Who Owns the IP Created By Employees?

Background

It is an accepted practice in the corporate sector that the company will file a patent application by relying on the inventions by its employees, under the company’s name. This is done mostly due to the existing employment contract, which has a specific clause for the company’s ownership over any invention made during employment. Another way by which the companies exercise ownership over the inventions is through an agreement after the introduction of a particular invention. Under such a post-realization agreement, the employee is generally entitled to monetary compensation/royalty in exchange for the ownership over that invention. This practice is not just limited to patents, but the agreement also pertains to creations under copyright.

employee working on patent

Legislative Provisions

The Indian Copyright Act, 1957 has an explicit provision under section 17, which talks about the ownership of creation under an employment contract. As per this section, in the case of a work made or first published by or under the direction or control of any public undertaking, such public undertaking shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein. However, the Indian Patent Act, 1970 doesn’t have any specific provision related to the employee-employer relationship about the ownership of patents. The irony here is, that the older legislation has an advanced provision but the same is missing in legislation that came out way ahead of the previous one.

This legislative gap creates a scope for ambiguity since there can be instances when the employees have not been made to sign an IP ownership agreement (before or after the realization of an invention). In such a case, Section 17 of the copyright act entails that the creation will be considered on the name of the employer (if in the course of employment). However, the same will not be true in the case of the inventions under the patent act. In such an instance where the agreement is not signed, the inventor will be considered as the first owner, which therefore defeats the true sense of IP protection to the employers. The ‘deemed ownership’ clause is not there, therefore the ownership in the course of employment remains in a grey area.

About the above contention, the Bombay High Court in the case of Darius Rutton Kavasmaneck vs. Gharda Chemicals Ltd & ors held that the employment contract can not be held as the agreement for transferring the ownership of any invention (for patent) to the employer. Rather, it should vary as per the circumstances of the case whether the patent application will be filed under the name of the employee or employer. However, the components of this would remain subjective, and therefore ambiguous. Several factors are to be considered while deciding upon the owner, such as the nature of work, contract of services, statutory provisions, etc.

Even though the broad categories have been defined under the aforementioned case, the uncodified nature of this aspect makes it a probable area for disputes.

Foreign Jurisdictions

The ‘deemed ownership’ provision is based on the concept of ‘duty to invent, where the invention is a necessary execution of the duty/employment, the inventor is not allowed to file a patent on his name’. This stance has been adopted by various foreign jurisdictions such as Section 39 of the UK Patent Act, Section 132 of the Israeli Patent Act, and Article 6 of the Chinese Patent Act. For the argument of duty to invent, the rationale happens to be that the necessities/benefits which the employee has used, belong to the employer’s organization, Therefore, it is unfair to deprive the employer of the ownership of something (introduced in the course of employment) for which he has arranged the necessary elements, and paid the inventor a continuous amount in the form of salary. The same contention was brought up in the case of Darius Rutton, but the court didn’t take this into account and held that the cases have to be decided after taking into account the circumstances.

Apart from the duty to invent, there is another principle known as shop right, which provides for absolute ownership to the employer or any invention by an employee after using the resources from the employer’s organization. Under this, the right of an employer is retained even when the employee sells/transfers his rights. Although this provision is not codified, the judicial precedents in the USA have discussed this now and then. To decide the existence of shop right in an agreement, several factors have to be considered, which vary on a case-to-case basis. These factors include the contractual nature of the relationship between employer and employee, whether the employee consented to the employer’s use of the invention, and whether the employee induced, acquiesced in, or assisted the employer in the use of the invention. Though this is accepted and discussed in the courts of the USA, Indian courts have not referred to this.

Conclusion

Having discussed the above contention and principles, it is evident that the ownership of an invention in an employee-employer relationship remains in a grey area. The uncodified nature of the principle in India makes the adjudication and analysis of such cases even more difficult. In a world where technology is evolving at a rapid pace, IP protection becomes an important factor for all organizations. The stakes are much higher in an employee-employer relationship, where the organization might lose out on the benefits even after providing the agreed salary and resources to the inventors. Any step in the direction of codifying the principles on the lines of the UK, USA, or China would help in resolving the conflict. A case-to-case approach not only complicates the entire case but also ends up increasing the number of disputes on the said contention.

Author: Unnat Akhouri, Legal Intern at PA Legal.

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