Hey! You Stole the Invention I Paid You to Invent!

You just hired an independent contractor to help you invent the next top of the line widget, and -- What do you know?--, he succeeds! Now you’re about to capitalize on your investment when your attorney calls you saying there is a problem. Turns out the independent contractor applied for and received a patent for the widget you paid him to invent. What now? Did you take on the risk of funding the research and development of a widget just to have it taken from you the moment the risk looks like it will pay off?

Unfortunately (for you) the answer could be yes. So what are you to do? Fortunately, a well-written employment agreement can eliminate the worry altogether, but if you find yourself already in an employment relationship with no agreement or an inadequate one, 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 the independent contractor, you provide an express provision in the employment contract assigning all of the employee’s patent rights to his inventions while under contract to you. It is important that the language expresses not only an agreement to assign the rights but a present assignment of them (“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. If that occurs, you may have only a breach of contract action and end up with no rights in the invention.

Bottom line, effective employment contracts are the best and easiest solution. Courts will look to the employment contract first. If you have the above provision, sleep easy and enjoy your widgets, but if you don’t you are now depending on the inconsistent and uncertain worlds 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 his invention. In general, an employee who is hired for the purpose of invention, who succeeds in accomplishing the task during the performance of the contract, is bound to assign to the employer all rights to the invention. This seems simple enough: I pay you to invent something for me, you do exactly what I paid you to do, so I get what you invented. However, like most things in intellectual property, the rule is not as simple in application as it is in theory.

Whether someone is “hired to invent” turns on whether the circumstances of the employment show an agreement (explicitly or implicitly) by the employee to assign all rights of his or her invention to the employer. Courts examine many different factors to determine if there was, in fact, an agreement to assign rights. While there is no exact list, most courts generally look to some or a combination of these factors:

1. The employment agreement or absence of one,
2. Past employment agreements or policies regarding patent rights,
3. Whether the employment worked in an inventive capacity,
4. When the inventive work was performed,
5. Where the inventive work was performed,
6. Employee’s acquiescence in or objection to the employers’ use of the invention,
7. Guidance and direction given by the employer, and
8. Whose materials were used in developing the invention.

This list is by no means exhaustive, but it gives you a sense of what the court is looking for to justify assigning rights to the employer. For example, if you instructed the independent contractor 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 the court will likely hold that you own the patent rights in the widget.

Unfortunately, courts arbitrarily and inconsistently apply the “hired to invent” doctrine and the analysis that comes with it. There is no guarantee that any factor (other than a strong employment agreement) or combination of factors will guarantee the employer patent rights. Many cases surrounding employment relationships do not discuss the doctrine, others confuse its application and purpose, and when the employee is an “independent contractor” the application of this doctrine is even less consistent. For example, some districts hold that the “hired to invent” doctrine can never apply to independent contractors yet other courts will look less to the legal status of the employee, and more to the circumstances surrounding the engagement in determining whether the independent contractor was hired to invent.

So what if the court finds you do not have patent rights to the invention? Well you may not be happy, but do not despair: all may not lost. This is where the “shop rights’ doctrine may step in to rescue you. 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 in the invention. 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 a “shop rights” analysis, many factors may be relevant. Among those factors which are considered are:

1. Whether the employee unreimbursed the employer for 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.

There are no guarantees that a court will conclude that an employer will have “shop rights” but if an employee invents and all materials, funding and time were supplied by you, and then lets you use it at all, there is a good chance you have “shop rights” in that invention.

Lesson to be learned: Don’t leave any uncertainty in the equation. Make sure you have contracts with independent contractors and employees in regular employment to ensure you get exactly what you pay for.