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Law Regarding the Rights to Inventions Made by Employees

Who owns the patent for an employee invention of a new device or process? The answer is complex and depends on several factors.

The rights to inventions made by employees involve multiple legal principles, including:

Patent law governs the rights to inventions. It is important to know your patent rights and what patent protections apply to the created invention. This article expands on FindLaw's Patents section to answer this intellectual property question.

Patent Law

Patents are only granted by the U.S. Patent and Trademark Office (USPTO). You must file a patent application to protect your work nationally. No state can grant a patent. But once the USPTO grants the patent, state law determines the rights to the patent. These rights include employer's rights and employee's rights under small business law like contract law.

An Employee Invention Scenario

A small business owner has an employee who creates an invention. The employee makes it within their scope of employment. They may work on this project on their own time in the shop. They may work on it at home. Eventually, they develop a process or an improvement to a machine that reduces their employer's manufacturing costs.

Does the invention become the property of the employer or the employee? The employee used their initiative but used the employer's resources. Even if the employee used their own tools and personal time, they would not have worked on the project if they had not had exposure to it through their employment.

The general rule is that, in the absence of a written agreement to the contrary, an employer has a nonexclusive license to use an invention devised by an employee while working for the employer. In the context of patents, this is the shop right doctrine.

Although the employer has a nonexclusive license to use the invention without paying royalties to the employee, the employee owns the invention. This employee has the right to exploit it by selling or licensing it to other users. Even if the employee works on the invention on their own time, this rule usually applies if the employee uses the employer's resources.

Employee Contract or Employee Agreement Terms

The ownership of that invention can be subject to other terms. These terms should be in an employment contract or a separate written agreement.

Invention Assignment

An invention assignment agreement is a provision within an employment contract. It states the conditions under which an employee-inventor's invention rights are assigned or granted to the employer. Often, an employer will get an agreement from an employee to assign patents developed while working at the employer's business. These kinds of agreements are generally enforceable. Even without such an agreement, the employer may still compel the employee to transfer the patent to the employer if the employer hires the employee to work on the project from which the invention resulted.

Royalty Arrangements or Compensation

The employment contract usually outlines the terms for this type of compensation. Ownership rights to inventions can impact the use of confidential information. For this reason, employees may receive additional compensation. This compensation can be royalties or other compensation for the employee's inventive contributions. Royalties are a set amount paid to the inventor upon selling each product.

If an invention is patentable, the employee-inventor may need to collaborate with their employer to draft and file a patent application. They can do this thanks to the written assignment provision in the employee contract or employee agreement. The provision stipulates that the employee assigns their ownership rights in the invention to the employer.

Work Made for Hire Patent Ownership

A different situation arises when the employer hires the employee to develop and work on an invention that later becomes the subject of a patent.

For example, an employer hires an employee to work on a device. That device later becomes the subject of the employee's patent. The employer seeks to get an assignment and transfer of the patent. The employer argues that the employee invented the device while employed to work on it.

A court would conclude that while the employment relationship does not prevent an employee from improving his employer's processes and obtaining patents for those improvements, if an employee's job involves inventing or devising such improvements, any resulting patents belong to the employer. The employee is doing what the employer hired them to do.

Sometimes, independent contractors or third parties are a part of the invention development process. The ownership of inventions, in this case, differs depending on the contractual arrangement in place.

Other Common Employee Intellectual Property Law Issues

The rules about employee inventions are not limited to patents. They also apply to other intellectual property rights.

In one case, university professors created a process for producing milk. Later, milk produced using this process was sold under a certain trademark that the university owned and licensed to dairies. The university declined to pay royalties to the professors who claimed to be the inventors of the process that led to the trademark.

The professors sued the university. The court concluded the trademark belonged to the university as the professors' employer. The university was not obligated to pay royalties to the individual inventors. The court found that the professors were doing what the university hired them to do when conducting the research that led to the invention or development of the trademarked process.

Patent Ownership in Federally Funded Research

Some statutory provisions focus on the ownership of inventions, such as the Bayh-Dole Act (35 U.S.C. §§200-212). The Bayh-Dole Act applies to subject inventions arising from federally funded research through:

  • Nonprofit organizations
  • Inventors
  • Small businesses

This act allows these funded groups or people to keep ownership rights. At the same time, it also grants rights to the government. In these cases, the government, by way of funding the research, is like the employer. The organizations, inventors, and businesses are like the employees.

Confused About Employee's Rights to Patents? Contact an Attorney Today

Suppose you are an employer with questions about your legal rights to an invention. Or maybe you are an employee who has questions about obligations to your employer for an invention. Discussing the matter with an employment law or intellectual property attorney would be worth your time.

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Next Steps

Contact a qualified business attorney to help you identify how to best protect your business' intellectual property.

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