Employer to pay compensation to its employee inventors

The case,

Employer to pay compensation to its employee inventors. Drs. Kelly and Chiu were research scientists employed by the company; GE Healthcare Limited was formerly called Amersham International PLC.

The Invention,

A radiopharmaceutical imaging agent.

The isotope technetium-99m is a gamma emitter. Favored for imaging applications – short half-life (6 hours) and high energy emissions.

Technetium is a transition metal which can form complexes with a ligand.

The ligand of the invention is an ether-functionalised diphosphine, two of which form a complex with technetium.

ACT of Parliament:

(An Act of Parliament creates a new law or changes an existing law. An Act is a Bill approved by both the House of Commons and the House of Lords and formally agreed to by the reigning monarch (known as Royal Assent). Once implemented, an Act is law and applies to the UK as a whole or to specific areas of the country).

The parliament have decided to give compensation to the employee by the way of “Outstanding benefit" mentioned in the law which means that when there is an outstanding benefit to the employer due to the invention and by the pattern which is invented by the employee by the work assigned to him, the employee is eligible to get a compensation from the employer.

This is given by the section 40, 40(1), (2) and s 41, 41(1), 41(4) of the patents act 1977.

This amendment to section 40 applies only to inventions made after January 2005.

The requirement changed to,

• The invention or the patent for it (or the combination of both) is of outstanding benefit to the employer (not applicable in the Kelly case).

• Compensation can be available only to actual inventors, not to those who merely contribute to the invention.

• In order to assess such benefit, it is necessary to compare what ‘would have been’ as opposed to ‘what was’. That is, the court should try to form an estimate of how the employer would have fared in the absence of the patented invention (or now, the invention).

• The correct question for the court to ask itself is whether the patent in question was a cause of the benefit in question and, if this is the case and there is a direct causal relationship, how much of that benefit can be attributed to the patent (or now, the Invention).

If these factors have been satisfied, the court must still assess whether it would be just to award compensation. This will be a question of fact in each case. The court concluded that the patents had been of outstanding benefit to GE Healthcare. First and foremost, the patents had protected GE Healthcare’s business against generic competition and reduced profits after the expiry of regulatory data exclusivity. The court considered that without the patents, the threat from generic entry would have been “a crisis" for GE Healthcare.

The relevant sections,

“(Sections s40 and s41 of the Patents act 1977)

Compensation of employees for certain inventions

In section 40 of the 1977 Act (compensation of employees for certain inventions), for subsection (1) there is substituted—

(1) Where it appears to the court or the comptroller on an application made by an employee within the prescribed period that—

(a) The employee has made an invention belonging to the employer for which a patent has been granted,

(b) Having regard among other things to the size and nature of the employer’s undertaking, the invention or the patent for it (or the combination of both) is of outstanding benefit to the employer, and

(c) By reason of those facts it is just that the employee should be awarded compensation to be paid by the employer,"

The court or the comptroller may award him such compensation of an amount determined under section 41 below.

“(2) In subsection (2)(c) of that section, for “the patent" there is substituted "the invention or the patent for it (or both)".

(3) In section 41 of that Act (amount of compensation), for subsection (1) there is substituted—

"(1)An award of compensation to an employee under section 40(1) or (2) above shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived, or may reasonably be expected to derive, from any of the following—

(a) The invention in question;

(b) The patent for the invention;

(c) The assignment, assignation or grant of—

(i) The property or any right in the invention, or

(ii) The property in, or any right in or under, an application for the patent,

To a person connected with the employer."

(4) In subsections (4) and (5) of that section, the words “a patent for" are omitted.

(5) In subsection (5)(a) of that section, after “the patent" there is inserted "for it".

(6) In section 43 of that Act (provisions supplementing sections 39 to 42),

in subsection (5)—

(a) For “a patent" there is substituted "an invention or patent";

(b) For “the patent", in both places, there is substituted "it".

(7) After subsection (5) of that section there is inserted—

"(5A) For the purposes of sections 40 and 41 above the benefit derived or expected to be derived by an employer from an invention shall not include any benefit derived or expected to be derived from the invention after the patent for it has expired or has been surrendered or revoked."

(8) This section, and the entry in Schedule 3 corresponding to subsection (4), applies in relation to an invention the patent for which is applied for on or after the commencement of this section.

In this subsection “patent" has the meaning given by section 43(4) of the 1977 Act."

(Reference:http://www.statutelaw.gov.uk/content.aspx?LegType=All+Primary&searchEnacted =0&extentMatchOnly=0&confersPower=0& blanketAmendment=0&sortAlpha=0&PageNumber=8&NavFrom=0&parent ActiveTextDocId=912997&ActiveTextDocId= 913011&filesize=8888#attrib)

Outline at least two cases decided prior to the decision in Kelly v, GE Healthcare.

Memco-Med's Patent[1992] R.P.C. 403

The case,

• Employer (M) to pay compensation to its employee inventor (T).

• (T) was inventor employed by the employer M. A Company of which (T) was a director.

The invention and patent,

• The patent related to units for detecting a person near lift doors and preventing the doors closing on him.

The relevant section,

s.40(1)

The reason for Application refused,

Onus of proof on applicant to show that benefit was derived from the patent rather than the invention — Application refused — Appeal from Patent Office decision dismissed.

The evidence did not establish that the patent had been of outstanding benefit to M.

