The recent decision by the Supreme Court of British Columbia in Nature-Control Technologies Inc v Li (“theNature-Control decision”), 2014 BCSC 1868, illustrates that it is important for a company to have clear agreements for ownership of inventions made not only by its employees but also by individuals or entities with whom the company has a business relationship in which inventions may be made.

In this decision, the issue of patent ownership arose between the company Nature-Control Technologies Inc. (“Nature-Control”) and Dr. Li, a fiduciary (i.e., a director) of the company. The Court, in addressing the issue of patent ownership, turned to the case law regarding ownership of inventions created in an employer-employee relationship, although the relationship between Dr. Li and Nature-Control was not one of employment.

Who owns an invention in an employer-employee relationship?

The general rule is that an inventor is entitled to ownership rights in his or her invention, even when the inventor is an employee. The employer nevertheless can benefit from two exceptions to that rule: the employer is entitled to the patent rights in the invention of an employee where there is an express contract to the contrary or where the person was “hired to invent”. Absent an express contract, the courts will typically look at a number of factors to make a determination as to whether an employee was “hired to invent”.

In particular, in determining if the employee was “hired to invent”, the court will typically consider the following eight factors:

  • the employee was hired expressly for the purpose of inventing;
  • the employee had previously made inventions;
  • the employer put in place incentive plans to encourage inventions;
  • the conduct of the employee following the invention’s creation suggests that the employer is the owner;
  • the invention is the product of the employee being instructed to solve a specific problem;
  • the employee sought help from the employer in the making of the invention;
  • the employee was dealing with confidential information; and
  • it was a term of the employee’s employment that he could not use, to his advantage, ideas which he developed.

Ownership of the patents in the Nature-Control decision

In the Nature-Control decision, Nature-Control sought relief arising from the allegedly wrongful conduct of Dr. Li, a director of Nature-Control, and the issue of ownership of four patents arose. The four patents at issue identified Dr. Li as the owner and are listed below:

  • the “Compound A and Compound B” patents, which were two patents relating to waste water treatment compounds;
  • the “T-Bright” patent relating to bleaching products; and
  • the “FAS patent” relating to soil remediation technology.

The dispute over these patents was in part due to the blurred business relationship between Nature-Control and SouthMountain Trading Inc. (“SouthMountain”), a business owned indirectly by Dr. Li and his wife. Nature-Control sold chemicals (Compound A and Compound B) for the treatment of waste water generated in the production of pulp and paper. These chemicals were based on technology developed by Dr. Li and were imported into Canada by SouthMountain. SouthMountain also used Nature-Control’s staff, premise and other assets in operating its business related to the sale of bleaching products for use in the pulp industry, as salespersons of Nature-Control often marketed the Compound A and Compound B chemicals and the bleaching products together. Although a “Letter of Intent” agreement between the various shareholders of Nature-Control was signed prior to incorporating Nature-Control, this agreement did not contemplate the blurred relationship that existed between Nature-Control and SouthMountain.

In addressing the ownership of the four patents at issue, the Court noted that, although the relationship between Dr. Li and Nature-Control was not one of employment, the factors for determining if an employee impliedly intended for the employer to own the invention (the aforementioned factors to determine if the employee was “hired to invent”) are helpful in assessing the parties’ intentions in this case.  In assessing the ownership of the patents, the Court made the following determinations:

  • the Court found that Dr. Li was to retain beneficial ownership of the Compound A and Compound B patents for a number of reasons, namely: (i) patents relating to the technology of Compound A and Compound B had already been obtained in China by Dr. Li prior to Dr. Li and Nature-Control entering into any agreement; (ii) the Letter of Intent agreement did not contemplate Dr. Li developing that technology; and (iii) Dr. Li had the right to terminate the Letter of Intent agreement and retain beneficial ownership of the Compound A and Compound B patents;
  • for the T-Bright patent, the Court found that the bleaching products were not a business opportunity belonging to Nature-Control and the ownership of the T-Bright patent would not transfer to Nature-Control. In particular, the bleaching products were developed by Dr. Li in China and the intent of the parties suggested that Nature-Control’s staff, premises and other assets could be used by SouthMountain in the sale of the bleaching products; and
  • the Court transferred ownership of the FAS patent to Nature-Control, as the Court found that the parties impliedly intended for Nature-Control to own the FAS patent. In particular, the Court noted that: (i) the FAS Patent was the product of an opportunity identified by Mr. Chow (a director and shareholder of Nature-Control); (ii) Dr. Li was asked by Mr. Chow to attempt to come up with a solution; (iii) correspondence between Dr. Li and Mr. Chow suggested that the opportunity belongs to Nature-Control; and (iv) the subsequent conduct of Dr. Li and Nature-Control supports the conclusion that it was intended that Nature-Control own the FAS patent, as Nature-Control paid all costs associated with the procurement of the patent and that Dr. Li acknowledged that Nature-Control had an exclusive right to the patent.

Conclusion

The Nature-Control decision illustrates that, not only is it important for a business to have express agreements in place that address ownership of innovations realized by employees, but it is just as important to have express agreements in other commercial relationships where innovations may be created as part of those relationships.