Innovations At Work: Who Really Owns Employee-Created Inventions?

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Brooks Kushman

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Since the firms founding in 1983, Brooks Kushman has built a national reputation as a premier intellectual property law firm. We have accomplished this by attracting the best talent, and by working closely with clients to understand how your business really operates and what really drives your company or brand.
Let's say your employee, using company resources, develops a software algorithm that could revolutionize your product line.
United States Intellectual Property
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Innovations at Work: Who Really Owns Employee-Created Inventions?

Let's say your employee, using company resources, develops a software algorithm that could revolutionize your product line. That's great news, right? But before you issue a press release and pop the champagne corks, you must consider a critical question: Who owns this invention?

This question of who owns the IP—the company or its employee—is a common one, and sometimes a difficult one to answer. That's why it's essential for companies to take proactive steps to avoid scenarios in which IP rights can be disputed. The stakes are high: get it right, and you foster a culture of innovation while safeguarding your company's intellectual assets; get it wrong, and you risk losing valuable IP or facing legal disputes.

Understanding the Basics of Employee Inventions

When discussing patentable inventions created by employees, we're referring to inventions that meet the criteria for patentability under U.S. law—namely, they must be novel, non-obvious, and useful. This distinction is important because not all creations by an employee, even those related to their work, are necessarily patentable.

The scope of what constitutes a patentable employee invention can be complex. It includes any invention that an employee develops that could be patented, regardless of whether a patent application is filed. This includes inventions developed as part of the employee's regular job duties or using significant company resources.

Default Legal Stance on Patentable Inventions

In the U.S., the default legal position regarding patentable employee inventions is not as straightforward as the general "work made for hire" doctrine. The key principle here is that patents are awarded to inventors. In the absence of an agreement to the contrary, an employee who invents something during their employment typically retains the patent rights. In Banks v. Unisys Corp., 228 F.3d 1357 (Fed. Cir. 2000), the court explained "[t]he general rule is that an individual owns the patent rights to the subject matter of which he is an inventor, even though he conceived it or reduced it to practice in the course of his employment."

This is a departure from other types of intellectual property like copyrights, where the employer generally has the default rights under the "work made for hire" doctrine.

As we'll address shortly, there are ways employers can navigate around the default rule, such as by requiring employees to sign agreements that assign any patent rights from their inventions to the company.

The "Hired to Invent" Doctrine

Another important concept that can impact patent ownership rights is the "hired to invent" doctrine. This applies when an employee is specifically employed for their inventive capabilities or to solve a particular problem. In these cases, any inventions created by the employee in relation to their specific employment objective are typically considered the property of the employer.

This doctrine is particularly relevant in industries where innovation is a primary focus, such as technology or pharmaceuticals. For instance, if a company hires a chemist to develop a new pharmaceutical compound, any invention related to this task would generally be owned by the company. The rationale is that the invention was the expected outcome of the employment, and the employee's inventive work was effectively pre-assigned to the employer through the nature of their hiring.

The Shop Right Doctrine

The Shop Right Doctrine provides a unique balance when it comes to employee inventions. This doctrine grants employers a non-exclusive, royalty-free right to use inventions developed by employees using company resources, even if the invention remains legally owned by the employee. Unlike the "hired to invent" doctrine, where ownership is typically with the employer, the "shop right doctrine" allows the employee to retain ownership but permits the employer to use the invention without compensation. It's a crucial concept when an employee creates an invention on company time or with company materials, but without a specific assignment of rights.

Differentiation Between Inventions Made During and Outside of Employment

As the foregoing discussions suggest, the line between inventions made during employment and those made outside is an important consideration when evaluating ownership of patentable inventions. The key factor here is not just when or where the invention was created, but also whether the invention falls within the scope of the employee's job responsibilities and whether company resources were used.

An invention created on an employee's own time, without the use of company resources, and that does not relate to the company's line of business, is more likely to be considered the employee's property. However, if the invention is within the field in which the employee works for the company, or if it was created using any company resources, it's more likely to be deemed as belonging to the employer, especially if there's an agreement in place covering such situations.

