October 30, 2018
Ideally, the process of handling inventions created by employees during an employment relationship is simple and straightforward. According to Kolster attorney Sanna Häikiö, however, expert assistance is often needed to steer past the complications.
The general rule is clear enough: when an employee creates an invention at the workplace, the employer has, under certain conditions, the right to assume ownership of the invention. Beyond this rule, what unfolds is a maze of countless questions, interpretations and negotiations. A number of issues arise already from the assignment of ownership, such as the extent of the employer’s rights to the invention.
It is clear, then, that things are not always straightforward. Globalisation and the diversification of business structures and employment contracts have clearly increased the prevalence of ambiguities and disputes in employee inventions.
What is reasonable compensation?
After the employee has presented the results of their discovery to the employer, what follows is a process that should be handled with care. Firstly, it must be evaluated whether or not an invention has been made. To qualify, the invention must be new, involve an inventive step and be industrially applicable. If the employer then decides to assume control of the invention, the employee must be paid a reasonable compensation. How do you measure what is reasonable? It is the sum of many parts.
The amount of reasonable compensation may be determined by a variety of different formula, or it may be proportional to the invention’s market value — for example, what its price would be if sold to an outsider.
Usually, the average compensation for employee inventions in Finland ranges between 1,500 and 3,000 euros. In addition to the standard compensation, the employee is entitled to a special compensation in cases where the invention has commercially significant value to the employer. The special compensation may be based on royalties or a lump sum, with different companies and industries following very different practices.
What is essential is that the employer pays sufficient compensation for the invention. Competitive compensations are also an important perk that helps win over talented employees.
A code of practice is key
All companies should have a code of practice for employee inventions. The code of practice sets out in detail how employee inventions are handled and compensated in the company.
However, preparing a code of practice is not always straightforward. For example, in cases where a company operates in several countries, differing national legislations and employee invention systems may pose a challenge. Recently, a US-based company asked for our assistance in drafting a code of practice for employee inventions. The company had subsidiaries in Finland and Germany, and the three countries all differed in their legislation on employee inventions. For instance, in the United States, there exists no statutory compensation for employee inventions; instead, in invention-intensive positions, compensation is usually included in the salary. In this case, companies in the group strive to treat employees equally, but this can be difficult in issues related to employee inventions. On the one hand, local legislation must be complied with, but at the same time, the group must employ a unified policy.
An employee with the company’s Finnish subsidiary had made several employee inventions over the years without receiving any compensation. We were subsequently able to reach an agreement on the matter, and the employee in question received retroactive compensation for all past inventions in accordance with the Finnish practice for statutory compensation.
An agreement can prevent issues
By international standards, Finnish employees are in a strong position regarding employee inventions. The rights of employees are regulated extensively in legislation, and the level of compensation is reasonable. In disputes over the interpretation of employee invention regulations, both the employee and employer can request an opinion from the Employee Invention Committee. The Committee’s opinions are not legally binding, but they carry significance and are usually respected by the parties.
An example of a potential issue are commercial commissions, where a client purchases R&D services from a company, and the invention is created while carrying out the commission. Who is liable for paying the standard compensation: the company that provided the service, or the client that now owns the rights to the invention? Furthermore, who pays the potential special compensation if the invention proves to be a commercial success?
It is advisable that the liabilities for compensation are always agreed in advance, as the lack of such agreement can result in no small amount of issues over interpretation.
Valuable help from experts
Many potential disputes can be avoided with a comprehensively drafted code of practice for employee inventions. It is therefore advisable to prepare the document with care and, if needed, seek out expert assistance. The code of practice should also be kept updated as good practices on the matter are formed in the company over time. On a more general level, it is useful to plan the entire process for the company’s inventions with the help of experts.
Kolster attorney Sanna Häikiö provides assistance to our clients particularly in issues related to the commercialisation and licensing of technologies and contract and corporate law.