Ownership of Inventions by Employee Inventors

“The UK Patents Act 1977 ss.39-41 takes the correct approach to employee inventions: employees are paid to invent; it is right that their employer has the full benefit of the inventive activity of any of their employees.”

Critically discuss.

Ownership of inventions by employee inventors is determined by statutory legislation, the Patents Act 1977, as seen in the essay question. The purpose of this essay is to discuss whether or not this is the correct approach to employee inventions based upon case law and academic writing and theory. An employee of a company may become entitled to a degree of financial reward where their employer has received or obtained a benefit from a patented invention made by the employee.[1] Furthermore, for a UK-resident employee inventor the UK Patents Act 1977 states that the first owner of an invention made by that employee will be the employer, providing the invention was made during the course of the employee’s normal duties, or during the course of duties specifically assigned to the employee.[2] These are the areas that will be explored throughout this essay to establish whether the Patents Act 1977, ss. 39-41 takes the correct approach.

The compensation provisions introduced by the Patents Act 1977 represent a compromise between the interests of employers and their employees. Employers would argue that the employee inventor is sufficiently compensated by their salary, while employees would argue that the considerable profits made by employers on some inventions exceed the level of salary received.[3] For compensation to be awarded to the employee a patent must have been granted, in the UK or elsewhere.[4] In order to qualify for compensation, there must be an ‘outstanding benefit’ to the employer, either in money or in money’s worth.[5] Whether a benefit is ‘outstanding’ will depend on the contiguous facts.[6] It ‘denotes…something more than substantial or good’.[7] Moreover, the burden of proof is on the employee to show that an outstanding benefit accrued to the employer.[8]

It should be noted that it is often very difficult for employee inventors to prove outstanding benefit as seen in Memco-Med Ltd’s Patent.[9] An improved door detector for use in lifts was made and supplied at the request of the customer. It was estimated that sales during a four-year period presented 80% of the employer’s turnover. Under the pre-2004 test the benefit had to be derived from the patent itself, it was held it could not be shown to be of any benefit. It was more likely to be the case that the sales were likely to have resulted from a good business relationship between the parties and that the business relationship would have been the same had the product not have been patented.[10] Post-2004, the benefit may be derived from the invention, or patent, or both, it is still likely to be held that where a previous good relationship exists between the employer and the third party, it will be difficult for an employee to prove a causal link between the benefit and the invention and/or patent. Both prior to and post the 2004 amendment, for the benefit to be outstanding, it must be something out of the ordinary and not something that one would normally expect to arise from the duties that the employee is paid to complete.

The case of Memco-Med Ltd’s Patent[11] supports the statement that the UK Patents Act 1977 ss.39-41 takes the correct approach to employee inventions as it highlights how the requirement for an ‘outstanding’ benefit is too high thus yielding it to be impractical for employees to claim compensation. Therefore, supporting the idea that the current approach is correct in favouring the employers. The current ‘outstanding’ benefit requirement supports the idea that it is right that the employer has the full benefit of the inventive activity of any of their employees, as it is incredibly difficult to be awarded compensation. However, whilst in favour of this approach, one would argue that instead a ‘significant’ or ‘substantial’ benefit gained by the employer would be more appropriate, to give greater reward to the employee, when following the compensation model set in statute.[12]

Contrary, to Memco-Med Ltd’s Patent,[13] the court in Harris’ Patent[14] tried to be slightly more generous to the employee inventor. Harris was the manager of the Wey valve department of his employer and was told that he would be made redundant. During the period of time between this notice of redundancy and Harris leaving, he devised an improvement to the Wey valve and applied for a patent one month after leaving his employer. His employer claimed to be entitled to the invention, however it was decided that the invention belonged to Harris, and the employer’s subsequent appeal also failed. The court held that in s. 39(1)(a),[15] ‘invention’ should be interpreted narrowly in the sense that only inventions that might reasonably be expected to result from the carrying out of his/her duties. Furthermore, the duty of fidelity to an employer is limited to carrying out faithfully the work he/she is employed to do to the best of his ability, as set out in s. 39(1)(b).[16] Unlike in the case of Memco-Med Ltd’s Patent,[17]there is no discussion of compensation in Harris’ Patent[18], however that does not mean that the two cases cannot be used for comparative purposes. One would argue that the latter case demonstrates that the UK Patents Act 1977 ss.39-41 does not take the correct approach to employee inventions, as by supporting the employee in his patent application, the court suggested that his employer should not have the full benefit of the invention.

As previously explored, where the invention belongs to the employer, statutory compensation of the employee inventor may be available.[19] In the case of Memco-Med Ltd’s Patent[20] the court found in favour of the employer and supported the statement that statutory legislation takes the correct approach to employee inventions. However, Kelly and Another v GE Healthcare Ltd[21] supports the argument that favouring the employer is not the correct approach as it was the first case where compensation was awarded to an employee inventor. Whilst this case, supports the legislation in terms of the meaning of ‘outstanding benefit’ rather than just merely significant or good, it was held that the patents were of outstanding benefit and that it was just to award the employees compensation. One would argue that if the UK Patents Act 1977 ss.39-41 took the correct approach there would not have been the need for the courts to have found in favour of the employee inventors. If the statement that employees are paid to invent, it is right that their employer has the full benefit of the inventive activity of any of their employees were to be correct it could be argued that there is potentially no need for compensation at all. One would argue that the Patents Act 1977 is not the most appropriate piece of legislation to discuss compensating the employee inventor as it would be dealt with better by contract law, with regards to the relationship between the employer and the employer, in terms of inventive activity.