Employment Agreements and IP Clauses

When it comes to protecting intellectual property, particularly patentable employee inventions, well-drafted employment agreements are paramount. These agreements serve as the bedrock upon which the expectations and rights of both the employer and the employee are built. Clear, comprehensive employment agreements ensure that both parties understand who owns an invention created during the course of employment.

Employment contracts often include specific intellectual property clauses that outline the handling of inventions and creations made by the employee. Common clauses include:

A. Assignment Clauses: These clauses require the employee to assign their rights to inventions to the employer. They typically cover inventions made during the employee's tenure at the company and, crucially, can also encompass inventions made for a period after the employee leaves the company, especially if they relate to the employee's work.

B. Disclosure Clauses: These require employees to disclose any inventions developed during their employment. Such clauses help employers identify potential IP assets and decide how to proceed with them.

C. Invention Retention and Licensing Clauses: In some cases, agreements may allow employees to retain ownership of certain inventions while granting the employer a license to use them. This arrangement can be particularly relevant for inventions that are not directly related to the company's business but were developed using company resources.

D. Non-Compete and Confidentiality Clauses: While not directly related to IP ownership, these clauses play a significant role in protecting a company's broader intellectual interests. They prevent employees from using trade secrets or sensitive information in future endeavors, especially in competing businesses.

Drafting effective IP assignment clauses, in particular, requires a careful balancing act: protecting the company's interests while being fair and clear to employees. Here are some guidelines:

A. Specificity: Be as specific as possible about what types of inventions are covered. Vague language can lead to disputes and confusion.

B. Compliance with State Laws: Be aware that some states have specific laws governing employee inventions and IP agreements. For example, California has limitations on the enforceability of certain types of IP assignment clauses. And an increasing number of states are banning non-compete agreements.

C. Reasonableness and Enforceability: Ensure that the terms are reasonable. Overly broad or restrictive clauses may not be enforceable.

D. Clarity in Scope and Duration: Clearly define the scope of the inventions covered and the duration for which the assignment is applicable. This helps in avoiding ambiguity regarding post-employment invention rights.

Handling Disputes Over Employee Inventions

Disputes over employee inventions are not uncommon. These disputes typically emerge from gray areas in employment agreements or company policies, or from differing interpretations of these critical documents. Understanding the common scenarios that lead to these disputes, and how to effectively resolve them, is key for any organization seeking to manage its intellectual property rights efficiently and fairly.

Disputes often arise in several typical scenarios:

A. Disagreements Over Ownership: One of the most frequent points of contention is the ownership of the invention. An employee might believe that their invention was developed independently, outside the scope of their employment duties, and thus belongs to them. Conversely, the employer may argue that since the invention is related to the employee's job or was developed using company resources, it rightfully belongs to the company.

B. Use of Company Resources: Another common area of dispute involves the use of company resources. The extent to which an employee has used company time, materials, or information in developing an invention can significantly impact the ownership rights. Determining this often requires a detailed examination of the circumstances under which the invention was created.

C. Post-Employment Inventions: Issues also arise concerning inventions developed shortly after an employee leaves a company. If the invention is closely related to the employee's work at the company, the employer may claim rights to it, leading to disputes that hinge on the specifics of the employment agreement and the nature of the invention.

In all these scenarios, the importance of careful documentation and record-keeping is crucial. Comprehensive records—including employment agreements, policy acknowledgments, invention disclosures, and all related communications—often provide the necessary clarity on the intentions and agreements of the involved parties and can be decisive in resolving disputes. They serve as a factual basis in negotiations and are indispensable in legal proceedings, should the dispute escalate to litigation.

Conclusion

Navigating the intricacies of intellectual property rights in relation to employee inventions is an important task for business leaders and in-house legal counsel. Being proactive, and consulting with an experienced IP lawyer, is vital. By establishing clear policies, drafting detailed employment agreements, and educating employees about their rights and responsibilities, companies can mitigate the risks of disputes over IP rights.

Remember, at the heart of these legal considerations is the goal of fostering a culture of innovation where employee creativity is encouraged and valued, while simultaneously protecting the company's intellectual assets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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