Who Owns An Employee’s Invention?

So, your creative, energetic employees are writing software, perfecting video games or dreaming up ways to turn straw into gold -- all on your nickel. When an employee's invention hits the jackpot, who owns it -- the employee or the employer? The answer to this potentially "mega buck" question depends on how careful the employer is to protect its rights before the invention is created.

The safest way to proceed is with a simple "Assignment of Inventions," in which the employee agrees to assign patent rights to all inventions the employee develops during, or as a result of, his employment. For employers whose employees do creative work of any sort, this type of agreement should be a routine part of the hiring process. The goal of such an agreement is clarity, not to gain an unfair advantage over employees. Indeed morale may suffer if people -- especially creative people -- feel they have been asked to give up too much.

Even if the employer hasn't thought ahead and doesn't have the right sort of agreement in place before an invention is created, all is not necessarily lost. Two questions are likely to control what happens then: whether the employee was hired specifically to develop this sort of invention, and whether the employee did the work on his or her own time.

When an employee is hired specifically to invent a particular device or process, the law generally implies an agreement to assign patent rights to the employer. Similarly, when an employee is hired to do work creating inventions, an agreement that those inventions belong to the employer is usually implied. On the other hand, when an employee is hired to do general work, chances are no agreement to assign patent rights will be implied. Accordingly, most disputes and lawsuits arise over this issue: Was an employee hired for "general" work or "inventive" work?

Among the factors that courts have considered to determine which category a particular employee fits into are the following:

• whether the invention relates to the employer's business;
• whether the employer played a role in developing the invention, or provided the original idea;
• whether the employee was assigned to work on the invention during work;
• whether the employer paid patent prosecution costs;
• whether other employees worked on the invention or are listed as co-inventors;
• whether the employer's materials, tools, or facilities were used developing the invention; and
• whether this employee or other employees had previously assigned patent rights to the employer, in the absence of an express agreement.

In short, if the employee pays all expenses and works mostly on his own time, the employer will have no right to assignment, even if the employee does "inventive" work. When an invention is developed during work, using the employer's materials, the law will usually imply an employer's right to assignment of patent rights unless the employee was not hired or assigned to do inventive work.

If only one of these two factors is present -- that is, the employee developed the invention during work hours, or used the employer's materials, but not both -- the employer will generally have a "shop right" in the invention. A shop right allows the employer to use the invention without having to pay for a license. This is by no means as valuable as the full rights to an assignment, but it's better than nothing. The shop right is an irrevocable license given to the employer, based on the employee's obligation of service, the benefits to the employee from his use of the employer's property, and the assistance of his co-employees. Indeed, even an independent contractor, hired for general labor, who develops an invention on his employer's time using his employer's tools, must assign shop rights.

Whether or not a shop right is awarded depends on the contribution by the employer to the inventor's efforts. If the invention is developed on the employee's own time, and at his own expense, the employer is not entitled to a shop right, even if some of the materials were supplied by the employer. If the employer rejects the idea or does not pay any of the expenses involved in developing the invention, he has no rights in the invention, even if the invention relates to his business.

As human capital and intellectual property move to the forefront of important assets of businesses, employers need to be vigilant to ensure that they do not lose, impair, or even complicate their rights to the creations of their employees. Rather than leave it up to a court to decide whether the various factors add up to an implied assignment, a shop right, or no rights for the employer, employers should make an "Assignment of Inventions" part of the hiring process.

© 2001 Crosby, Heafey, Roach & May Professional Corporation.