Inventions Made by Employees: Legal Rights

The situation: A business has a smart, creative employee, perhaps in its engineering department. The employee finds the time and has the inclination to tinker with the company's products or manufacturing processes. Perhaps he works at this project on his own time in the shop, perhaps he does it at home. Finally, he has a breakthrough, and he comes up with a process or an improvement to a machine that dramatically reduces his employer's cost of manufacturing. Or, maybe his idea results in a better product for his employer's customers. With respect to the new device or process, does the invention become the property of the employer or of the employee? The employee used his initiative, but he used the employer's resources, and even if he used his own tools and time he would never have begun to work on the project if he had not been exposed to it through his employment in the first place. Who owns any forthcoming patent to the new device or process?

Patents and the Employment Relationship: Who Owns Them?

The general rule is that, in the absence of an agreement to the contrary, an employer is entitled to a nonexclusive license to use an invention devised by an employee while he or she was working for the employer. As the U.S. Supreme Court has said, "where an [employee] during his hours of employment, working with his [employer's] materials and appliances, conceives and perfects an invention for which he obtains a patent, he must accord his master a nonexclusive right to practice the invention." In the context of patents, the foregoing rule is referred to as the "shopright doctrine." Although the employer is afforded a nonexclusive license to use the invention without paying royalties to the employee, the invention actually is owned by the employee, who has the right to exploit it commercially, such as by selling or licensing it to other users. Even where the employee works on the invention on his own time, if the employer's resources are used to any significant extent, this rule usually applies.

A wholly different situation is presented, however, where the employee is engaged by the employer to develop and work on the invention that later becomes the subject of a patent. In one case, an employee was engaged by his employer to work on a device that later became the subject of the employee's patent. The employer sought to obtain an assignment and transfer of the patent, arguing that the employee had invented the device in question while employed precisely to work on the device that became the subject of the patent. The court agreed with the employer, concluding that, while the employment relationship itself does not preclude an employee from making improvements in his employer's processes and obtaining patents for those improvements, if an employee's job involves inventing or devising such improvements, any resulting patents belong to the employer. Basically, in such a situation the employee is merely doing what he or she was hired to do.

Patents, Intellectual Property, and the Law

Patents can only be conferred by the federal Patent Office, not by any state, but once the patent has been issued the rights to the patent are decided under state law. In many cases, an employer will obtain from an employee (or, in other cases, from an independent contractor who has been hired to work on a project that results in the issuance of a patent) an agreement to assign any patents developed while working on the employer's business. Those kinds of agreements, although strictly interpreted and applied, generally are enforceable. Even in the absence of an explicit agreement to that effect, the employer still may compel the employee to transfer the patent to the employer if the employee was hired to work on the project from which the invention resulted.

The rules pertaining to employee inventions are not limited to patents, but apply to other kinds of intangible property or rights that the law refers to as "intellectual property." In one case, for example, university professors devised a process for producing milk by introducing beneficial bacteria. Later, milk produced using this process was sold under a certain trademark that the university owned and licensed to dairies. The university declined to pay royalties to the professors who claimed to be the inventors of the process that led to the trademark, so the professors brought suit against the university. The court concluded that the trademark belonged to the university, as the professors' employer, and that there was no obligation on the part of the university to pay royalties to the professors who invented the process. Importantly, the court found that the professors, when they were conducting the research that led to the invention or development of the trademarked process, were doing precisely what they had been hired to do.

For Employers: Legal Help with Employee Inventions

If you are an employer with questions about your legal rights or obligations in connection with an employee's invention, you may wish to discuss the matter with an experienced employment lawyer. Especially if the possibility of a dispute over legal rights to the invention exists, having an experienced attorney on your side will be an invaluable asset. 

Next Steps

Contact a qualified business attorney to help you identify how to best protect your business' intellectual property.

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