Who Owns Employee Inventions? The Employer Or The Employee?

It is dangerous for an employer to assume that it owns an employee’s inventions merely because its employee invented them. Similarly, employees should not assume that they own inventions merely because they invented them at home. Employee-inventors present unique problems for the employer, and the answer to who owns an invention may depend on the type of invention. The rules for ownership of creations protected by a copyright differ from inventions protected by a patent. Here are some examples of the issues that can be presented by employee inventions:

1. A company hires a contract software developer for $150,000 to create an internal business software program. The company gives the developer an office at company headquarters. Who owns the software program? Can the developer sell the software program to others, including the company’s competitors?
   
   
2. Your sales manager invents a machine for use in your business, which reduces your manufacturing cost by 10%. You want to manufacture this machine and sell it throughout the industry. The sales manager says that the invention is his, not yours. Who wins?
   
   
3. An employee patents a valuable invention that he created at his employer’s factory on company time. He demands a license fee from the employer to use the invention. Must the employer pay him the license fee?
   
   
4. You hire an independent web page designer to create your web page, including web graphics and text. Who owns the contents of your web site—you or the designer?

These are some of the issues arising from the employee-employer relationship. It is estimated that 80% to 90% of patent inventions are the result of employee-inventors. Almost all ownership disputes can be avoided if addressed in a written agreement at the outset. But if there is no written agreement, these rules generally apply:

1. The author of the work is usually the owner of the copyright, unless the work was prepared by an employee in the scope of his or her employment. If so, then the work is a “work for hire” and the employer is the owner.
   
   
2. If the author is an independent contractor, and not an employee, the work does not belong to the employer. It is often difficult to distinguish between an employee and independent contractor, so employers should seek legal advice in establishing this distinction.
   
   
3. The ownership of patents is different than ownership of copyrights. In the absence of a written agreement, an employee’s patentable inventions may not belong to the employer, except in special circumstances. The employee employer relationship does not necessarily entitle the employer to ownership of inventions made by the employee.
   
   
4. If the employee was hired for the specific purpose of inventing a defined product or process, the invention belongs to the employer.
   
   
5. General inventions made at the employer’s expense but not at the employer’s specification are often not the property of the employer.
   
   
6. Does this mean that the employee can then stop his employer from using the invention, which he made at the employer’s expense? No. The employee may have the duty to license the invention at no cost to the employer. This is called the “shop right rule.” A shop right is a nonexclusive license to use, manufacture and sell an invention without financial obligation to the inventor. However, the employee retains ownership of the patent.
   
   
7. Inventions made on the employee’s own time, but not at the employer’s expense, can be the property of the employee, even if they relate to the employer’s business.

The absence of a written agreement causes these disputes to arise. Accordingly, it is advisable to follow these guidelines in order to avoid ownership disputes between employers, employees and independent contractors:

1. Consult your attorney. It is essential to obtain legal advice so that you can protect your intellectual property.
   
   
2. Always use written agreements which spell out the rights of employer, employee and independent contractors. Ensure that the agreements are valid under your state’s law.
   
   
3. Employers should make sure that employees read and sign the written agreements, preferably before they commence their employment.
   
   
4. Employers should ensure that written employment agreements have confidentiality clauses and appropriate non-compete provisions.

This has been reprinted from the Winter 2004 Focus.
© 2005 Burns & Levinson LLP. All rights reserved.
www.burnslev.com
HQ 617.345.3000

MARK SCHONFELD is a Partner and Co-Chairman of the Firm’s Intellectual Property Group.