Whether an employer has rights in an employee’s invention depends on the circumstances of the invention, the terms of any agreements between the employee and employer, and the state’s laws that cover the situation.
The first step is to review the terms of any agreements that the employee signed with the employer. This is because it is possible for an employee to transfer his or her rights in an invention to the employer through a written agreement. Titles to agreements that might contain relevant terms regarding invention ownership include “employment agreement”, “non-compete agreement” “non-disclosure agreement” “intellectual property agreement” “invention agreement” “employee invention agreement” etc. Not all documents with such titles necessarily contain provisions regarding invention ownership, however such documents, if they exist, should be reviewed in case they contain such provisions.
Regardless of the title of the agreement, we are looking for terms that transfer rights in invention to the employer in consideration for the employee employment compensation. Terms regarding invention ownership may explain the scope and extent to which the employer claims ownership over the employee’s inventions.
The terms of an agreement might provide that the employer owns inventions developed by the employee, even if the employee does it on his or her own time and with his or her own resources. However, typically ownership claims are limited to inventions that are related to the employer’s business or reasonably anticipated future business.
Some states have statutes that limit the types of inventions an employer can claim ownership in. For example, Illinois has an Employee Patent Act that prohibits an employer from claiming rights in an invention in which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, unless (a) the invention relates (i) to the business of the employer, or (ii) to the employer’s actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the employee for the employer. Therefore Illinois prohibits employers from claiming rights in inventions not developed with employer resources and unrelated to the employers business. However, not all states have such a statute. So if Illinois law does not apply to the employment agreement at issue, statutes of the applicable state law will need to be reviewed.
If there is no written agreement providing the employer owns certain inventions of the employee, then the result will depend on the circumstances of the employment and invention. If any employee was hired or directed to solve a particular problem or to exercise his or her inventive faculties, then it is likely the employer will own the resulting invention under an implied-in-fact assignment. However if the hiring or direction is not sufficiently specific and the employee was not hired or directed to make improvements in a designated area, the employer may not own the resulting invention. There is a fine line between hire-to-invent and general employment, which is very circumstance dependent.
In the instance where the employer does not own the invention, but where the employee uses the employer’s resources to conceive, develop, or to reduce an invention to practice, the employee may have “shop rights” in the invention. Shop rights provide the employer with a nonexclusive, royalty-free, nontransferable license to make use of the invention.
It is important for employers to have written agreement that define which employee inventions that the employer will own. To determine whether an employer will own a particular invention, the applicable employment agreements, the circumstances of invention, and the applicable law should be reviewed.