You hired an engineer or scientist to help you come up with the next top-of-the line widget, and -- what do you know – they succeeded! You are about to capitalize on your investment when your attorney calls and says there is a problem. It turns out the employee applied for and received a patent on the widget you paid to be developed. What now? Did you take on the risk of funding the research and development of a widget just to have it taken away from you right before the pay off?

Unfortunately for you, the answer may be yes. So, what are you to do? A properly drafted employment agreement can eliminate the problem altogether. If, however, you are currently in an employment relationship with no agreement or an inadequate agreement regarding patent rights, a general understanding of the “hired to invent” and “shop rights” doctrines will give you an idea of what rights you may have.

First, how do you prevent something like this from ever happening? Believe it or not, the answer is simple. When you hire an employee, include in the employment contract an express provision assigning to you all of the employee’s patent rights to any inventions he or she creates while under contract. It is important that the language express not only an agreement to assign the rights but a present assignment of those rights (“agrees to assign and hereby does assign”). An agreement to assign rights in the future may not prevent the employee from simply refusing to assign them to you. In which case, should you want to enforce the patent rights against an infringer (perhaps even against the employee), before getting a chance to show infringement, you will first have to prove the employee breached the agreement to assign.

Bottom line, putting it in the contract is the best and easiest solution. Courts will always look to the employment contract first.  If you have the above provision, sleep easy and enjoy your widgets. If you do not, you will be left depending on the inconsistent and uncertain guidance of the “hired to invent” and “shop rights” doctrines.

The “hired to invent” doctrine is an exception to the rule that an inventor owns all rights to the invention. In general, someone hired to invent something who succeeds in accomplishing the task during the performance of the contract is bound to assign all rights to the invention to the person that hired them. Seems simple enough: I pay you to make something for me, you do what you are paid to do, and I get what you created. However, as is often the case, the rule is not as simple in application as it is in theory.

Whether a court will deem an employee “hired to invent” depends on whether the circumstances of the employment reflect an agreement (explicit or implicit) that the employee assigned all of his or her patent rights to the employer. Courts examine many different factors to determine if there was an actual agreement to assign rights. While there is no exact list, most courts generally look to some combination of these factors:

  1. Whether or not there was a written employment agreement addressing patent rights,
  2. Whether past employment agreements or policies addressed patent rights,
  3. Whether the employment was in an inventive capacity,
  4. Whether the contracted-for inventive work was performed by the employee,
  5. Whether the inventive work was performed at the employer’s facility,
  6. Whether the employee permitted or refused to allow the employer to use the invention,
  7. Whether the employer provided guidance and direction to the employee, and
  8. Whether the employer’s resources were used in development.

This list is by no means exhaustive, but it gives you a sense of what the courts look for in deciding whether to assign rights to the employer. For example, if you instructed the employee to make the exact widget he made, he worked on it predominantly on your time with your materials, and you encouraged, directed and paid him to do it, then a court is more likely to find that you, and not the employee, own the patent rights to the widget.

Unfortunately, because courts inconsistently apply the “hired to invent” doctrine, it is often difficult to predict what a court will decide. There is no guarantee that any factor (other than a strong employment agreement) or combination of factors will guarantee the patent rights are deemed the employer’s. Some cases involving employee relationships do not even discuss the doctrine, others confuse its application and purpose, and when the employee is an independent contractor, the application of this doctrine becomes even more difficult. For example, some districts hold that the “hired to invent” doctrine can never apply to independent contractors while other courts will look less to the legal status of the employee and more to the circumstances surrounding the employment in determining whether an employee was hired to invent.

What if the court finds you do not have patent rights to the invention? You may not be happy, but not all is lost. This is where the “shop rights” doctrine steps in. Generally, when an employee makes and reduces to practice an invention on his employer’s time, using his employer’s tools and the services of other employees, the employer is the recipient of an implied, non-exclusive, royalty-free license. This non-exclusive license is referred to as “shop rights,” and courts look to the circumstances of the employment to determine if the employer has them.

Since courts look to all the facts surrounding the employment in shop right analysis, any number of factors may be relevant. Some factors that are almost always considered include:

  1. Whether the employee made unreimbursed use of the employer’s facilities in perfecting the invention;
  2. Whether the invention was made on company time with company materials; and
  3. Whether the employee consented or acquiesced in the employer’s use of the invention.

Of course, there is never a guarantee that an employer will have “shop rights” in an invention, but if your employee invents something using your materials, your funding, your shop, your time, and lets you use it at all, there is a good chance you have a nonexclusive, royalty-free license -- “shop rights.”

Lesson to be learned: Do not leave any uncertainty in the equation. Make sure you have clear employment contracts to ensure you get exactly what you paid for.