From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Wednesday, 14 October 2015

AIPPI Congress Report 3: Trying to resolve the global puzzle of inventor remuneration

The AmeriKat staring into the future
of global IP protection last night.
..
After a quiet evening of fresh grilled grouper overlooking the Atlantic Ocean with the AmeriKat's dear friends, including her fellow UPC committee member Peter-Ulrik Plesner (Plesner), the AmeriKat retired to contemplative night.  From the top floor terrace, she studied the waving coastline of the beach in Barra da Tijuca and contemplated the future of IP in an increasingly global environment where the divergence in IP laws can be a hindrance to the legal certainty and clarity that is necessary for innovative companies to thrive.  Although strides have been made, especially at events such as AIPPI's World Congress which is aimed at fostering a joint understanding of global IP protection, much still has to be done.

One of the issues that needs to be addressed is that of inventor remuneration which is also subject to a Working Question at this year's Congress (click here for more details).  This morning's panel session covered off the key aspects of this issue from the US, Japanese and German perspectives.  The issue boils down to the fact that with researchers and inventors increasingly collaborating across borders, companies are facing divergent approaches on the substantive and procedural issues concerning inventor remuneration.  This is especially the case when a researcher in one country, namely the US, is not entitled under US law to remuneration, whereas his German colleague is under German law.  For this reason, the panel's moderator Ted Chwu (Bird & Bird) said the issue of inventor remuneration was crucial.

Ted then introduced Professor Sebastian Wündisch (Noerr) who explained that the German Employee's Invention Act is recognized as the strictest invention law worldwide and supposedly an inspiration for other jurisdictions.  The main idea of the law is to create an exclusive right by an employee to be payed reasonable compensation in respect of their invention which has been transferred to their employer.  Professor Wündisch explained that the concept of "reasonable compensation" therefore has a close link to FRAND considerations which is also about reasonable compensation.  The Act is not applicable to officers and directors, which means that companies have to deal with the transfer of their inventions on a contractual basis.  There are also special provisions in relation to universities.  Further, because the Act only applies to technical inventions, matters involving trade marks or copyright have to be dealt with separately on a contractual basis.  Professor Wündisch emphasized repeatedly that the Act is mandatory which means that parties have no opportunity to put language into an employment contract that overrides conditions set out in the Act, especially if such provisions are not in favor of the employee.


Professor Wundisch (Noerr)
The Act's scope is limited to inventions that are exploited during the employment period.  If the invention is still in creation at the time that the employee leaves his or her employment, the rights are then taken to be transferred to the employee's new employer which is one aspect that can be catered for under contract.  The Act also distinguishes between "captured inventions" (or those inventions done during the course of business on the basis of the employee's skill and instructions) and "free inventions" (which are those that are not made as part of an employment contract).  The reasonable remuneration becomes payable as soon as the exploitation of the invention commences.  Inventor remuneration typically amounts to 0.2-0.5% of the turnover obtained from the invention.  In the majority of cases, reasonable remuneration is assessed at 0.2 - 0.3% of the turnover. However, these are general figures.  Employers and the courts have to allocate the reasonable amount based on the contributions of the individual to the invention. Therefore, the final figures are very fact-specific.  

In 1959 the first Guidelines of Remuneration were adopted.  Although they are not binding they do provide the framework for calculating reasonable remuneration by providing detailed formulae which takes into account the value of a single invention and an employee's contribution to that invention.  It also provides guidance for reductions to remuneration in cases of extremely high turnovers for successful inventions.  The Guidelines also address certain exploitation scenarios such as blocking patents and portfolio exploitation.  Interestingly, in the event that an employer does not challenge infringement of a patent, employees are still entitled to reasonable remuneration on the basis of what they would have earned had the company enforced the patent.  

Employees are also entitled to the disclosure of figures and information regarding the exploitation of inventions even after they have left their employment.  In the last 10-15 years, Professor Wündisch noted that employees are very aware of their rights under German law.  Generally, he said, after an employee has left their employment they will write to their ex-employers seeking compensation.  There is therefore an increasing number of disputes and discussions on this issue in Germany at the moment.  In his experience, most companies try to enter into early settlement by agreeing to the reasonable remuneration amount.  However, this can cause internal tensions where a German researcher gets remuneration while his US colleague does not.  To address these tensions, companies have started introducing incentive schemes.  

Toshinao Yamazaki from the Japan Patent Office was next up with the view from Japan following amendments to the Japanese remuneration laws in July 2015 and have garnered a lot of attention.  The new guidelines on inventor remuneration are currently being drafted, with the first version likely ready for public consultation by the end of the year.  The proposed guidelines will set out procedures for determining reasonable remuneration which includes a consultation between the employee and employer as to the mechanism in which reasonable remuneration will be determined.  The general amount of remuneration is likely to be defined in the proposed guidelines.  

