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Employee's Rights to Compensation for Inventions

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Employee's Rights to Compensation for Inventions Life Sciences 2009/10 Cross-border Employee’s rights to compensation for inventions - a European perspective Morag Peberdy and Alain Strowel, Covington & Burling LLP* www.practicallaw.com/9-500-8968 Many life science companies rely on their employees’ inventive- The Netherlands, France, Italy, Austria, Portugal, Spain and Hun- ness to fuel their research and development (R&D) efforts and gary) include employee inventor compensation provisions in their generate patents. The most successful inventions can generate national patent legislation. Others, such as Germany, Denmark, billions of euros of sales annually. In some circumstances, the Finland, Norway and Poland, have enacted specific employee employees who created the patentable inventions may be entitled compensation laws. Belgium does not provide a statutory right to to compensation. However, the laws in this area vary significantly compensation, although a right has developed through case law across European jurisdictions. (see below, Belgium: Overview). Irish or Swedish laws, however, do not contain any obligation on employers to compensate em- A number of substantial compensation awards have been made ployees for employee inventions. Cross-border recently. For example, the UK Patents Court awarded com- pensation for the first time in 2009, in the case of Kelly v GE There are a number of different approaches to compensation. For Healthcare [2009] EWHC 181. Between them, the two inven- example, in some countries, the right to compensation is linked tors were awarded GB£1.5 million (about US$2.2 million). A to whether the employee is “employed to invent”. In others, the former employee of French National Railways (Société Nation- right to compensation is the same for any inventions owned by ale des Chemins de fer français (SNCF)) received more than the employer. There are also differences relating to: US$750,000 (about EUR503,000) from a court of first instance Eligibility for compensation. in Paris for inventing a system that allowed SNCF to save around US$22 million (about EUR14.8 million) annually (X c. Société The basis for assessing the compensation level. Nationale des Chemins de Fer Français et Vape Rail International The time period in which claims for compensation must be SAS (VRI), Tribunal de grande instance of Paris, 3rd chamber, brought. 1st section, 19 May 2009). The frequency of awards. However, despite companies’ potentially significant exposure, there is much uncertainty regarding employees’ rights to com- The treatment of employees working in the private sector pensation. In large part this is due to the complexity of national and universities. laws and the lack of harmonisation across Europe. Even where a These differences are explored in greater detail for the selected right to compensation can be established, the amount is often jurisdictions below. See also box, Key features of employee com- unpredictable. pensation regimes in selected jurisdictions. Against this background, this chapter considers the legal frame- The UK work in a number of selected jurisdictions for compensating em- ployees for patented inventions, which the employees developed Ownership of inventions. In most circumstances, inventions cre- but their employers own. The jurisdictions considered are the UK, ated by UK employees will belong to the employer (section 39, France, Germany, The Netherlands and Belgium. Patents Act 1977). The employer owns the invention if it was made in the course of the employee’s normal duties (or duties The chapter considers: specifically assigned to the employee), provided that the inven- tion might reasonably be expected to result from carrying out An overview of national laws in Europe. such duties. The differences in laws in the selected jurisdictions. Employers also own any inventions made during the course of Whether an employee’s rights to compensation can be duties by employees with a special obligation to further the em- altered contractually. ployer’s interests because of the nature of their duties and the re- sponsibilities arising from those duties. This can cover executive The chapter also provides a checklist of considerations for those employees whose seniority gives rise to an obligation to further considering bringing or defending claims (see checklist, Consid- the employer’s interests, even though their normal duties do not erations for potential litigants). include making inventions. AN OVERVIEW OF NATIONAL LAWS Whether compensation is payable. When the employer owns the in- vention, the employee may be entitled to compensation from the em- The source of employee inventor compensation laws differs from ployer. However, a characteristic