The long-awaited regulation governing employee inventions, published in the Official Gazette on 29 September 2017 (the “Regulation”), provides a legal framework for the payment of compensation to employees with regards to their service inventions and the practice of arbitration as a dispute resolution mechanism for disputes arising therefrom.

What qualifies as a service employee invention?

The Regulation confirms the general assumption that an employee invention which is made during the course of an employment relationship, either as part of the employees’ duties or separately if the invention is related to the employer’s area of operation and the employee utilised the employer’s know-how and expertise, will be considered a service invention.

Ownership rights of a Service Invention

Pursuant to the Regulation, employers have pre-emption rights with respect to the ownership of service inventions. In this context, an employee must immediately notify their employer in writing of any service inventions they have created. Upon such notification, the employer may unilaterally decide whether to hold the full or partial ownership of the service invention and inform the employee accordingly.

In situations where an employer wishes to have full ownership of a service invention, the ownership of the service invention shall be deemed to be automatically assigned to the employer upon receipt of the employer’s decision by the employee and in return, the employee has the right to claim compensation from the employer. In addition to such compensation, the employee shall be awarded with an incentive bonus which cannot be less than the employee’s net minimum wage amount. Furthermore, the employer is required to submit a patent application for the relevant service invention.

How is compensation amount determined and calculated?

The amount of compensation to be paid to employees will be determined by taking into account of (i) the financial worth of the service invention, (ii) the scope of the employee’s duties and (iii) the extent of the employer’s contribution to the invention.

The Regulation contains specific provisions regarding the calculation of such compensation based on precise formulas. The formulas set forth in the Regulation use the net minimum wage and the employer’s income generated by the invention as the basis for any calculation.

The income generated by the invention, on the other hand, will be determined by using different methods depending on whether the employer actually utilises the service invention for its business or makes it available for use by third parties.

In the event that the employer wishes to use the service invention in its business, the income generated by it will be determined by firstly taking into account the income generated from a similar invention in the market, if any. If there is no similar invention but the benefit to the employer/business generated from the invention is determinable, such amount will be used. Finally, if such benefit is also not determinable, the calculation will be based on the amount the employer would have reasonably paid to a third party for the same invention.

In circumstances where the employer does not wish to utilise the employee invention in its business operations but makes it available for use to third parties, income generated by such invention will be the net income arising under the licensing, sale or barter agreement executed with the third parties.

Dispute Resolution and Arbitration

The Regulation foresees arbitration as the method for dispute resolution for any disputes within its scope.