Germany: Pending Changes of the German Emmployees´ Invention Law - the Impact on University Invention

Last Updated: 14 February 2002
Article by Heinz Goddar

1. Ownership of Employees' Inventions in Germany

1.1. Principles and Historical Background

Before licensing any intellectual property rights, obviously it must be make sure that the respective inventions really are owned by the party wishing to grant rights resulting therefrom. Of specific importance insofar is that in Germany very peculiar rules exist, binding and not being able to excluded by employment agreements, which employers must follow in order to get only ownership of inventions.

Whilst in many - if not most - other countries, world-wide as well as in Europe, employers and employees can determine by employment contract whether inventions made by the employee in the course of its employment under certain provisions, usually to be freely agreed, become the property of the employer - in most instances even without any specific remuneration of considerable height for the employee -, the legal situation in Germany is totally different. German Law, particularly the so-called "Law relating to Inventions made by Employees", in the following designated as "The Law", unavoidably and bindingly determines that inventions made by employees first of all belong to them, and only by a special act and against a special remuneration can become the property of the employer.

To understand this, the historical background is of assistance. In 1936, the German Patent Law introduced the principle that the right and title to an invention first of all belongs to the inventor, whilst until then in case of inventions created in companies one had assumed that inventions could be created by legal entities by themselves, e.g. in cases where whole departments etc., consisting of many individuals, had contributed to the invention. What The Law, at that time, did not say was how the property of the invention could go over from the employee to the employer. Then, in 1942, the famous "Göring-Speer-Verordnung" issued, named after Hermann Göring and Albert Speer, two ministers of the German Government responsible for increasing the output of German industry in relation to materials important for World War II pending as much as possible. The purpose of the Göring-Speer-Verordnung was to encourage inventors not only to make inventions, but also to notify those inventions to the employer as soon as possible, so that the employing company could make use of the inventions, possibly in a sense favourable for the interest of the German Government in winning the war. In order to stipulate the interest of the inventors, the principle of a specific remuneration for inventions made by employees was introduced.

Based on the principles of the Göring-Speer-Verordnung in 1957 a more detailed and sophisticated Act issued, namely The Law discussed above, which retained the principles as outlined in the Göring-Speer-Verordnung as its base, i.e. initial private ownership of any invention made by employees with the respective employee, transfer of the property to the employer by specific, individual assignment act, and specific remuneration for the inventor.

On November 30, 2001, the German parliament has issued a new law concerning inventions made at universities, eliminating the so-called "professors’ privilege", which will be explained in more detail lateron, with practically immediate effect.

Further changes of The Law are in the legislative process, aiming, in particular, to a) the possibility to make inventions of employees directly and automatically becoming the property of the employer after notification of such inventions to the employer, and replacing the former system of rather sophisticated calculation of remunerations for inventors by a staggered system of lump sum payments.

1.2. Employees' Inventions

The Law, in its present form, has to do with inventions made by employees. Accordingly, one has to determine first what, in the sense of The Law, is an invention, furthermore, what is an employee, and finally, what kind of inventions made by employees are subject of the provisions of The Law.

1.2.1. Definition of Invention

Inventions in the sense of The Law are only technical inventions which in principle can be protected under German Law by a patent or by a utility model, the latter in this sense and for the purpose of this paper being considered as a kind of a patent (for small inventions). The Law is not related to other creations of employees, which may be protected by design, copyright etc., and accordingly creations of the aforementioned kind are not subject of the binding regulations of The Law. This has the consequence that, as far as e.g. copyright creations are concerned, by employment contract in advance employee and employer can agree that the rights in relation to all such creations made by the employee during the course of its employment with factual effect belong to the employer, without any specific remuneration etc.. Such agreements can only not be made, as already mentioned under 1., in relation to technical inventions protectable, in a strict sense, by either patent or utility model.

