Consider the following: You’re about to take on employee number two (or three) to tackle some software development issues while you shift back to the big picture. Your boyfriend’s cousin’s classmate is a top-notch programmer looking for something full-time, and everything clicks into place. Not only does he tackle the task at hand, but he does so in a manner so jaw-droppingly brilliant that the word “patent” begins to be thrown around.
All else being equal, who owns the patent?
It can’t be the employee, can it? After all, the invention was created on your time, with your resources, and in the ordinary course of his employment.
Yup.
The general rule here is that absent an agreement to the contrary, an employee owns his or her invention even if it was conceived during the ordinary course of employment, using company resources, and on company time (the phrase “absent an agreement to the contrary” is a hint on how to fix this problem, as discussed below).
The concept that patent rights vest with the inventor is an old one in the U.S., dating to the 1790s and the first Patent Act, though other countries may differ. For example, rights in Israel and Switzerland are closer to the U.S. model; in Germany and the U.K., rights typically vest with the employer.
This rule was in the news a few years back when the Supreme Court heard a case involving Stanford and an inventor who developed a method later used in H.I.V. testing kits. Board of Trustees of the Leland Stanford Jr. University v. Roche Molecular Systems, Inc., 563 U.S. (2011). The Court confirmed the general rule in the context of federal-funded research. In other words, even where the government has a financial interest, the rule stands and title vests with the inventor.
While beyond our scope here, this article has a thorough discussion of the historical and policy underpinnings of the rule.
Better than nothing: Shop rights for the employer
Since it would be inequitable for the host employer to have no rights at all in the employee’s invention, the law provides for a limited shop right—similar to a limited license to use the invention.
The shop right amounts to a non-transferable, non-exclusive, royalty-free license, and allows the employer to use the invention in the normal course of the business without fear that the employee (or perhaps former employee) could sue for infringement.
While better than nothing, it’s hardly the period of exclusivity granted by the patent statute, and doesn’t allow the employer to license, sell, or otherwise take advantage of the patent as a property right. The employee remains free to license or sell the patent to anyone, even a competitor.
Hired to invent
There is an exception to the general rule for employees that are hired to execute a specific task or otherwise use their “inventive faculties” (not my phrase).
The “hired-to-invent” doctrine says that where an employee was hired to solve a specific problem or invent in a specific field, any resulting invention becomes the property of the employer. Courts look at a variety of factors, but the primary factor is the specificity of the task given to the employee at hiring. The more specific the directive, the greater the likelihood that the resulting invention will be owned by the employer, a departure from the general rule.
Steps for maintaining ownership
So, how do you avoid an unsuccessful outcome? A few tips:
Formulate a policy and stick to that policy.
Determine what you fairly expect to remain property of the company, and what you are willing to leave with the employee-inventor. Too rigid a policy leaves less of an incentive for employees to innovate. Too flexible a policy leaves money on the table.
I have deposed many inventors over the years and many companies use an incentive-based system ranging from financial rewards to public acknowledgement and a firm handshake. (That last inventor probably should have asked for more.)
Once you have a policy, put it in writing, and apply it consistently.
Require new employees to enter into an assignment agreement before starting work.
Once you determine what is company property, make sure new hires are required to sign on to the policy.
While including language in an employee handbook is sufficient in some states, the better path is to obtain a signed assignment from new hires before they start work.
Provisions of this sort have become a common part of employment agreements: “Employee agrees to assign and hereby does assign to Employer his right, title, and interest in the ideas, inventions, and improvement made as a consequence of Employee’s employment by Employer.”
Language presently assigning rights, as opposed to promise to assign rights, is preferable. In Stanford, Stanford held that an earlier “promise to assign” close lost out to the later “hereby does assign” agreement. One was an assignment, the other a promise to assign.
Execute and record individual assignments early.
An assignment of a specific invention can be recorded with the USPTO as soon as the application is filed. Wherever possible, have the employee execute the assignment of the specific application at the time of filing. You need the inventor’s signature on the inventor declaration anyway, so better to get them both at once.
Memorialize hired-to-invent relationships.
If your employee has been hired to address a specific problem, document the nature of the problem to be solved with as much specificity as possible.
Consult your local law.
Patent law is generally a creature of federal law, but patent ownership and employment contracts are the dominion of the states. Consult an attorney versed in the law of your state for requirements specific to your jurisdiction. (This advice goes double for Californians.)
Taking a few precautionary steps now can save you from a world of grief down the road.