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23 October 2017

Dealing with employee inventors’ claims: the difficult job of formulating policy in the UK and mainland Europe

Historically, UK patent law[1] relating to employee compensation for patented inventions has favoured employers to a significant degree. UK law was changed to make claims easier, but there are still major challenges for claimants. This is in marked contrast to laws such as those of Germany and France, which are at the opposite end of the spectrum. Under UK laws there has only been one successful inventor compensation claim brought to trial, whereas all employees who make patented inventions that are worked are entitled to some sort of compensation in countries such as Germany and France. This disparity in treatment presents obvious problems for those managing international research teams.

UK laws

Before 1 January 2005, it was necessary for inventors to prove that their patent (not just the invention or a combination of invention and patent) was of outstanding benefit to their employer in order to claim compensation. The change in 2005 allowed them to claim if their patented invention is of outstanding benefit to their employer.

In the UK, it is often easier for an inventor to make a claim towards the expiry of the patent or up to one year after the patent ceases to have effect. This allows the earnings from the patent to increase to what is often the maximum amount of earnings, giving the best chance of a successful claim.

For this reason, we have yet to see any claims under the new legislation, as the relevant patents have only had 12 years of potential earnings. As ever, we will watch with interest to see the extent to which there is an increase in claims that become public, but subsequent case law suggests that inventors will still face an uphill struggle with claims against large employers under the new legislation.

Earlier this year we saw the Court of Appeal judgment in Shanks v Unilever, a case brought unsuccessfully by a Unilever inventor. It is a requirement of a successful claim that the invention is of outstanding benefit to the employer. Courts are obliged to consider claims having regard to the "size and nature of the employer's undertaking". In this case it was clear that the size of Unilever, the inventor's employer, made it more difficult for him to claim.

As this provision of the Patents Act was only changed in 2005 and there is other legislation competing for Parliamentary attention, it seems unlikely that there will be further change to the Patents Act in the near future.

Contrast with German and French laws

In contrast to the UK system, under the German system employee inventors are entitled to reasonable compensation in addition to their salary if the employer uses their invention. Compensation is calculated on a case-by-case basis.

The calculation includes a consideration of the value of the invention to the employer, the extent to which both employer and employee were involved in making the invention and the position of the employee in the company. The extent to which the employee (as opposed to the employer) identified the problem and/or the solution in respect of the invention is important as is the nature of the employee's job and salary.

Calculation of the value of the invention to the employer may be by:

  1. analogy with a licence; or
  2. calculating benefit by reference to the earnings and costs attributable to the invention; or
  3. estimating the value of the invention on the open market.

We understand that valuation by analogy with a licence is the most common method used by both courts and industry, whilst the estimate of open market value is generally the least popular.

In view of the obvious complexities, it is common practice to agree a lump sum payment after inventions have been made. An agreement in advance of an invention being made is not necessarily enforceable, although this does not discourage employee incentive schemes. The validity of any agreement is subject to a test for unreasonableness, which should catch agreements where the employee receives less than 50% of the statutory calculation.

French laws relating to employee inventors differ from those in Germany, but the end result is that employee inventors are entitled to additional compensation for inventions and that compensation is determined in accordance with a compensation scheme.

Dealing with teams in different jurisdictions

Laws relating to inventor compensation generally apply to all inventors working in the country where the laws apply, so they cover members of multinational teams working abroad. The significant differences in compensation lead to a situation where UK based inventors may well not be entitled to compensation, in circumstances where their colleagues working in Germany, and from certain other European jurisdictions will be compensated. It seems likely that the disparity will continue, at least in large multinational companies, which makes it ever more important to consider a suitable incentive scheme.

The obvious way of dealing with this is seemingly to use a compensation scheme on the lines of the German model, but there is reluctance in some UK based businesses to do so and with good reason. They regard the inventor as being a member of a wider team and without that wider team an invention is not commercialised successfully; they do not therefore consider that it is good practice to reward inventors over and above the rest of the team. It seems likely that this policy debate will continue, especially in larger companies, as the UK legal system will not necessarily improve the situation as originally envisaged.

[1] The Patents Act 1977 applies to the entire UK.


This article was written by Jennifer Pierce. For more information, please contact Jennifer on +44 (0)20 7203 5062 or at jennifer.pierce@crsblaw.com.  

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