1.2.2. Definition of Employee

Only such inventions are ruled by The Law which are made by employees. Employees are persons employed with an employer in the sense of German Labour Law and jurisdiction. It is, in view of the summarizing character of this paper, difficult to positively define what an employee in this sense is under German Law, but negatively one can say that e.g. representatives of legal entities, like managing directors of companies, i.e. all persons which have a employer-like position, are not employees, so that The Law does not apply to inventions made by such persons. The consequence is that e.g. by the appointment agreement for a managing director of a certain company it can be agreed between the company and the managing director, totally different from inventions made by employees, that inventions made by the managing director belong to the company with factual effect from the time of their creation; even the remuneration question can be fully anticipated, e.g. by agreeing that no specific remuneration should be paid.

Also, if the employment is not under German Law, particularly in all instances where one party, namely either the employee or the employer, are not of German nationality and residence, respectively, by employment contract it can be regulated that the legal provisions, as far as inventions made by the employee are concerned, of the respective foreign country are used. In case of carefully drafted employment contracts in such instances of foreign-related employment contracts the consequences of The Law, which sometimes particularly foreign companies do not consider as specifically advantageous in Germany, can be circumvented.

Specific Aspects of The Law relating to inventions made in public service, and particularly by universities, have to be taken into due consideration.

Insofar, The Law provides for inventions made by "normal" employees in public service, like scientists, essentially to be handled in a similar manner as in case of employees in private practice. Par. 42 of The Law in its already revised form, however, provides for inventions made by professors and assistants, as well as of any other employees of universities, to be "normal" inventions, too, i. e. in principle "belonging" to universities in the sense that they can be acquired, according to mechanism as provided in The Law, by universities.

1.2.3. Service Inventions and Free Inventions

Not all inventions made by employees, even employees in private practice, are subject of The Law. Rather The Law makes a distinction between so-called service inventions, namely a kind of inventions which are bindingly regulated by The Law, and free inventions.

Service Inventions are such inventions which either originate from the regular work of the employee he is doing in a company because of its employment contract, e.g. when a chemist working in research and development of a pharmaceutical company invents a new pharmaceutical, or which essentially are based on experiences of the company. All other inventions are free inventions, e.g. in a case when the aforementioned research chemist of the pharmaceutical company invents a new music instrument. It does not matter, however, to give another example, whether the aforementioned research chemist makes the invention during its working hours in the company or staying at home during the weekend, as long as the aforementioned conditions, namely either originating from the work of the inventor or essentially based on the experiences of the company, are fulfilled.

When talking about "inventions" in the following, in connection with The Law, usually "service inventions" are meant, if not otherwise stated.

1.3. Obligations of Employee after Invention – Private Practice

Whenever a "normal" employee, whether in private practise or in public service, has made an invention, certain duties must be fulfilled in relation to the employer, depending on the character of the invention.

In case of service inventions, the employee has the duty to immediately and completely notify any such invention made by it to the employer in writing. At that time, the invention is still the property of the employee, and also by the notification to the employer the property and title in the invention do not change. The notification must be complete i.e. must enable the employer to get knowledge of the invention, including of the state of the art the invention is based on, the problem which is solved by the invention, the solution proposed by the invention, the contribution of the internal knowledge inside the company to the creation of the invention, and also the contribution of possible co-inventors.

In case of free inventions, or of inventions from which the inventor believes that they are free inventions, the employee has to inform the employer in a manner which enables the employer to make up its own mind whether the respective invention is a free or a service invention. Such information is only not necessary if it is obvious that the invention is of no interest to the employer, an example being the music instrument mentioned above.

1.4. Acquisition of Ownership by Employer – Private Practice

After receipt of a notification of a Service Invention or an information of a free invention in accordance with 1.3., such information of the employer by the employee having to be in writing, the employer has a term of two months to object to the notification because of incompleteness - for instance when the employer cannot see, in case of several co-inventors, what the personal contributions - in percentages - of the various inventors are - and of three months in case of an information relating to a free invention to object the character of the invention as being "free", rather to consider it as service invention.