It is not only case law that can be used to argue in favour and against the statement being explored, it is also necessary to look at academic theory. Locke’s Labour Theory[22] is one of the most famous deontological justification of private property. It is regarded as the union of two basic theses; the first being that everyone has a property right in the labour of his own body and secondly that the approximation of an unowned object arises out of the application of human labour to the said object. In Locke’s words: ‘Though the earth, and all inferior creatures be common to all men, yet every man has a property in his own person. This nobody has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his.’[23] Essentially, Locke argued that if you have put the effort into something, you should be able to reap the reward of it. Locke’s Labour Theory does not support the statement being explored as Locke would argue that the employee should reap the full benefit of their inventive activity.

One would argue that in terms of morality and incentive, the UK Patents Act 1977 ss. 39-41 does not take the correct approach to employee inventions as it does not allow the employee inventor to be recognised for their own labour, instead it is their employer who has the full benefit of the inventive activity. It seems unjust to penalise employee inventors purely on the grounds that they have signed a contract of employment with their employer. Furthermore, it could be argued that is immoral for employers to monopolise their employee’s inventions as it could lead to potential abuse of power from employers thus leading to the exploitation of the employees. Furthermore, this argument is supported by Locke’s Labour Theory,[24] which also supports the idea of patents being incentivised. It seems contradictory that society encourages innovative activity from individuals yet punishes inventors in a commercial setting purely because they are an employee. Whilst Locke’s Labour Theory[25] is widely recognised as supporting the basis of invention it is unable to support employee inventor’s, therefore leading to the assumption that the current approach taken by the UK Patents Act 1977 ss. 39-41 is incorrect as it has the potential to inhibit inventive activity by employees as they may feel that there is no reward for invention.

To conclude, there is evidence to support both arguments of discussion with regards to whether or not the UK Patents Act 1977 ss. 39-41 takes the correct approach to employee inventions. As seen by the case of Memco-Med Ltd’s Patent[26] there is substantive evidence to suggest the current approach is correct, it highlights the compromise between the interests of the employer and the employee. It supports the current test for ‘outstanding benefit’ and in doing so justifies an incredibly high threshold for this test. By having such a high threshold, it makes it difficult for employees to be awarded compensation, therefore favouring the approach that employees are paid to invent, it is right that their employer has the full benefit of the inventive activity. On the contrary, it has been shown that there is sufficient evidence to suggest that the UK Patents Act 1977 ss.39-41 does not take the correct approach to employee inventions. Harris’ Patent[27]evidenced how the court took a more generous approach to the employee by awarding the patent to him, whilst Kelly and Another v GE Healthcare Ltd[28]was the first case to see compensation awarded to the employee inventor. Arguably showing that that it is not enough that employees are just paid for their work and to invent. Having explored a variety of discussion points the conclusion to be drawn is that the UK Patents Act ss. 39-41 does not take the correct approach to employee inventions as it penalises employees and removes the scope to reward them for their inventive activity. Locke’s Labour Theory[29] is supportive of this argument and one would believe that it has the strongest standing in supporting the case law explored.

Table of Cases:

UK Cases:

• British Steel PLC’s Patent [1992] RPC 117;
• GEC Avionics Ltd’ s Patent [1992] RPC 107
• Harris’ Patent [1985] RPC 19
• Kelly and Another v GE Healthcare Ltd [2009] EWHC 181
• Memco-Med Ltd’s Patent [1992] RPC 403;

Table of Legislation: UK:

• Patents Act 1977
• Patents Act s 39
• Patents Act ss.39-41
• Patents Act s 40(1)(a), (2)(a)
• Patents Act ss.40-41
• Patents Act s 43(7)

Bibliography:

• Chandler PA, 'Employee's Inventions: Outstanding Compensation' [1992] 600 (Nov) Journal of Business and Law
• Locke J, Second Treatise of Government (Awnsham Churchill 1689)
• Locke J, Second Treatise of Government (Awnsham Churchill 1689) 305-306

[1] Patents Act 1977, ss. 40-41

[2] Patents Act 1977, s 39

[3] PA Chandler, 'Employee's Inventions: Outstanding Compensation' [1992] 600 (Nov) Journal of Business and Law

[4] Patents Act 1977, s 40(1)(a), (2)(a)

[5] Patents Act 1977, s 43(7)

[6] Memco-Med Ltd’s Patent [1992] RPC 403 [413]

[7] Ibid [414] (Aldous J)

[8] Memco-Med Ltd’s Patent [1992] RPC 403; British Steel PLC’s Patent [1992] RPC 117; GEC Avionics Ltd’ s Patent [1992] RPC 107.

[9][1992] RPC 403

[10] Ibid 417-418

[11] [1992] RPC 403

[12] Patents Act 1977, ss. 40-41

[13] [1992] RPC 403

[14] [1985] RPC 19

[15] Patents Act 1977

[16]  Patents Act 1977.

[17] [1992] RPC 403

[18] [1985] RPC 19

[19] Patents Act 1977, ss. 39-41

[20] [1992] RPC 403

[21] [2009] EWHC 181

[22] J Locke, Second Treatise of Government (Awnsham Churchill 1689)

[23] Ibid, 305-306

[24] J Locke, Second Treatise of Government (Awnsham Churchill 1689)

[25] Ibid

[26] [1992] RPC 403

[27] [1985] RPC 19

[28] [2009] EWHC 181

[29] J Locke, Second Treatise of Government (Awnsham Churchill 1689)