Who Owns Employee Produced Inventions?

By Adam Liberman and Chris Barton

The case of Spencer Industries Pty Limited (Spencer Industries) v Collins is a timely reminder of the principles to be applied in Australia in determining an employer's right to the inventions of an employee. It also provides some interesting observations on some other matters relating to the employer/employee relationship in this area.

The case was an appeal by the applicant, Spencer Industries, from a decision of a delegate of the Commissioner of Patents that the first respondent, Anthony Collins, made the invention which was the subject of a petty patent application, outside the course of his normal duties as an employee of Spencer Industries. The effect of the decision being that the relevant invention was owned by Collins.

For relevant purposes the facts of the case are as follows:

• Spencer Industries was a small family company that conducted business as a manufacturer and supplier of equipment used in tyre retreading.

• Until March 2002 the business was controlled by James Pincott and thereafter by other members of his family.

• Sometime in 1989, Pincott decided that Spencer Industries should employ a Sales Manager to reduce his workload.

• Collins applied for and was appointed to the position. In the letter making the appointment, the only reference to Collins' terms of employment were as follows:
  'Your title will be Sales Manager, your starting salary will be $40,000 per annum and you will have full use of a fully maintained company Toyota Cressida, including private use and petrol card.
  Paid holiday comprising four weeks per annum with normal office hours 8.30am to 5.00pm. Your business expenses will be charged to a company credit card expense account. As discussed there will be considerable overseas travel involved.'

• For the period 2 April–1 August 1990, Collins' group certificates stated that Spencer Industries was his employer but thereafter, Bijay Pty Ltd, a related company of Spencer Industries employed and paid Collins.

• Collins was a first class machinist and at the time of applying for the job had considerable experience as a sales representative.

• Included in his role as Sales Manager, Collins recommended expansion of the Spencer Industries product range in response to customer suggestions. He also used his technical skills to demonstrate the products that he was responsible for.

• In 1990 on the instructions of Pincott, Collins and another employee, Smith, designed a tyre rasp hub. A patent application was filed in respect of that product and both Collins and Smith assigned their interest in the invention in favour of Spencer Industries. In 1994 Collins also assisted in a similar way with respect to a tyre rasp spacer, for which design registration was obtained.

• The subject matter of the current proceedings related to the design of a more efficient and effective tooth for a rasp blade (Invention). In 1996 Collins formed the idea of staggering the teeth of adjacent blades to produce a more uniform cutting action across the rasping surface of the hub. Between May and November 1996 he made paper cut outs and subsequently transparencies of the prototype invention in his own time. By November 1996 Collins had prepared a note which incorporated a simple diagram outlining the Invention. In November 1996 Collins sought to interest Pincott in the Invention but was rebuffed.
• In early 1998 Pincott changed his view and asked Collins to prepare enlarged drawings of the offset rasp teeth. Collins prepared the enlarged drawings in his own time using the equipment that either belonged to him or his wife.

• At the direction of Pincott, the Invention was progressed further in that full sized drawings were prepared. Those drawings were prepared by Collins partly during working hours when he was free of sales work and partly outside working hours. The size of the drawings necessitated his use of Smith's drawing board. Dyes were also prepared in order to conduct trials.

• Following on, meetings in late 1999 which included Mr Griziotis, the patent attorney for Spencer Industries, Mr Griziotis expressed the view that the Invention was patentable, that the inventor was Collins and that an assignment of Collins' rights in the Invention in favour of Spencer Industries would be required. In those discussions, a nominal consideration of one dollar was mentioned by Pincott.

• By letter dated 15 November 1999, Mr Griziotis advised Pincott of the filing particulars for the application and also enclosed a deed of assignment between Collins as assignor and Spencer Industries as assignee relating to the Invention. The deed provided for a one dollar consideration.

• In early February 2000, after Collins had returned from an overseas sales trip, Pincott requested Collins sign the deed of assignment. Collins refused unless a proper payment regime was provided for.

• Further discussions took place in April 2000 between Pincott and Collins at which time Pincott again requested that Collins sign the deed of assignment. Collins responded that the issue of payment and increased job security needed to be discussed first.

• On 5 June 2000 after returning from a sales trip to the US, Collins gave notice of his resignation from Spencer Industries.

• The dispute the subject of these proceedings arose after Collins and the second respondent (B & J Manufacturing), a potential acquirer of the rights to the Invention from Collins, filed a notice under section 28 of the Patents Act 1990 notifying the Commissioner of Patents that they asserted that the patent was invalid on the ground that Spencer Industries was not entitled to be granted the petty patent.