If the employer, within the aforementioned term of three months, does not object to the declaration of the inventor that the respective invention is a free invention, the employer has no possibility anymore to get hold of the invention, rather the employee can dispose of it freely, e.g. sell it to third parties, etc.

If the employer gives a declaration of incompleteness to the inventor in case of the notification of a service invention, the employer for the time being has not to observe any further terms, rather to wait until a completed notification of invention is made by the respective employee, in which case the aforementioned term of two months for objecting completeness begins again, giving the employer again the opportunity to object the completeness of the invention should the new, revised notification not yet being complete.

As soon as the employer for the first time does not notify the employee, in case of a service invention, within the aforementioned two months term of any incompleteness of the notification of invention, retroactively from the date of receipt of the notification of invention or its last completion, respectively, a four months term begins during which the employer has the possibility to get certain rights in the invention - or to loose them finally, as explained in the following.

One of the possibilities the employer has during the aforementioned binding four months term is to declare unrestricted claiming of the invention to the employee. By this unilateral act of the employer with factual effect the property of the invention goes to the employer, and from that moment onwards the invention does no longer belong to the employee, but to the employer.

Usually, most service inventions are handled in this manner, because the aforementioned unrestricted claim is the only possibility of the employer to get full hold of an invention and to prevent that the inventor is left with any right giving it the possibility to independently make use of the invention, e.g. by licensing out to third parties etc.

Another possibility, often used by employers when they believe that the respective invention is not important enough for the company to be unrestrictedly claimed, is that the employer declares a limited claiming of the invention. This limited claiming has the effect that the property of the invention remains with the employee, that the employee has the right to protect the invention e.g. by a patent application at its own cost and in its own name, and that the employee is entitled to make use of the invention by e.g. licensing it out to a third party. In any such cases, however, the employer by its limited claiming of the invention has the right non-exclusively to use the invention should in future the employer come to the decision that such use for the employer's company would be useful. The advantage of such limited claiming is, as far as the employer is concerned, that no costs for patent protection etc. must be borne by the employer; the negative effect is, of course, that the employer, because of lack of full ownership of the invention, cannot prevent third parties, like competitors, from using the invention, should its employee decide to make use of the invention in such a sense.

If, finally, the employer does not react within the above mentioned four months term, the invention becomes free, and this has the same effect as if the employer within the four months term would explicitly declare to the employee that the invention should be free. Such a released invention, whether by explicit declaration by the employer or factually, remains in the sole property of the employee, the employee can sell the invention, license it out, and there are no remaining rights of the employer in relation to such an invention. Obviously, the employer will make use of this possibility only in cases where it is absolutely sure that either the invention is not patentable at all or the invention is totally useless for the employer.

It should be noted, in this regard, that the employer cannot avoid to make a choice between unrestricted claiming, limited claiming, and factual or explicit release by stating to the employee that it does not consider the invention as being patentable. In such a case, the employer only has the possibility to run the risk of release, as mentioned above.

1.5. Inventions made by University Employees – Old Law

The "old law", still applicable to inventions made by university employees before December 31, 2001, and, in special cases of inventions made by university professors, assistants and lecturers, before December 31, 2002, as will be explained in more detail below, differentiates between inventions made by "normal" employees in public service, and professors/assistants/lecturers.

There are important exemptions, however, namely essentially as follows:

First, instead of claiming the service invention and therefore by unilateral act transferring the ownership of the invention from the employee to the employer, e. g. a university or a research institute, in a pre-arranged manner, even by employment contract, the employer can renounce its right to acquire ownership and instead agree on a reasonable participation of the employer, e. g. the university, in the profit made by the employee when exploiting the invention. In other words, by employment agreement the e. g. university can make sure that the employee remains the owner of all inventions made, but has to contribute e. g. 20 % of any royalty income, just as an example, to the university.

