By Richard Taylor, DLA Piper, Yorkshire


Intellectual property and employees

When intellectual property (IP) is created by an employee in the course of their employment, the general rule is that it will belong to the employer, subject to contrary agreement (see, with some variation, section 11(2) of the Copyright Designs and Patents Act 1988, section 39 of the Patents Act 1977 and, for Community designs, article 14(3) of Council Regulation 6/12000/EC).



Disputes between employers and employees over the ownership of IP often revolve around whether the employee was acting in the course of their employment when it was created. Key is whether the invention fell within the scope of what the employee was employed to do. That was the issue before the court in LIFFE Administration & Management v Pinkava & Others [2007] EWCA Civ 217.



Dr Pinkava was employed by the London International Financial Futures and Options Exchange (LIFFE) as a general manager. LIFFE asked Dr Pinkava to investigate and develop a credit derivative future to be traded on an electronic exchange. He in fact devised something rather different - a system that allowed the trading on exchange of certain types of swaps. Before this invention, many had thought it impossible to devise such an exchange.



Dr Pinkava left LIFFE and applied to patent the system in the US. LIFFE claimed that, as his employer, the IP in the system belonged to it. The case revolved around the convoluted wording of section 39 of the Patents Act. This says an invention will belong to an employer if '(a) it was made in the course of the normal duties of the employee or in the course of duties falling outside his normal duties but specifically assigned to him and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties; or (b) the invention was made in the course of the duties of the employee and, at the time of making the invention, because of the nature of his duties and the particular responsibilities arising from the nature of his duties he had a special obligation to further the interests of the employer's undertaking'.



Sub-section (a) breaks down into three questions. First, was the invention made in the course of the employee's normal duties? If not, then, second, was the invention made in the course of specially assigned duties? Third, in either case, would an invention reasonably be expected to result from the carrying out of those duties? Dr Pinkava said the duties that gave rise to the invention were not set out in his contract, and he argued that his invention fell outside his normal duties and any specifically assigned duties. The court disagreed. It found that even though the relevant duties were not expressly set out in the contract, his duties had evolved over time such that the relevant duties had become 'normal'.



On the third question - would an invention reasonably be expected to result from the carrying out of the employee's duties - the Court of Appeal judges disagreed with each other as to the correct approach. The Chancellor of the High Court felt that it was relevant to consider the qualities of the particular employee. In this case, Dr Pinkava was intelligent and inventive, such that it was more likely that an invention could reasonably be expected to result from his performance of his duties. Lord Justice Jacob, on the other hand, said that whether an individual employee is 'thick or brilliant' should make no difference. He argued that it would be wrong for Thomas Edison to have to hand his inventions over to his employer, while an unimaginative employee would be entitled to his invention because no one expected it. The test, he said, was simply whether the employee was employed to try to innovate, and, if so, what general sort of areas his innovation duties covered. The Chancellor's approach was approved by the third judge, but since Lord Justice Jacob is the leading IP judge in the appeal court, his dissention is significant.



Unfortunately for Dr Pinkava, the judges found that either way, the result was the same - an invention could reasonably have been expected to result from his duties. The invention therefore belonged to LIFFE.



In some respects, Pinkava is comforting for practitioners who draft contracts of employment. Even if the written description of the employee's duties does not include invention, the courts may be prepared to find they have evolved over time to cover the point. But it is clearly preferable, if appropriate, expressly to include duties of invention and assign ownership of inventions and arising IP rights to the employer.



I say 'if appropriate', because practitioners should not go too crazy - in one case, a clause in a storekeeper's contract that gave inventions to the storekeeper's employer was held invalid as an unreasonable restraint of trade, because making inventions plainly fell outside the storekeeper's duties (Electrolux v Hudson [1977] FSR 312). But if an employee's duties could reasonably include trying to invent, then it is best to say so.



Finally, it is worth flagging that even though Dr Pinkava was not entitled to own the invention, he might be entitled to compensation for it from LIFFE. Section 40 of the Patents Act provides that the court or Comptroller of Patents can award compensation, where (i) the employee has made an invention belonging to the employer for which a patent has been granted, (ii) the invention or the patent for it is of outstanding benefit to the employer, and (iii) it is just that the employee should be awarded compensation to be paid by the employer.



There have been no reported cases of a successful claim under this head, but the Patents Act 2004 broadened the scope of the old rules to encourage such claims (under the old rules, the employee had to prove that the patent itself, rather than the invention, was of outstanding benefit to the employer, which was a tricky distinction to make). Any term that seeks to contract out of this compensation right will be unenforceable (section 42(2) of the Patents Act).



It remains to be seen whether employee inventors will have more success claiming compensation under the new rules than previously, but it is worth noting that some employers that routinely engage in invention have put in place employee-inventor compensation schemes, which might pre-empt claims under this head.