Pursuant to section 15(1) of the Patents Act 1990 (Cth), a patent for an invention may only be granted to the person who is the inventor or a person who would on the grant of the patent be entitled to have the patent assigned to them. In the context of an employer/employee relationship, an employer is a person so entitled where the relevant invention is made in the course and scope of the employee's employment—what the courts have referred to as the 'normal incidents' of that relationship. As the employer/employee relationship is a product of contract, parties can choose to change those 'normal incidents'. Additionally they can expressly set out the scope of the relevant employment. In this case the 'normal incidents' were said to apply and there were no terms which expressly set out the scope of the employment relationship. That being the case, the Court in making its assessment as to the scope of Collins' employment agreed with Spencer Industries' submission that it was necessary to give consideration to the following:

• the nature and seniority of Collins' position with Spencer Industries

• the nature of Collins' duties as a Sales Manager, and

• whether Collins received a specific directive in relation to the invention.

In considering the circumstances at hand in the context of the above three matters, the Court found that:

• Collins' position with Spencer Industries was principally a sales position. 'However, as might be expected in a relatively small, family owned, company he occasionally undertook tasks outside his principal area of responsibility … [and] that he could be given reasonable directions to perform duties outside the area of sales that were within the area of his technical skills and that were not incompatible with his principal responsibility for sales.'

• The contributions that Collins made to the tyre rasp hub and the tyre rasp spacer 'fell outside his ordinary duties as Sales Manager, but within the residual area in which it was open to Spencer Industries to direct him, whether expressly or impliedly, to use his technical skills to undertake additional duties'.

• 'It was no part of Collins' ongoing duties to invent products for Spencer Industries.'

• The Invention was not the outcome of a direction given to Collins within the residual area in which Spencer Industries could direct Collins to perform tasks other than sales tasks.

• Collins was not directed by Spencer Industries 'to invent a new rasp blade or to undertake any inventive activities which resulted in the Invention' and accordingly the Court rejected Spencer Industries' submission that because Collins had a duty as a Sales Manager to advance the sales of Spencer Industries, any invention made by him which was capable of advancing Spencer Industries' sales was an invention made by him within the course and scope of his employment.

• Collins had conceived and developed the Invention in his own time.

• The inventive steps concerning the Invention had been completed by the time that Collins advised Pincott of the Invention.

• The Invention was not the product of work that Collins was paid to do.

• The fact that Collins was paid a salary that exceeded the Managing Director and General Manager of Spencer Industries, both family members, did not indicate a level of seniority or control within Spencer Industries that was a significant determinant factor supporting a proposition that Collins made the Invention in the course and scope of his employment.

Additionally, the Court rejected Spencer Industries' submission that by reason of his conduct, that Collins acknowledged that Spencer Industries was entitled to the benefit of the Invention and in that regard made the following comments:

Finally while the point was not necessary for the purposes of the decision, the Court took the view that notwithstanding that from 1 August 1990 Collins' salary had been paid by Bijay and not Spencer Industries, that that did not necessarily mean that Spencer Industries was not Collins' employer. In the end result the Court therefore dismissed Spencer Industries' appeal.

While the case does not contain ground breaking law, it does contain significant useful reminders of issues to be considered in relation to both employment and intellectual property matters in an employer/employee situation in an Australian context. Those matters are summarised as follows.

• In the event that an employer wishes to ensure that all inventions made by employees, which can be used for the benefit of the employer, come to be owned by the employer, that entitlement should be expressly provided for in the appropriate manner in the relevant contracts of employment. In New South Wales, however, employers will need to have regard to the fact that the Industrial Relations Commission has the power to vary contractual provisions dealing with the ownership of intellectual property developed by employees, and to order the payment of compensation to employees if those arrangements are held to be unfair or to have operated unfairly.

• That where a contract of employment does not expressly provide for the ownership by the employer of all inventions made by employees, which can be used for the benefit of the employer, then it is highly unlikely that such a term will be implied where anyone or more of the following apply:
  - the invention is created in the employee's own time
  - the invention is not made pursuant to a direction of the employer
  - the invention is not the product of work that the employee was paid to do
  - the inventive steps in creating the invention have been completed before involvement by the employer.
  In fact, the courts are now more ready to imply an obligation of good faith and fair dealing that would require an employer to recognise an employee's rights in respect of intellectual property in appropriate circumstances.

• That in cases where an employee's conduct may be equivocal as to whether they intend or do not intend to vest rights in an invention made by them in their employer, there may be some advantage from an employer's perspective in showing that they have provided their employees with some education as regards intellectual property rights, as part of their regular training program.

• That the position as to ownership of other forms of intellectual property rights such as copyright, designs, trademarks, circuit layouts and plant breeder's rights need to be separately considered in the context of contracts of employment, as each are governed by a separate legal regime. While those legal regimes may have elements in common with the treatment of inventions and patents in an employer/employee relationship, they also have elements that are not.

Employers should not assume that a similar regime to the above applies in overseas jurisdictions. For example, Japanese patent law provides employees with the right to receive 'a reasonable remuneration' for an invention produced within the scope of their employment.