Keeping Ownership of Employee Inventions on the Clock

By David A. Boag, BOAG | LAW, PLLC

Consider the following: You’re about to take on Employee No. 2 (or 3) to tackle some software development issues while you shift back to the big picture.  Your boyfriend’s cousin’s classmate is a top-notch programmer looking for something full-time, and everything clicks into place.  They tackle the task at hand and then some, and soon you’re looking at patenting the concept.

Who owns the patent?

The general rule is that absent an agreement to the contrary, an employee owns his or her invention even if it was conceived during the ordinary course of employment, using company resources, and on company time.  The U.S. Supreme Court took a look at this in 2011 and concluded that the general rule still holds, even where the federal government is the employer.  See Board of Trustees of the Leland Stanford Jr. University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011).

In most cases, we see the employer and inventor come to an accommodation—often based on nothing more than the promise of continued employment.  Ego and avarice occasionally intervene, leading to a less desirable outcome.

Better than Nothing—Shop Rights for the Employer

It would be unfair for the employer to take nothing in this scenario and the law provides for a limited shop right—similar to a limited license to use the invention.  The shop right is a non-transferrable, non-exclusive, royalty-free license, and allows the employer to use the invention in the normal course of the business without fear that the employee (or perhaps former employee) could sue for infringement.

Shop rights lack the exclusivity offered by a patent, and don’t allow the employer to license, sell, or otherwise take advantage of the patent as a property right.  The employee remains free to license or sell the patent to anyone, even a competitor.

An Exception: Hired to Invent

There is an exception to the general rule for employees that are hired to execute a specific task or otherwise use their “inventive faculties” (not my phrase).

The “hired-to-invent” doctrine says that where an employee was hired to solve a specific problem or invent in a specific field, any resulting invention becomes the property of the employer.  Courts look at a variety of factors, but the primary factor is the specificity of the task given to the employee at hiring.  The more specific the directive, the greater the likelihood that the resulting invention will be owned by the employer, a departure from the general rule.

Steps for Maintaining Ownership

How do you avoid this unsuccessful outcome?  A few tips:

  1. Formulate a policy and stick to it.

Determine what you expect to remain property of the company, and what you are willing to leave with the employee-inventor.  Too rigid a policy leaves less of an incentive for employees to innovate.  Too flexible a policy leaves money on the table.  Off-hours projects unrelated to company business should stay with the employee.  Figure out a compensation scheme.  Is this just an expected part of the job or can inventors expect to share in the profits?  Are the rewards per-property or proportionate?  Then put it all in writing.

  1. Require new employees to enter into an assignment agreement before they start work. 

Once you determine what is company property, make sure new hires are required to sign on to the policy.  Make IP rights management a part of your HR culture. While including language in an employee handbook is sufficient in some states, the better path is to obtain a signed assignment from new hires before they start work.  An example: “Employee agrees to assign and hereby does assign to Employer his right, title, and interest in the ideas, inventions, and improvement made as a consequence of Employee’s employment by Employer.” Language presently assigning rights, as opposed to promise to assign rights, is preferable.

  1. Execute and record individual assignments early.

An assignment of a specific invention can be recorded with the USPTO as soon as the application is filed.  Wherever possible, have the employee execute the assignment of the specific application at the time of filing.  You need the inventor’s signature on the inventor declaration anyway, so better to get them both at once.

  1. Memorialize “hired-to-invent” relationships.

If your employee has been hired to address a specific problem, document the nature of the problem to be solved with as much specificity as possible.

  1. Consult your local law.

Patent law is mostly a creature of federal law, but patent ownership and employment contracts are the dominion of the states.  Consult an attorney versed in the law of your state for requirements specific to your jurisdiction.

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Taking a few precautionary steps now can save you from a world of grief down the road.

David is the founder of BOAG | LAW, PLLC, a boutique intellectual property law firm based in New York City.  He can be reached at .