Although some commentators have said that the changes are very extensive, in reality the changes are minimal Yamazaki noted.  Underpinning the inventor remuneration in Japan is the basic idea is that it is important to establish a system which provides sufficient inventives to R&D and researchers to develop new inventions.  There are three pillars of the Japanese remuneration system that encourages R&D.  The first pillar makes it possible for the patent rights to transfer to the employer given that they invest substantial resources into R&D to get to that invention.  The second pillar is that the employee receives almost the same incentives as under the current act which are gauged on a reasonable remuneration basis.  The third pillar is that the Ministry of Economy and Trade will provide guidelines as to how the incentives are to be assessed.  Under the new provisions, an invention by an employee belongs to an employer as soon as the right becomes effective. Another important change in the act is in relation to joint R&D projects between two companies.  Previously, each employer had to obtain the consent from the other's employee for the transfer of the rights which made matters complicated.  Now, with the recognition that joint R&D projects are increasingly important to the Japanese economy, the new law provides that companies no longer have to seek such consent.  
Larry Welch (Eli Lilly)

Larry Welch from Eli Lilly concluded the presentation by outlining the position under US law which is simple - there is no requirement to remunerate inventors under US law.  His presentation therefore focused on the practical problem in having various diverging laws governing inventor remuneration. Larry said he was hopeful that the resolution being proposed and debated at this year's Congress will go some way in resolving these conflicts.  The problem, he said, is that research now spans the globe with researchers in several countries often collaborating on projects resulting in inventions.  Laws in US, Europe, Japan, China, India and Korea and other countries vary on key points, namely on the rules on inventor remuneration and the definition and the identity of inventorship. To figure out whether you have to remunerate an inventor (and by how much), you have to first identify the inventors.  This may vary by country-by-country.

Under US law inventors are those who conceived of the complete idea of the invention, including how to make and use it.  Also, a person who directs another to make the invention may be deemed to be the inventor, if the directions are complete, even if the completion of the invention (reduction to practice) is preformed by other parties.  This would be true even if these acts occurred in another country.  This may not be the same result in countries where inventors are defined by those who make a significant "technical contribution".  Does that mean the one who actually does the work or only those who conceived of the idea?  US law would say only those who conceived of the idea.  Countries like China sometimes say that the inventor is someone who makes a significant technical contribution -  but who is this person?  What is a significant technical contribution? When you are talking about inventor remuneration you have to first determine who is entitled to remuneration.  The nature and identity of this person varies greatly.

A big question is what happens if there is a joint invention involving US inventors where remuneration is not required and inventors from a country requiring remuneration.  How do you apportion inventor remuneration?  Some countries' laws may provide that an agreement between an employer and an employee inventor is controlling, so long as it is fair, but "fairness" may be determined many years later which can cause problems. For example, in the phama industry, after a molecule is identified and a patent application filed, the commercialization of that molecule will take place more than a decade later after billion of dollars of expenditure is incurred.  How does one evaluate the fairness of the inventor´s remuneration in this case? The inventor did not spend a billion dollars in the R&D - the company did.  What is fair in these circumstances?  
All hope is on this years resolution on inventor
remuneration to resolve the global puzzle

Of course inventors must be given appropriate incentives because they are key to driving inventions.   But in any kind of research environment, the law does not always identify or reward key researchers in the run up to a breakthrough.  Larry continued that there may be really great science that is used in order get to an invention, but only the inventors may be remunerated as that is the subject matter that is patented.  However, it may have been the model that found the molecule that was crucial in that process.  What should the law do in these circumstances?  

Larry commented that those who spend money on R&D need certainty as to the IP that results from this process.  For example, some industries pay remuneration in the US tied directly to patent filing.  Others recognize those who contribute to the science in helping develop new breakthroughs. Clearly, the US love of innovation remains high so this has not proved problematic from a policy perspective as many companies do incentivize their inventors. Whatever the answer is on a global scale, there needs to be clarity on identifying inventorship and providing flexibility for employee inventions.  This, Larry concluded, will be critical in driving innovation.

Ted Chwu, concluding the session, said it was important to get back to first principles - companies doe not make inventions, people do.  In that context, there is an inherent tension between cost of spending R&D and inventor remuneration.  On this issue alone, there is a wide spectrum of views which demonstrate that the laws in this area have not been harmonized.  It is hoped that AIPPI's resolution (which will be debated later today), will find a balance between incentivizing employees and providing certainty and flexibility to employers.  

3 comments:

MaxDrei said...

Remember the record award of compensation to the inventor in Japan named in the blue diode case? Now imagine a situation, not so unlikely, of a US corporation with a patent on a molecule that turns out to be a blockbuster pharmaceutical. The inventor named in the patent on the molecule is that of a German research director recently "let go" by the corporation. The fired employee consults his lawyer. The lawyer writes to the corporation, suggesting an amount of compensation in line with the caselaw in Germany. readers, have you any idea how high that can be?

I wonder how many international corporations follow German law, offering the patent back to the employee inventor as soon as they decide to let the patent application lapse.

Ron said...

My understanding is that the German law obliging the employer to offer the invention to the employee when it intends to let it lapse, only applies for as long as the patent continues to be owned by the employer. If the employer assigns the patent to a third party, that third party is not obliged to offer it to the original inventor when it decides to let it lapse.

Anonymous said...

Larry Welch says: "To figure out whether you have to remunerate an inventor (and by how much), you have to first identify the inventors. This may vary by country-by-country."

Is it so difficultto identify the inventor? After all the inventor has to be mentioned in the US patent application. If you don´t want to pay you come up with false justifications like LW´s.

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