When you create an invention while employed, who owns the right to acquire a patent: you or your employer? The general rule is that you own the patent rights to the invention unless:
- you signed an employment agreement assigning invention rights, or
- you were specifically hired (even without a written agreement) for your inventing skills or to create the invention.
Even if your employer does not acquire ownership under one of these two methods, the employer may still acquire a limited right to use your patent (called a shop right) without paying you. Shop rights are discussed below. Keep in mind that simply because an individual is employed does not necessarily grant the employer ownership of the patent. Each situation must be evaluated on its own set of facts.
Written Employment Agreements and Pre-Invention Assignments
Some employment agreements have a provision requiring the employee to assign any inventions to the employer. Because these employment agreements are signed before the employee creates the invention, they are sometimes referred to as pre-invention assignments. Examine your employment agreement (or other agreements you have with your employer) to see if there are any pre-invention assignment clauses. These provisions might also be located in your employee manual or in other employee guidelines‚ that are often considered as legally binding terms of your employment agreement. If your employment agreement contains a pre-invention assignment, you won't own inventions created for your employer. If you disregard the agreement and attempt to license, patent, or sell your invention, the employer will be able to sue you for breach of the employment agreement. If your employment agreement is found valid and your employer wins the lawsuit, you may have to pay monetary damages and you'll lose rights to the invention.
If you work in the following states, state law requires that you be given written notice of your state’s restrictions on an employer’s right to obtain an assignment of employee inventions.
• California (California Labor Code § 2870)
• Delaware (Delaware Code Annotated, Title 19, § 805)
• Illinois (Illinois Revised Statutes, Chapter 140, §§ 301-303)
• Kansas (Kansas Statutes Annotated §§ 44-130)
• Minnesota (Minnesota Statutes Annotated § 181.78)
• North Carolina (North Carolina General Statutes §§ 66-57.1, 66-57.2)
• Utah (Utah Code Annotated §§ 34-39-2, 34-39-3), and
• Washington (Washington Revised Code Annotated §§ 49.44.140, 49.44.150).
If this is not done, the assignment could be unenforceable. What if you live in one of the 42 states that do not have laws restricting invention assignments? Even in most of these states, pre-invention assignments cannot be grossly unfair. Because they want their pre-invention assignment agreements to be legally enforceable, employers in these states sometimes track the rules used in the eight states above when drafting assignments.
Employed to Invent
Even without a written employment agreement, your employer may own rights to your patent under a doctrine known as “employed to invent.” It's simple. If you were hired for your inventing or designing skills, or you were hired or directed to create an invention, your employer would own all rights to your subsequent invention. This doctrine is derived from a Supreme court ruling that stated, “Anyone employed to make an invention, who succeeds, during his term of service, in accomplishing that task, is bound to assign to his employer any patent obtained.” In one case involving a process for welding a turbine engine, an employee spent 70% of his employment time on this project and created the invention using the employer’s resources, i.e., the employer’s tools and materials. When completed, the employee acknowledged the employer’s role in the development of the invention. All of these factors, especially, the last one, were important in a court ruling granting rights to the employer under the 'employed-to-invent' doctrine.
Despite this ‘employed to invent’ rule, most companies prefer to use a written agreement like a pre-invention assignment agreement, which is more reliable and easier to enforce than this implied agreement.
Royalty Free, Non-Exclusive "Shop Rights"
Even in instances where the employer does not own the employee's patent, it may have a "shop right" to use the patent on a non-exclusive, non-assignable, royalty-free basis. A shop right entitles an employer to use, without charge, an invention patented by one of its employees without liability for infringement. In addition, the employer has a royalty-free, non-exclusive and non-assignable license to use the invention. The right is based on the employer’s presumed contribution to the invention through materials, time, and equipment. In determining whether an employer has a shop right, the following factors have been considered:
- the contractual nature of the relationship between employer and employee
- whether the employee consented to the employer’s use of the invention, and
- whether the employee induced, acquiesced in, or assisted the employer in the use of the invention.
In general, an employer will have shop rights in an invention in situations where the employer has financed an employee’s invention by providing wages, materials, tools and a work place. Other factors creating shop rights include an employee’s consent, acquiescence, inducement, or assistance to the employer in using the invention without demanding compensation or other notice of restriction. Although the employer has a shop right, the employee retains full ownership of the patent and may issue licenses or even sell the patent to third-parties. However, even where the patent is sold to a third-party, the (former) employer retains its shop rights in the patent.
Inventions By Company Officers
If an employee inventor is an officer of the employer, ownership is more likely to tip towards the company than the employee. Officers of a company have a special duty (known as a “fiduciary duty”) to the company. At least one state court has found that the officer of a corporation has a fiduciary duty to assign his employee-created invention to his employer.
Rules for independent contractors differ from employees. For example, none of the state law limitations on invention assignments discussed above apply to independent contractors; they only apply to employees. So, even if you live in a state like California that has such a law, companies that hire you as an independent contractor have more latitude in how they word their assignment agreements. Even so, a court might hold an unconscionable or fraudulently obtained assignment invalid, just as if you were an employee. Shop rights are not necessarily limited to the employer-employee relationship. Where an independent contractor uses a company's resources, the company may also have shop rights to the invention.
Employee patent rights vary greatly depending on the facts. These disputes are often contentious and complex. Talk to an Intellectual Property Lawyer if you are concerned about the loss of patent rights.