The aforementioned provision of The Law in accordance with par. 40 is particularly important in case of cooperations between universities and private sponsors, since in such cases, as the audience certainly will know, the sponsor usually wishes to get - as far as possible - ownership of any inventions resulting from such cooperation, and at least this is the case in Germany. The aforementioned arrangement makes it possible to get, through the flexibility of The Law, to solutions which are acceptable for both universities, sponsors, and the employees of universities.

As a second, important deviation from the regulation of inventions made in private service par. 40 of The Law provides for the possibility that the employee, making an invention and remaining owner thereof because of the above mentioned arrangements, may be prevented by instruction of the university, the Ministry of Science or the like, in any case the, according to German public service law, "highest" authority ruling the respective job, to use the invention in certain manners, if this is in the "public interest". As an example, an employee working in defence related matters might be prevented to use such inventions by licensing to companies in certain third countries, even in cases where such inventions would not become subject of a secrecy order of the Patent Office and the Ministry of Defence anyway.

Just to complete the question of "normal" employees` in public service, the aforementioned regulations essentially also relate to inventions made by "normal" public servants and soldiers, though the latter fact may not be of such great interest in the context of this lecture.

Par. 42 of the "Old Law" provided for inventions of professors, lecturers and scientific assistants to be free, i.e. all such inventions were not subject to the restricting regulations of The Law as far as owner-ship and evaluation of inventions by employees, whether in private or in public service, are concerned. The aforementioned regulation privileged the aforementioned group of persons to a high extent and was the basis for most of the cooperations between university institutes and private sponsors, in order to create "independent" inventions in the sense that the sponsor could get hold thereof.

As a matter of course, professors only could use the aforementioned provisions fully if they made sure that no other "normal" employees of the university were involved in the coming into existence of inventions of the kind in question. Very often this was done by making sure that contributions to the invention only came from students, post-graduate scholars etc., all of which do not get into a regular employment arrangement with the university and the professor, respectively, rather only into a kind of private non-employment, but sponsored semi-tutorship under the respective professor.

If it was not avoidable that the university professor etc. makes use of "normal" employees in public service, e. g. of the university, including public servants, the above mentioned flexibilities of the Old Law had to be taken into consideration, namely with regard to participation of the universities etc. in the profits made out of such inventions.

It should be duly noted, however, that par. 42 of the "Old Law" even in cases of inventions made by professors etc. gave the possibility that the university in a case where specific university means were used for the coming into existence of the respective invention, the university might participate in the profit achieved by the professor etc..

According to the personal experience of the author, however, in most instances the aforementioned possibilities of universities to participate in the profit made by "normal" employees, public servants and professor, practically never were used.

1.7. University Inventions – New Law

The new Law, by the revision of particularly par. 42 of the Law, in accordance with the decision of German parliament of November 30, 2001, has given up, first of all, the distinction between inventions made at universities by "normal" employees, like workers, scientific personnel of a "non-professor" nature etc., and those of professors/assistants/ lecturers.

All inventions made by employees at universities are covered by the Law, including those made by professors, assistants and lecturers, in the following just designated as "professors", in other words, the so-called "Professors’ Privilege" has been deleted.

Also the new Law, however, does not cover inventions made by "non-employees" at universities, like students, scholars etc., so that in these cases special regulations will have to be found on a contractual basis between professors, universities, sponsors, etc..

All inventions made by university employees, including professors, will now have to be notified to the university, but only, if the inventor intends and is in agreement with, respectively, publication of her/his invention. If the inventor does not wish to publish, like e. g. in cases where he/she considers a publication as detrimental for public security, health, morality considerations etc., there is no duty to notify the invention to the university.

Two months after the notification of the invention to the university the inventor is entitled to publish the respective invention.

Within the normal "claiming" term, i. e. up to four months after the notification of the invention has been received by the university, the university can unrestrictedly claim the invention and therefore acquire ownership thereof, like in private practice.