of the UK regime is that awards are country to country. Many European countries (including the UK, unusual. Compensation is awarded only in exceptional circumstances. PLCCROSS-BORDER HANDBOOKS www.practicallaw.com/lifescienceshandbook 63 © This document was first published in the PLC Cross-border Life Sciences Handbook 2009/10 and is reproduced with the kind permission of the publisher, Practical Law Company. For further information or to obtain copies please contact [email protected], or visit www.practicallaw.com/lifescienceshandbook. Cross-border Life Sciences 2009/10 KEY FEATURES OF EMPLOYEE COMPENSATION REGIMES IN SELECTED JURISDICTIONS FEATURE UK BELGIUM FRANCE GERMANY THE NETHERLANDS Relevant Sections 40 to 42, There are no statu- Patent Act 1978, Employees Inven- Article 12, Patent Legislation Patents Act 1977. tory rules regarding as codified by the tions Act 1957 Act 1995 employee inventions. Intellectual Property (Arbeitnehmererfind- Code 1992. ungen) (ArbnErfG) and guidelines is- sued by the Minister of Labour. Underlying Compensating inven- Compensation can Compensation must Compensation must Compensation rationale tors in exceptional be awarded by the be awarded for all be awarded for all should only be circumstances if both: courts in rather employee inventions service inventions awarded if the inven- The patent (and/ exceptional cases. that the employer claimed by the tor has not already or, for patents filed owns. employer. been compensated in 2005 or later, for the patent in his the invention) has salary, pecuniary al- been of outstand- lowance or any other ing benefit to the extra remuneration. employer. There is a real dis- parity between the benefits received Cross-border by the employer and the employee. Requirements The patent (and/ No entitlement to Entitlement to ad- Automatic entitle- Entitlement to equi- for or, for patents filed compensation for ditional remuneration ment to reasonable table remuneration if entitlement in 2005 or later, “service inventions” (rémunération supplé- compensation if the existing contrac- the invention) is of (made within the mentaire) for inven- the employer has tual remuneration is outstanding benefit scope of the employ- tions made within the exercised its right to deemed insufficient. to the employer, and ment contract). scope of employment take ownership of a Courts have been it is “just” for the (invention de mission service invention. reluctant to find employer to pay Possible entitlement attribuable). this, particularly in compensation. to compensation for relation to large, “mixed inventions” Entitlement to fair industrial employers. (made outside the compensation (juste scope of the employ- prix) for inventions ment but with a outside employee’s connection to it). normal duties (inven- tion hors mission attribuable) if the employer claims ownership. The applicable test depends on when the patent was filed. For invention are compared with the hypothetical benefits patents filed before 1 January 2005, compensation is available which might have accrued if the product or process had if both: been sold in the absence of patent protection; The patent is of an outstanding benefit to the employer. determining whether the benefit is “outstanding”. The Benefits from foreign patents can be taken into account. courts have resisted defining “outstanding”, beyond The process used to determine whether there has been an agreeing that it means “something special” or “out of outstanding benefit is: the ordinary”, and more than “substantial”, “significant” or “good”. The benefit must go beyond what one would showing a causal link between the patent and the ben- normally expect to arise from the employee’s duties. The efit. There is no requirement that the patent be the only benefit itself must be “in money or money’s worth”, and cause of the benefit; so does not extend to reputational benefit. In assess- assessing the level of relevant benefit. For pre-2005 ing the benefit, all relevant factors must be considered, patents, only the benefit attributable to the patent is particularly the employer’s size and nature. assessed. The actual benefits derived from the patented 64 PLCCROSS-BORDER HANDBOOKS www.practicallaw.com/lifescienceshandbook © This document was first published in the PLC Cross-border Life Sciences Handbook 2009/10 and is reproduced with the kind permission of the publisher, Practical Law Company. For further information or to obtain copies please contact [email protected], or visit www.practicallaw.com/lifescienceshandbook. Life Sciences 2009/10 Cross-border KEY FEATURES OF EMPLOYEE COMPENSATION REGIMES IN SELECTED JURISDICTIONS FEATURE UK BELGIUM FRANCE GERMANY THE NETHERLANDS Valuing the The value is calcu- Compensation for Various valuation benefit lated after the patent inventions within the methods
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