Ownership of employee inventions – disputing ownership of patents

Section 35(6) of the Copyright Act 1968 (Cth) establishes a general rule that an employer will own the copyright in many types of works if they were created by an employee or apprentice, in the course of their employment. Unfortunately, there is no such legislative equivalent in the Patents Act 1990 (Cth) (Act).

The absence of an express term in an employment agreement concerning ownership of patentable inventions can create significant controversy for employers when an employee produces a patentable invention of some value.

What’s the general rule about ownership of a Patent?

In the absence of any express contractual terms, ownership of an invention is determined by common-law principles.  This is often not straight-forward and much will depend on the circumstances of each particular case, with no single factor being determinative. In Victoria University of Technology v Wilson [2004] VSC 33, Justice Nettle said:

“The law is well settled upon the position of an officer or employee who makes an invention affecting the business of his or her employer.  It is an implied term of employment that any invention or discovery made in the course of the employment of the employee in doing that which he is engaged and instructed to do during the time of his employment, and during working hours, and using the materials of his employers, is the property of the employer and not of the employee.“^[1]

[Bold is our emphasis]

The key question therefore is whether the invention was made in the course of the employee’s employment – put another way, is the invention something it was the employee’s job to invent?  If not, even if the invention is relevant to the employer’s business, and the employee used the employer’s time and resources in developing it, the invention will probably belong to the employee.^[2] Nettle J went on to say:

“But the mere existence of the employer/employee relationship will not give the employer ownership of inventions made by the employee during the term of the relationship. And that is so even if the invention is germane to and useful for the employer’s business, and even though the employee may have made use of the employer’s time and resources in bringing the invention to completion. Certainly, all the circumstances must be considered in each case, but unless the contract of employment expressly so provides, or an invention is the product of work which the employee was paid to perform, it is unlikely that any invention made by the employee will be held to belong to the employer.“

How does the law determine ownership of a patentable invention?

The starting point for this analysis is the position held by the employee.  If the employee’s position is based on physical rather than intellectual exertion, it is unlikely that an invention will belong to the employer – the employee in such a case being paid to ‘sweat’ rather than to think.  The employee holding a management position may not by itself be enough; in Spencer Industries Pty Ltd v Collins [2003] FCA 542 the Sales Manager of a small family-owned company was held to own his invention because “it was no part of [the employee’s] ongoing duties to invent products for [the employer]”, even though the invention was directly relevant to the business of the employer.^[3]

Even if the employee is engaged to perform research, this may not be sufficient if the invention is not sufficiently related to the particular fields in which they have been engaged to conduct research.^[4]

What can be done?

Where a dispute as to ownership arises, a declaration can be sought from the Commissioner of Patents that a person is one to whom a patent for the invention may be granted. However, it is always preferable to avoid such disputes in the first place. The reported cases highlight the importance of using written employment agreements with express terms concerning ownership of the employee’s inventions. Even in the absence of such terms, coming to a commercial arrangement with an employee inventor (e.g. the employer takes ownership of the invention, pays the costs of obtaining patent protection, and exploits the patent with the employee receiving either a fixed amount of money or a percentage of the resulting revenues) may avoid a time consuming, expensive and public fight over ownership of the invention.

Even if the employer is found not to own the employee’s invention, there may be other actions available to the employer, such as for breach of contract (if the employee contravened any terms of their employment contract), breach of fiduciary obligations, or breach of statutory director’s duties (where the inventor was a director of the company).

Links and further references

Legislation

Copyright Act 1968 (Cth)

Patents Act 1990 (Cth)

Cases

University of Western Australia v Gray (No 20) [2008] FCA 498

Spencer Industries Pty Ltd v Collins [2003] FCA 542

Victoria University of Technology v Wilson [2004] VSC 33

Kwan v Queensland Corrective Services Commission [1994] APO 53

Further information

If you are an employer and need advice on ownership of an invention, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Victoria University of Technology v Wilson [2004] VSC 33 at para 104, cited with approval in University of Western Australia v Gray [2008] FCA 498 at para 151.

[2] Victoria University of Technology v Wilson [2004] VSC 33 at para 104.

[3] Spencer Industries Pty Ltd v Collins [2003] FCA 542 at para 79.

[4] Victoria University of Technology v Wilson [2004] VSC 33 at para 115.

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