Factually, however, the aforementioned four-months term which otherwise in private industry is available for a decision whether to claim an invention and patent it or not for universities is restricted to two months, because of the regulation that the inventor "regularly" may publish two months after his notifying of the invention to the university. That means, in practice, that universities that wish to patent inventions made by employees, like professors, will only have two months time for this decision process, including formulation of a patent application and depositing it at a patent office, e. g. the German or the European Patent Office!

If the university has claimed the invention and thereby has acquired property thereof, and if the university lateron uses the invention e. g. by selling it or licensing it out, the inventor is entitled in 30% of the brut (gross) income, like royalty income, of the university.

The new law applies to all inventions, as already said, made by university employees after February 6, 2002. If carriers of the former Professors’ Privilege, however, because of existing contracts concluded with private cooperation partners, like industry companies, before the coming into force of the new law, i. e. before February 6, 2002, are obliged to transfer their obligations, as it formerly was usually the practice in Germany, to the cooperation partner, the Professors’ Privilege for such inventions is extended to be applicable until February 6, 2003. Inventions made from February 7, 2002, till February 6, 2003, in other words, are still subject to the Professors’ Privilege, if the aforementioned conditions are fulfilled. Even if existing agreements provide for differently, however, inventions made after February 6, 2003, by professors will be subject to the new law, i. e. the universities will also in these cases have the possibility to acquire ownership of such inventions by claiming, with the remuneration consequences as discussed above.

1.8. Future changes of the German law

According to a pending draft law concerning a more drastic and general reform of The Law, dramatical changes, also for private practice, will take place, namely as follows:

  1. No claiming of the invention will be necessary anymore in order to obtain ownership thereof by the employer, including universities, rather after notification such an invention belongs to the university.
  2. Remunerations are no longer calculated in a more or less sophisticated manner based on actual use of the invention by the employer, like by well-known license analogy principles, rather fixed amounts will have to be paid in a "staggered" form. A first amount, probably about US$ 1.000,00, will have to be paid shortly after notification. A second amount, of e. g. US$ 2.000,00, will have to be paid at the time of starting commercial use of the invention. In case of particularly high turnovers obtained by the invention further fixed lump-sum payments have to be made, in accordance with certain turnover thresholds met.

The aforementioned general reform is still under heavy discussion in Germany. For the time being it cannot be foreseen yet in which form the new law will become applicable insofar.

2. Conclusions

With all probability, the revision of the law which has already taken place in Germany, ending nearly 60 years of the Professors’ Privilege, will lead to the result that all inventions made at universities in future will become available to the university for evaluation. For this purpose, universities in Germany now will be provided with full-staffed intellectual asset management offices, like we have known it for many years from e. g. U.S. universities. In Germany, departments of this kind had very little to do in the past, because the most valuable inventions, made by professors, went out of the universities’ hands by private cooperation agreements, as already discussed above. In future, all this will be over. Private industry will have to negotiate with universities in order to get hold, e. g. by licensing, of university based inventions, even if the cooperation partners of the industry company are professors, with whom otherwise a more or less "private" deal had been made in the past.

Also, the very high remuneration of university inventors, namely 30% of the brut e. g. royalty income of the universities, probably will lead to the result that much more university inventions are notified to the universities, the latter taking care of all patent application and evaluation procedures etc.. The remuneration will be distinctly higher than in private industry, at least as soon as the above mentioned further reform of The Law will take place, which may be considered by jurisdiction in Germany as a balancing against the disadvantages which the professors at universities will have to suffer by losing their Professors’ Privilege. The latter question, however, might still lead to interesting constitution law discussions, because professors in Germany have considered their Professors’ Privilege always as a part of their "deal" with government, i. e. practically part of their constitutionally guaranteed freedom of research and teaching.

The author’s personal view is that university technology transfer and licensing will significantly increase by the changes of the law as they now have taken place.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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