The Legal 500

Potential risks for companies and ways to minimize them

1.     Whilst in other countries employee invention law plays a rather limited role, in Germany the German act on employees' inventions (ArbEG) has a long tradition dating back to 1957 and earlier.

ArbEG is part of and plays a significant role in German patent law as approximately 80 to 90 percent of inventions made per year result from employee inventions.

ArbEG sets up rules regarding ownership, transfer of ownership, remuneration and other duties between employee inventors and employers. It is, therefore, crucial for companies to be aware of ArbEG, its applicability and its consequences in order to secure their IP portfolio, to avoid damage claims from employees as well as to handle compliance issues correctly.

2.     Until September 30, 2009 employers had to actively claim their employees' inventions in writing in order to acquire all rights in and to an employee invention. Such a "claim" had to be exercised within 4 months after the employee had reported his invention to the employer.

If the employer failed to validly claim an employee invention, the invention became "free", which meant that the employee remained the owner of the invention and that only he was entitled to exploit the invention, e.g. by filing patent applications or by licensing it to third parties. Moreover, if a patent was granted, he even had a cease and desist claim against his employer. If the employer (nevertheless) used the object of the invention, the employer was "treated" like an infringer, just as a third party would have been.

This legal situation led to many cases, in which courts had to decide about the ownership of employee inventions.

In one of these decisions, the German Federal Supreme Court came to the conclusion that the 4-months-time limit (in which the employer had to claim the invention from the employee) not only begins when the employee files an invention report. But also - even though a written invention report by the employee is lacking - when the employer has (i) filed a patent application for the employee invention and (ii) named the employee inventors within the application. The Court argued that in such a case, the employer showed by his patent application that he already had knowledge of all relevant information regarding the invention leading to the consequence that - in such cases - a formal invention report is not a prerequisite for the beginning of the 4-months-time limit.

This decision by the German Federal Supreme Court led to a massive increase of law suits by inventors against their employer, because there were many cases, in which employers had failed to validly claim an employee invention within 4 months of their patent application for such an employee invention.

3.     Also motivated by these developments, the ArbEG underwent a significant reform in 2009:

For all inventions reported from October 1, 2009 on, the employer has no longer to actively claim an employee invention. Instead: An employee invention and the rights to it are transferred to the employer automatically four months after the employee has reported his invention to the employer. As long as the employee does not report his invention, the time limit does not start to run.

However, if the employer was able to file a patent application naming its inventor, although the employee inventor did not file an invention report, it is the prevailing opinion that this application also triggers the 4-month-period, after which the rights to such an invention are automatically transferred to the employer.

4.     This new legislation, however, only applies to inventions reported (or filed) after September 30, 2009. For all inventions reported or filed until that date, including September 30, 2009, the old ArbEG applies, requiring the employer to claim an employee invention in writing in order to become the sole owner of the invention and the rights thereto.

Therefore, employee inventions that have become "free" in the past, are not affected by the ArbEG's reform, meaning that hidden risks in employer patent portfolios may still exist even after the ArbEG-reform has become effective.

5.     Companies should therefore be aware of such "untransferred" inventions in their portfolio.

It is, of course, possible to enter into an agreement with the employee inventor to transfer such an invention from the employee to the employer. But, the courts have set special requirements for such an agreement in order to be valid. One of these requirements is the fact that the employee at least needs to be conscious about his legal position resulting from the fact that his invention (or his part in the invention) has become "free". Should the inventor not be aware of this situation, it is likely that a court might - later on - hold such an agreement to be invalid.

Wildanger Kehrwald Graf v. Schwerin and Partners is a German law firm focused entirely on the area of intellectual property protection. It was founded 40 years ago by Guenther Wildanger, one of the most experienced patent litigation attorneys in Germany. Ever since, the firm has played an important role in establishing Germany, in particular Duesseldorf, as a leading jurisdiction for patent and patent-related litigation. On a rough estimate, the partners represent(ed) parties in more than 1.800 patent-/invention-related suits, very often with international backgrounds and in many cases with great economic significance. Our clients benefit from our great experience. Because we know that this is what it takes to be successful in patent-related litigations.

Wildanger Kehrwald Graf v. Schwerin and Partners count among their clients some of the most important global players from all the important industrial nations in Europe and Asia and, of course, the US. We have represented parties from nearly all areas of industry, technology and science, e.g. automotive, machine and electrical engineering, electronics, semi-conductor industry, biotechnology, the chemical, pharmaceutical and medical industries, computers, and telecommunication.

The author of this article, Dr. Soenke Fock, LL.M., has for almost 10 years now specialized in patent, employee invention and licensing law.

www.wildanger.eu