Compensation

Compensation may be payable for an employee invention where that invention is of outstanding benefit to the employer. Although the DTI is presently considering the law in this area (3 years away) with a view to introducing a new scheme to compensate employees for their inventions as no claims have been successful in the past. Present proposed change is an improvement to the employee-inventor compensation provisions to make it easier to achieve a fair balance between employees and employers in this area. The proposal is to keep the threshold of "outstanding benefit" but remove the onus to show the benefit in relation to the size of the employer. In addition an extension of the compensation to where the patent has been assigned by the employer. Even if passed it still seems doubtful that claims will rise as a result.

Circumstances in which compensation will be payable

By virtue of s.39 Patents Act 1977 employers will own inventions created by their employees in two sets of circumstances: where the invention is created in the course of the employee's normal duties; or where the invention is created during the performance of duties specifically assigned to the employee outside their normal duties.
In either case, for the invention to belong to the employer, the circumstances must be such that an invention would be expected to result from the carrying out of the duties. This will be the case unless the employer can show that the employee has a special obligation to further the employer's interests because of the nature of, and the particular responsibilities arising from, the employee's duties.
Where an employee owns the invention himself the employee may exclusively licence or assign his invention to the employer. However, an employer cannot contractually oblige its employees to assign inventions created after the contract date. Any such term is unenforceable under s.42 Patents Act 1977.
Regardless of whether the invention automatically belongs to the employer or is subsequently assigned or exclusively licensed to the employer, the employee may be entitled to compensation over and above the employee's salary or any payment(s) for a licence or assignment if: a patent has been granted for the invention; the patent is of outstanding benefit to the employer (in the case of an employee invention which is automatically owned by the employer), or the benefit derived by the employee from the licence or assignment is inadequate in comparison to the benefit derived by the employer from the patent; and it is "just" to make an award.
An application for an award of compensation can be made by an employee to the Court or the Comptroller of Patents (through the Patent Office). To date there have not been any cases where compensation has been awarded to an employee. Whilst this suggests that the conditions are difficult to satisfy, it does not of course mean that employees are not being compensated in the spirit of the rules. As an employer it is far better to settle on a confidential basis than allow a claim to reach court where a precedent may be set for other employees to follow.

Outstanding Benefit for employer

Employees whose inventions automatically belong to their employers must show that there is an "outstanding benefit" to the employer from the invention in order to be entitled to an award over and above their salary.
Therefore various factors may be relevant including: the size of the employer (e.g. a given size of benefit may mean more to a small company than it does to a large conglomerate); the main field of the employer's activities; the importance to the employer as a whole, rather than one division.

Inadequate benefit for employee

In the case of an employee owned invention which is assigned or exclusively licensed to the employer, the test is whether the benefit derived by the employee from the assignment or exclusive licence is inadequate in comparison to the benefit derived by the employer from the patent. It would be expected that similar considerations to those taken into account when assessing "outstanding benefit" would apply, although there have not been enough cases to support this.
Assessing the "justness" of an award
Ultimately the making of an award is within the discretion of the Comptroller/Court and the assessment of the "justness" of an award is wholly within that discretion.

Amount of compensation

Employees are entitled to a "fair share" of the benefit of their invention. The factors which will be considered by the Court or the Comptroller (and therefore the employer in negotiations) are set out in ss.41(4) and (5) Patents Act 1977. For employees whose inventions are automatically owned by their employers, the following are the relevant considerations when assessing the amount of compensation:
· The nature of the employee's duties, his remuneration and the other advantages he derives or has derived from his employment;
. The effort and skill which the employee has devoted to making the invention;
· The level of any contribution to the making of the invention by others; and
· The level of contribution by the employer e.g. advice, facilities, opportunities, managerial and commercial skills and activities.
· Any conditions in the licence or otherwise in respect of the invention;
· The level of any contribution to the making of the invention by others; and
· The level of contribution by the employer e.g. advice, facilities, opportunities, managerial and commercial skills and activities.
Any decision on the amount of compensation will be based on the facts in any given situation. If details of the benefit derived cannot be ascertained, or are not quantifiable, then the court will make an educated estimate based on the evidence available.

Other Payments

In order to pre-empt claims for compensation by employees, some companies put in place a bonus scheme which recognises contributions from individual employees to inventions which are of outstanding benefit. Having a policy such as this in place does not guarantee that an employee will not bring a claim for further compensation on the basis that the compensation received was not sufficient. However, it would give recognition to the employee's contribution which is often an important factor for employees (and in particular inventive employees). In addition a scheme such as this has the added benefit of encouraging employees to disclose their inventions to their employer.
The alternative is to deal with each case as it is raised by the employee. Not all employees are aware of their rights under the Patents Act 1977 and so there may be few cases of employees bringing such claims. It should be borne in mind, however, that an employee can bring a claim at any time up to one year after the expiry of the patent concerned

Main problems for employees.

Section 40 of the Patents Act 1977
This sets out the circumstances in which an invention made by an employee belongs to the organisation he or she works for. In these cases the employee-inventor is entitled to compensation if the patent, which results from the invention, has been of 'outstanding benefit' to the employer.
A major problem is how to determine that the patent has been of 'outstanding benefit' to the employer. Cases, which have come to court on this point, have fallen down because the company was so large that although the product was a great success it only accounted for a tiny percentage of turnover, and therefore was not outstanding. The benefit also has to be actual and not potential.

Other problems

These include whether the benefit derives from the patent or the inventions as this excludes unpatented inventions such as trade secrets as well as any further modifications to patented products. A company or academic environment can also easily produce joint inventions - leading to further complications.

Compensating only patent employees

Restricting this system to patents excludes other potentially valuable employee-devised works, such as logos and slogans, books and manuals and general know-how. Marketing campaigns, in particular, can be very lucrative for companies, yet there is no equivalent statutory compensation mechanism for employees.
There is no reason why patents should be treated differently to these other works and cases fall because an employee is a small part of the chain that provides the innovation..

There are strong and legitimate moral arguments that a compensation scheme is required. The reality is that the majority of employers will wish to retain their best employees and will incentivise them accordingly. Equally, employees will be reticent to take legal action against their employers.