Although rules of ownership applicable to copyrighted works are established by statute under the federal Copyright Act, ownership of inventions is generally governed by applicable state law, which may vary from jurisdiction to jurisdiction. Absent an agreement to the contrary, the law vests ownership of inventions in the inventing party, whether that party is an employee or an independent contractor. This may be true even if the employer paid for the invention or otherwise had some expectation of ownership. Thus, carefully drafted written documents assigning to the employer inventions created by both employees and independent contractors are essential to protect an employer’s intellectual property.

Given the general rule applicable to traditional employment relationships, it is not surprising that independent contractors are in an even stronger position to assert ownership of their inventions in the absence of an express agreement to the contrary. Thus, employers should start with the presumption that, unless there is an agreement to the contrary, employees, consultants, and independent contractors own the inventions they have created. The employer must obtain an assignment in almost every situation.

Despite the general rule vesting ownership of inventions in both employees and independent contractors, employers may obtain rights to these inventions by receiving an express assignment of ownership in the invention. Employers also may obtain ownership under the doctrine or the “shop rights” doctrine, and when the employer obtains an express assignment of ownership in the invention. To obtain patent rights by any of these means, an employer must take affirmative steps to protect its interest in intellectual property. Note also that, as explained further below, employers may obtain rights to the inventions of certain of its officers, directors, and agents under a “fiduciary duty” analysis.

Under the traditional “hired to invent” rule, if an employee is initially hired or later directed to invent or attempt to invent a particular invention, the employer is entitled to ownership of resulting patents.76 The absence of an express agreement will not always prevent an employer from successfully asserting patent rights, however. An implied-in-fact contract may arise between an inventor and his employer, where the employee was required by the employer to work on a particular project and used the employer’s resources to develop the invention in dispute. This is particularly true if there were co-inventors who were other employees of the employer, and where the employer paid for a patent application.

Courts are generally reluctant to apply the “hired to invent” doctrine if the employee was not in fact hired to invent or was retained only to perform general research functions. An employee also may retain ownership of an invention when he or she has been hired to create a specific invention but later creates a different invention outside his or her assigned duties. The “hired to invent” doctrine is most typically applied in the context of traditional employer-employee relationships, and courts are reluctant to apply the rule to independent contractors.

In addition to the “hired to invent” doctrine, courts have recognized the “shop rights” doctrine under which employers may be entitled to limited rights in an employee’s invention based on the particular facts of the case. Under the “shop rights” doctrine, the actions of an employer and employee may lead to the assumption that the employee accepted the employer’s assistance in exchange for granting the employer limited future use of an invention, i.e., an “implied-in-fact” license.77 When an employee, through words or silence, action or inaction, induces an employer to rely on the use of an invention, the employee cannot later deny the employer a right to use the invention or seek additional compensation. For example, an employee who invented a device useful in retail display of merchandise and who persuaded her employer to demonstrate that device in retail stores would be prohibited, after obtaining a patent, from demanding a license fee from that employer for future use.

Regardless of its application to employees and independent contractors, the limited doctrine of “shop rights” does not vest actual ownership of patent rights in an employer. Instead, those rights will be held by the inventor and licensed, free of charge, to the employer. The employer may not assign or otherwise transfer its limited “shop rights” to a third party. An express assignment of rights is clearly superior to obtaining a limited interest by application of the “shop rights” doctrine.

Patent rights also may devolve to the employer when a special trust relationship is present with the inventor. Essentially, this rule is based on the notion that certain employees, typically corporate officers and directors, owe a fiduciary duty to the employer preventing them from competing with the employer or usurping “corporate opportunities.”78 The fiduciary duty analysis is helpful in preventing influential employees from abusing their position to the detriment of a corporation, but the doctrine is of limited utility because it applies only to certain officers, directors, and agents.

The favored method by which an employer acquires employee inventions is to enter into an express contract with the employee or independent contractor. By statute, an employment agreement cannot require an employee to assign, or offer to assign, an employee’s invention to the employer if no equipment, supplies, facilities, or trade secret information of the employer is used to create the invention and the invention is developed entirely on the employee’s own time.79 The employee is entitled to this protection by law, provided that the invention does not result from any work performed for the employer, or does not relate directly to the employer’s business or to its actual or demonstratively anticipated research or development. An employment contract provision forcing the inventor to assign an unrelated invention is void and unenforceable. In addition, an employer cannot require that the employee assign such an invention as a condition of employment or continuing employment (of course, nothing prohibits the employer from negotiating for an assignment from an employee in exchange for valid consideration, such as a cash payment). Finally, an employment agreement that contains an invention assignment provision also must provide written notification to the employee that the agreement does not apply to inventions created outside the scope of employment.80

Employers also must be cautious about exposing new inventions to employees. Under the federal Patent Act,81 an inventor forfeits patent protection if the invention is in public use for more than one year before the patent application is filed.82 Public use even may mean in-house testing among employees, if it takes place more than a year before the patent application is filed and other precautions have not been taken.83 To guard against forfeiting potentially valuable patent rights by testing inventions with employees, an employer must maintain strict secrecy requirements, confirm in writing the secrecy obligation of each employee, maintain an experimental atmosphere, and limit the experiment to claims in the patent.

CREDITS: The content of this and any related posts has been copied or adopted from An Employer’s Guide to Employment Issues in Minnesota, provided by the Minnesota Department of Employment and Economic Development & Linquist & Vennum P.L.L.P., Tenth Edition, 2009. Copies are available without charge from the Minnesota Department of Employment and Economic Development, Small Business Assistance Office.

This post is also part of a series of posts on how employers can protect intellectual property through non-compete and non-solicitation agreements.

76. Banks v. Unisys Corp., 228 F.3d 1357, 1359 (Fed. Cir. 2000).
77. Univ. Patents, Inc. v. Kligman, 762 F. Supp. 1212, 1220 (E.D. Pa. 1991).
78. Miller v. Miller, 222 N.W.2d 71 (Minn. 1965).
79. Minn. Stat. § 181.78 (2007).
80. Id.
81. 35 U.S.C. § 101 et seq. (2007).
82. 35 U.S.C. § 102(b) (2007).
83. Minnesota Mining and Mfg. Co. v. Appleton Papers, Inc., 35 F. Supp.2d 1138 (D. Minn. 1999).