The Bombay High Court has recently found that patents filed by employees can belong to the employee if the employee was not been engaged or instructed to create inventions as part of his employment or during working hours.
In Darius Rutton Kavasmaneck v Gharda Chemicals Ltd & ors (2014) SCC Online Bom 1851, the High Court found that the defendant managing director, Dr Gharda, did not owe a fiduciary duty to his principal company to register the patents in the company's name, as he was not under a duty to invent in his capacity as managing director.
The plaintiff was a minority shareholder of a company involved in the manufacture and sale of chemicals and various byproducts, and brought a derivative action as against Dr Gharda and various other shareholders and directors. The company itself was joined as a nominal defendant. In the action, the plaintiff sought to restrain the defendants from selling, transferring or otherwise dealing with patents which Dr Gharda had obtained in his own name and which the plaintiff alleged were assets of the company.
The principal allegations by the plaintiff against Dr Gharda were, firstly, that Dr Gharda had used the research and development resources of the company, and therefore any patents filed should have been in the company's name, and secondly, that Dr Gharda owed a fiduciary duty to the company to register the patents in the company's name. In particular, the plaintiff argued that, where a director of a company is bound by a fiduciary duty to protect the interests of the company but gains for himself any pecuniary advantage adverse to the interests of the company, he must hold that pecuniary advantage for the benefit of the company.
Duty to Invent
In its decision, the High Court dismissed the derivative action, and found that such an action was unsustainable on the basis that the plaintiff had not come to the court with clean hands. It found that the plaintiff was driven by ulterior motives in bringing the action, as he owned a competing business, and had also attempted to sell his shares in the present company to a competitor (a fact he suppressed in the litigation against Dr Gharda). In any event, the High Court found that the action was contrary to the best interests of the company, as the patents which were currently enjoyed by the company could be revoked if the action succeeded.
It was also considered whether Dr Gharda was under a fiduciary duty to register the patents in the company's name. The applicable test here was whether Dr Gharda had, as the managing director, a duty to invent. However, the plaintiff could not produce any documents which showed that Dr Gharda had to invent or perform research as part of his role. Crucially, the High Court noted that Dr Gharda's contract of employment as managing director only entrusted him with powers of management, and did not require him to devise any invention. A company resolution had also been validly passed, acknowledging that the patents devised by Dr Gharda remain his own and that they did not belong to the company. In the circumstances, the High Court found that there was no duty to invent.
Accordingly, the High Court held that Dr Gharda was under no fiduciary obligation to register the patents in the company's name, as Dr Gharda had not been engaged or instructed to create the inventions during the course of his employment or during working hours. Dr Gharda had also acted in his individual capacity while conceiving the inventions which were the subject of the patents, and had not done so as part of his duties to the company or in his capacity as managing director. It was found that there is no principle under Indian law that suggests that patents filed by employees belong to the employer.
Regarding the plaintiff's second allegation that Dr Gharda had used the company's research and development resources to create the inventions which were the subject of the patents, the High Court found that there was no evidence to suggest so. It was also noted that the patents were in fact made available to the company to exploit free of royalties.
True and First Inventor
This is an important decision in the context of employer-owned intellectual property created during the course of employment, especially for companies in technology-heavy industries. The decision highlights the Indian patent law position that patents for inventions created by the employee can in fact belong to the employee himself as the true and first inventor of the invention. This is notably in contrast with the position under Indian copyright law, which provides that the employer is the first owner of a copyright created during the course of employment.
Thus, where employee-created patents are used by the employer, it must be made clear whether the employee was under a duty to invent, and whether ownership of the patents is to be assigned to the employer. It is therefore advisable that all employment contracts contain a clause specifying that ownership of all intellectual property created during the course of employment is assigned to the employer. This addresses the situation where an employee, without a duty to invent under his contract of employment, nonetheless uses his employer's resources to conceive inventions, and then registers the patents for those inventions under his own name. Where an employee is specifically employed to devise inventions, the employment contract should of course state that the employee is under a duty or obligation to invent, and that ownership of the inventions is assigned to the employer.