(Although a finding that the sales of a patented product had been of vital importance to an employer was a relevant consideration in deciding whether the patent was of outstanding benefit, it could not be determinative. The sales might have resulted from the price and quality of the product and the relationship with the buyer, and have been no less if the patent had not been granted)

GEC Avionics Ltd's Patent [1992] R.P.C. 107,

The case,

The inventor employee (A), applied for compensation in the U.K. in respect of a patent granted to his employers in which he was the sole named inventor.

The invention,

The invention was an optical system for providing a head-up display particularly for the cockpit of a fighter aircraft.

The relevant section,

s.40

The reason for application refused,

An application under the Patents Act 1977, s.40 might relate to a foreign patent but it did not do so implicitly when it was not stated on the application form.

The initial evidential burden of raising a prima- facie case to show that no benefit was derived from the patent fell upon the patentee.

The onus was on (A) to provide firm evidence backing up his assertion that sales made without patent protection were attributable to the patent.

The evidence did not establish that the patent had been of outstanding benefit to the company.

(Because, the employee had invented an optical system for an aircraft. His employers had obtained a contract worth $72 million for the patent but had previously secured contracts worth $75 million for similar inventions which had not been discovered by the employee. The Patent Office refused the employee's claim for compensation. As the employers habitually negotiated high figure contracts and therefore an employee's contributions not "outstanding" even if that also attracts contracts worth millions).

Analyse the implications of the decision for business that employ individuals to invent.

Employees and their Inventions

Most companies rely on their innovation to succeed and many of the more successful companies go to great lengths to engender a culture of innovation. The question is what happens to employee inventions? And who owns these inventions?

The employer probably thinks that the answer to this question is pretty straightforward and in majority of cases it is true. The main responsibility or duty of the employee is that he should act in good faith by promoting the business interests of the employing firm or company. Therefore it is not unreasonable that any invention will rest firmly with the employer, which was made by an employee in performance of his or her duties. Company directors and senior employees are also under a clear fiduciary obligation to make a full disclosure of all inventions and to ensure that all IP rights are assigned appropriately to the company.

The employee invention right is specifically given in s.39 (1) of the UK Patents Act, 1977. It says that “an invention made by an employee shall, as between him and his employer, be taken to belong to his employer for the purposes of this Act and all other purposes if

It was made in the course of the normal duties of the employee or in the course of duties falling outside his normal duties, but specifically assigned to him, and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties; or

The invention was made in the course of the duties of the employee and, at the time of making the invention, because of the nature of his duties and the particular responsibilities arising from the nature of his duties he had a special obligation to further the interests of the employer’s undertaking." ( Reference: http://www.piperpat.com/IPManagement/EmployeesandIP/tabid/264/Default.aspx)

It is clear from this law of employee rights that any invention made as part of an employee’s assigned or normal duties belongs to the employer.

What are the rights if the inventions are made outside the course of an employee’s normal or special duties?

In such circumstances, in the absence of a written agreement to the contrary, any invention will very likely belong to the employee. However the employer may have “shop rights". These are the manufacture unfettered rights; there is no requirement to reimburse the inventor for the use and sale of the invention. Shop rights can be a non- exclusive license between the employer and the employee. They also come with one very important stipulated condition namely, that employee is entitled to on-license the invention to competitors and to reap any financial rewards from the transaction by way of royalties and the like. But if the employee’s inventions made outside the course of their normal duties generally provide for the employer to work these inventions while the employees retain ownership of them.

It is important to be aware that the shop right arises regardless of the significance of the invention in relation to the employer’s business and is regardless of the employee’s responsibilities. It is also not necessary for there be an employment agreement or that the employee be hired to invent for the shop right to exist.

Employee compensation for certain Inventions

In general most Countries will have some form of requirement or law to reimburse employees for their invention, although specific details and statutes vary from country to country. There are laws in EU countries particularly including Britain, Germany, France and Spain (ss40-41).

In many cases its true for the employer company to won the invention in any case given that they have both the finances necessary to bring an invention from idea to saleable product and will be better able to protect the patent in infringement proceedings.

Finally the first and true inventors must be recorded for any inventions for patent applications; so, that the glory or fame etc that goes along with it is rightly afforded to them as inventors.

What steps should be taken to clarify Employers and Employees Rights to an Invention?

“Ownership of IP rights differs from country to country and according to the circumstances of the invention.

Use a clear written agreement or employment contract to ensure that the ownership of any IP right is clearly understood by all parties involved. This includes any material created by an employee, consultant, researcher or contractor. The agreement should stipulate whether a formal assignment of rights will take place and when, and will include any modifications or improvements to the invention, the agreement should also make reference as to who is allowed to exploit the invention, when and where it will be exploited and any compensation that may be paid.

Have in place a Confidentiality or Non – Disclosure Agreement.

Have in place a Non- Competition Agreement to cover Employee movement. The Non – Competition provision may be part of the employment contract or may be a separate contract and is usually in response to the selling of trade- secrets, although they can impact on patents conceived during the employment period be put into practice later.

Consider the usefulness of Assignment of all Rights to an invention as being part of an Employees termination package.

Above all have the above agreements and understandings signed before the beginning of any employment or commissioned work is agreed."

(Reference: http://www.piperpat.com/IPManagement/EmployeesandIP/tabid/264/Default.aspx)