord his master a nonexclusive right to practice the
invention." In the context of patents, where the rule most
typically is applied, the foregoing rule is referred to as
the "shopright doctrine." Although the employer is afforded
a nonexclusive license to use the invention without paying
royalties to the employee, the invention actually is owned
by the employee, who has the right to exploit it
commercially, such as by selling or licensing it to other
users. Even where the employee works on the invention on his
own time, if the employer's resources are used to any
appreciable extent, the foregoing rule usually applies.
A
wholly different situation is presented, however, where the
employee is engaged by the employer to develop and work on
the invention that later becomes the subject of a patent. In
one case, an employee was engaged by his employer to work on
a device that later became the subject of the employee's
patent. The employer sought to obtain an assignment and
transfer of the patent, arguing that the employee had
invented the device in question while being employed by the
employer precisely to work on the device that became the
subject of the patent. The court agreed with the employer,
concluding that "while the mere fact that one is employed by
another does not preclude him from making improvements in
the machines with which he is connected, and obtaining
patents therefor, as his individual property, yet, if he 'be
employed to invent or devise such improvements, his patents
therefor belong to his employer, since in making such
improvements he is merely doing what he was hired to do.'"
The
nature, scope, and extent of rights in a patent, as opposed
to obtaining the patent in the first instance, are not
questions decided under the patent law, which is a federal
law, but rather under state law. Patents can only be
conferred by the federal Patent Office, not by any state,
but once the patent has been issued the rights to the patent
are decided under state law. In many cases, the employer
will obtain from an employee (or, in other cases, from an
independent contractor who has been hired to work on a
project that results in the issuance of a patent) an
agreement to assign any patents developed while working on
the employer's business. Those kinds of agreements, although
strictly interpreted and applied, generally are enforceable.
Even in the absence of an explicit agreement to that effect,
the employer still may compel the employee to transfer the
patent to the employer if the employee was hired to work on
the project from which the invention resulted.
In
one case, an employer's chief engineer was in charge of the
engineering department. During the course of his employment,
he discovered a way to improve a machine sold by his
employer. He came up with the invention that improved the
machine, and a patent was obtained by the employer. Later,
the employee devised another improvement to the same
machine, which overcame a particular problem, simplified
production, reduced costs, and made servicing the machine
easier. The employee did not disclose this improvement to
his employer. Rather, he retired, formed another
corporation, patented the improvement, and sold the improved
device in competition with his former employer.
The
court decided that the former employer was entitled to an
assignment of the patent, an accounting of profits earned
thus far by the employee, and an order requiring that any
profits earned by the former employee in the future as a
result of sales of the device be turned over to the
employer. In so holding, the court applied the rule that "[a]bsent
an agreement to the contrary, when an employee is hired to
invent, or is assigned the responsibility for solving a
particular problem, any resulting invention belongs to the
employer."
The
foregoing rules are not limited to patents, but rather they
apply to other kinds of intangible property or rights that
the law refers to as "intellectual property." In one case,
for example, university professors, while doing their
research, devised a process for producing milk by
introducing beneficial bacteria. Later, milk produced using
this process was sold under a certain trademark that the
university owned and licensed to dairies that produced the
milk. The university declined to pay royalties to the
professors who claimed to be the inventors of the process
that led to the university's obtaining the trademark. The
professors brought suit against the university on a variety
of theories, basically deriving from a theory of
misappropriation of the trademark. The court concluded that
the trademark belonged to the university as the professors'
employer and that there was no obligation on the part of the
university to pay royalties to the professors who invented
the process.
An
important consideration in that case was that the court
found that the professors, when they were conducting the
research that led to the invention or development of the
trademarked process, were doing precisely what they had been
hired to do. Even though the case involved a trademark,
rather than a patent, the principle is the same as the one
applied to patents. If an employee is engaged to work on a
project that culminates in the issuance of a patent, the
ownership of the patent belongs to the employer, not to the
employee. The prudent course of action, for both employers
and employees, is to engage a lawyer skilled in these
matters to draft a contract that will embody their agreement
regarding their respective rights to all inventions.
If a
company expects that its employees, or any of its
independent contractors, might create inventions, then the
company would be well served by seeking the advice of an
attorney who is experienced in drafting nondisclosure and
assignment agreements. If a dispute between an employer and
its employee cannot be resolved amicably and litigation
results, representation by an attorney who is well-versed in
shopright principles is highly advisable.
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