I Quit and am Taking My Patent With Me! Who Owns the Patent - You or Your Employee?

I Quit and am Taking My Patent With Me! Who Owns the Patent - You or Your Employee?

July 17, 2006

By: Sarah Osborn Hill

It's Friday afternoon about 4:15 and you are daydreaming about the weekend as your office phone rings.  Henry Hindsight, CEO of your biggest client Plan Ahead, Inc., is frantic.  "Ivan Invent, our brightest researcher, just quit and he says he is taking his patents with him.  He says he will send us a bill to collect his royalties.  What does he mean HIS patents?  We paid for those patents, we paid him to develop those products and we aren't giving him another dime!"  You hang up the phone and storm towards the intellectual property department.  After relaying the facts to a senior patent attorney you ask her, "Doesn't the employer own the rights to patented products that were invented in the course of the inventor's employment?"  And she gives you the response you dread, "It depends."

U.S. patent law grants the inventor a property right in her invention even if the idea was conceived or reduced to practice in the scope of her employment.  There are, however, three ways an employer may obtain the right to use the invention:  An express assignment of rights, the hired to invent doctrine, and the shop rights doctrine. 

Express assignment:  Ownership of a patented invention passes to the employer when the employee expressly agrees to assign his rights to his employer.  Contract law allow employees to assign their inventive rights to employers for future inventions as long as the agreement is clear and unambiguous.  Returning to Plan Ahead's dilemma, if Ivan Invent's employment contract includes a clear and unambiguous assignment of his inventive rights to Plan Ahead, then Plan Ahead owns any products Ivan invented while working for it.  An express assignment of inventive rights is the best way for employers to ensure that ownership of employee inventions passes to the company.

Hired to invent:  Absent an express assignment of inventive rights, another way an employer may gain ownership is through the hired to invent doctrine.  Under this doctrine, if at the time of invention the purpose of the employment relationship was to invent, then the employer owns the patented invention.  For example, a person is hired to develop a turbine engine fan blade with a leading edge made of one piece of titanium; this person was hired to invent and the new turbine engine fan blade belongs to the employer.  The specific purpose does not have to exist at the time the employee is hired.  If an employee receives a specific direction to invent later, that is sufficient to invoke the hired to invent doctrine. 

The hired to invent doctrine is based on the theory of contract implied in fact.  If the purpose of the employment relationship at the time of invention was to invent, then the employee is fully compensated for his inventive ideas through the employment contract.  The employee receives a salary in exchange for assigning his inventive ideas to the employer and the employer pays the employee in exchange for an assignment of his inventive rights.  This arrangement is not ironclad.  If the employee has made it clear to the employer that he wants to retain his inventive rights, for example by refusing to sign an express assignment of rights, then an implied in fact contract may not exist even though the employee was clearly hired to invent. 

Returning to Plan Ahead's situation, if Ivan Invent was hired or directed to develop the new products which became the subjects of his patents, then Plan Ahead may assert ownership of his patents.  But if Ivan was hired as your bookkeeper, but came up with a great idea that he developed into a new Plan Ahead product, the hired to invent doctrine does not apply.  While the hired to invent doctrine may help an employer already involved in litigation, it should not be used to replace an express assignment of rights. 

Shop rights:  A shop right is an equitable principal developed at common law which entitles an employer to use its employee's patented invention.  Some courts characterize a shop right as an implied license which the employee grants to the employer by developing the invention on the employer's time and using the employer's resources.  An employer who holds a shop right does not own the patent.  The employer is simply permitted to use the invention without infringing the patent.  The title remains with the inventor who is free to grant other licenses or assign his rights to others -- including the employer's competitor.  Use of a patented invention under a shop right is usually restricted to the particular location of the developing employee.  Unless the employee has consented to use at multiple locations, the employer's use at another facility would be infringement. 

A shop right can apply to any employee.  If Ivan Invent was not in product development, but used company resources to develop new products which he then allowed Plan Ahead to produce, Plan Ahead has a shop right and can produce those patented products even without Invent's permission.  Unfortunately, Invent can authorize others to produce the patented products as well and Plan Ahead has no right to stop him.

Plan Ahead can protect its investment in product development by requiring each employee to enter into a written agreement to assign the employee's future inventive rights to the company.  If it does that, it can rest easy when the next Ivan Inventor walks out the door.

Editor's Note:  Sarah Osborn Hill is a registered patent attorney.  A longer version of this article appeared in The Federal Lawyer.