- Validity of the Ex Ante Contract or Internal Regulations Intended for Assignment of Employees’ Rights to the Employer on All Inventions, including Employee Inventions
The Supreme Court recently rendered a decision that “any contract or internal regulations that include provisions setting forth the automatic assignment or granting of exclusive license to the employer regarding any invention, as well as *employee inventions, are not invalid as a whole, whereas the part relating to employee inventions is valid” (Supreme Court decision on case no. 2012Do6676 rendered on November 15, 2012).
*Employee invention: means any invention that was made by employees, officers, or government employees (hereinafter collectively referred to as “employee”) which falls within the scope of employment for the corporation or central or local government, as the case may be (hereinafter collectively referred to as “employer”), and that involves activities relating to present or past job description of the employee (Article 2 of the Invention Promotion Act)
The Invention Promotion Act (the “Act”) is designed to promote the creation of inventions while protecting the interests of employees who create inventions. Accordingly, Article 10, Clause 3 of the Act provides that the following provisions included in contracts or internal regulations are invalid: (i) provisions prescribing ex ante assignment of patent rights or rights on any patentable invention beyond the employee invention to the employer; and (ii) provisions establishing the exclusive license for the employer regarding any invention beyond the employee invention. As is often the case, the employer enters into a contract or sets forth internal regulations under which all rights (including patent rights) to “all” the inventions developed by the employee during the time of the employee’s employment will be automatically assigned to the employer. In this sense, there were controversies on a practical level as to whether such provisions should be held valid only for the part relating to the assignment of the rights to the employee invention, or fundamentally invalid in their entirety pursuant to the theory of partial invalidation since such ex ante assignment provision which prescribes ex ante assignment of inventions beyond employee inventions is invalid under the Act.
This decision is noteworthy in that it consolidated the court’s position that such contracts or internal regulations are not invalid in their entirety since the part relating to the employee inventions is valid.
- Validity of Contracts and Internal Regulations without Standards for Providing Compensation for Employee Inventions
The Supreme Court held that contracts and internal regulations which do not include provisions regarding compensation for inventions can be valid, whereas the employee who made the invention is entitled to receive compensation from the employer even in the absence of such compensation provision. However, the Supreme Court added that it does not mean that employee may refuse to assign or license the employee invention until compensation is adequately provided by the employer.
According to this decision, if the employee invention is supposed to be assigned to the employer under an ex ante agreement, it is understood that the employer may make notice to request that the employee cooperate with the assignment of rights to the employer and that the rights to the employee invention shall be assigned to the employer upon the employer’s giving notice within the deadline specified under the Act, even if adequate compensation has not been made on or before such assignment.
- Criminal Liability in the Event the Employee Discloses Contents of the Employee Invention Before Notifying the Employer Regarding Completion of the Employee Invention
The Supreme Court decided that the employee’s obligation to cooperate with the employer’s acquisition of rights without disclosing any trade secrets relating to the content of the employee invention implies handling not only the employee’s own business but also the employer’s business for the purpose of preserving the employer’s assets. Therefore, if the employee who is bound by the ex ante agreement on the assignment of the employee invention discloses the content of the employee invention to a third party (other than the employer) without notifying the employer of the fact that the employee invention has been completed, such employee will be subject to criminal liability for breach of duty.
However, with respect to whether such disclosure constitutes disclosure of trade secrets if it is made before the employer notifies the employee of the assignment of the rights, the Supreme Court opined that, before the rights to the employee invention are transferred to the employer, the content of the employee invention that is systematically integrated as a whole may not be construed as trade secrets of the employer per se, while it may constitute a violation of the duty of non-disclosure based on Article 19 of the Act. The Supreme Court further stated that unless special circumstances exist, disclosure of the content of the employee invention does not automatically constitute disclosure of trade secrets under the Unfair Competition Prevention and Trade Secret Protection Act.