UNTIL JUST THE LAST FEW DECADES, most patents were for stand-alone machines and devices, like Eli Whitney's patent for the cotton gin or Thomas Edison's patent for the light bulb, which were often totally new technologies. Today, many patents are for inventions that are incremental improvements to current technology. The complexity of today's products has raised myriad issues surrounding who has a right to claim and own a patent.
Before we address who owns a patent, let's take a look at what a patent actually is. Issued by the U.S. Patent and Trademark Office, an agency within the U.S. Department of Commerce, a patent is a government monopoly that gives the inventor or the assignee (if the patent has been assigned to another person or to a business or other entity) the right to prevent others from using (either by manufacturing a product that uses the patented invention, or by offering for sale a product or service that uses the patented invention) the technology covered by the patent without the permission of the patent owner. Should a business, person or other entity use a patented technology without the permission of the patent's owner, that is called “patent infringement”.
HISTORY OF U.S. PATENTS
Over a hundred years ago, patent ownership was relatively straightforward. The first patent (Fig. 1) was issued in 1790 to Samuel Hopkins of Pittsford, Massachusetts, for an oven that reduced potash and other ingredients to soap. The patent examiner was Secretary of State Thomas Jefferson, and the patent was signed by President George Washington.
In the early history of the U.S., patents were issued at a relative snail's pace. A. G. (Alexander Graham) Bell was issued U.S. Patent No. 174,465 (Fig. 2) in 1876 for what he called “Telegraphy”. The term “telephone” had not yet come into common use. Patent numbers are assigned as each patent is issued, so by 1876, the U.S. Patent Office had issued 174,000 patents in just 86 years!
U.S. Patent No. 214,636 was issued to the “Wizard of Menlo Park” in 1879 for what we today call the “light bulb”. Edison thought on a grand scale, so his patent was for “Electric-Lights”. Issued just three years after Bell's patent for the telephone, the Patent No. (Fig. 3.) shows that 40,000 patents were issued in the U.S. from 1876 to 1879.
The Wright Brothers applied for their patent in 1903, but U.S. Patent No. 821,393 for their “Flying Machine” (Fig. 4.) was not awarded until 1906. There is still a three-year patent application backlog at the U.S. Patent and Trademark Office today! In just 27 years — 1879 to 1906 — over 600,000 U.S. Patents were issued!
The electronics revolution in the 20th century has accelerated the pace of patent development. Many patents are for components and subsystems now taken for granted in today's consumer and industrial products, such as an X-Y indicator for a display system (Fig. 5.).
Nowadays, many consumer electronic products that are a daily part of everyday life have a high patent content. For example, U.S. Patent No. 7,479,949 is titled “Touch screen device, method, and graphical user interface for determining commands by applying heuristics”. This piece of history and intellectual property is more commonly known as the “iPhone patent” (Fig. 6.) and Steve Jobs and 24 others are listed as inventors. But Apple, Inc. is the assignee (or owner) of the patent.
The U.S. Patent and Trademark Office has issued almost eight million patents since 1790, almost seven million patents since the Wright Brothers patent in 1906.
IS THE INVENTOR ALWAYS THE OWNER?
People, not corporations, invent things. So when a person invents something, and applies for a patent for that invention, who owns the patent? Consider these three scenarios:
Jason, a bright and industrious designer in New Product Development at ABC Company, toils day after day on the job using company equipment and resources, and he develops an exciting new technology. ABC Company is excited about the prospects for this new technology, so the company decides to patent Jason's invention. Who owns the patent?
Sarah, another bright and industrious engineer at ABC Company, spends weekends in her garage, on her own time and using her own equipment and resources, and she invents a totally unrelated breakthrough technology. Sarah decides to file for a patent on that invention. Who owns the patent?
Mike, an hourly employee in the mail room at ABC Company, is also a bright and industrious fellow, and he invents yet a third invention. However, this invention is inspired by the products ABC Company currently sells and is a technology related to the industry in which ABC competes. And Mike would periodically tinker in the company lab, with the permission of his employer, after hours to make his brainstorm work. Mike decides to file for a patent for his invention. Who owns the patent?
Aside from the obvious other question — how does one company have so many creative people working for it? — the answers to all three patent ownership questions are different, and dependent on several factors.
Before elaborating on the answer to these questions, the larger issue is that for many businesses, a company's intellectual property (IP) may well be its greatest assets. In today's globalized market, a company's technology and know-how is what often gives it a competitive edge. Conversely, a lack of state-of-the-art technology can put a business at a distinct competitive disadvantage.
Should a business's building burn to the ground or be swallowed by a sinkhole, a new building can be purchased or built. Should its inventory be destroyed in a fire or flood, it can be replaced. But should ownership of (and, therefore, the ability to use) a breakthrough technology that would give that company a distinct competitive advantage be lost through carelessness or lack of preparation, it is lost forever and it may not be recoverable.
No business would let its assets — real estate, capital equipment, inventory, cash or accounts receivable — accidentally fall into the ownership of an employee. No business can afford to permit what could potentially be its most valuable asset -- a patent, for example — slip through its corporate fingers.
And that brings us to the answers to our three scenarios:
SCENARIO #1: JASON
The answer to No. 1 is that if Jason has agreed — either through his employment agreement or via a separate agreement — that what he invents while in the employ of ABC Company belongs to his employer, the patent clearly belongs to the employer. If no such agreement exists, the ownership of the patent could come into dispute. If it cannot be amicably resolved, a court would look at the specific facts of the case to determine who or what owns the patent.
The more practical issue, however, is what happens during the patent application process known as “patent prosecution”. In the first scenario, ABC Company would probably engage a patent agent or patent attorney (known as a “patent practitioner”) to assist with the filing of the patent application. As part of the patent prosecution process, ABC Company will have to identify the “inventor” (that would be Jason) and the “assignee” (that would be ABC Company) of the patent. The assignee is effectively the owner of the patent since the assignee has the right to sell or license the patent, not the inventor.
If, as part of Jason's employment agreement, all intellectual property created by him while in the employ of ABC Company belongs to ABC Company, and Jason assigns the patent to ABC Company during the application process, then ownership of the patent is pretty clear. If Jason's employment agreement does not stipulate who owns the patent, and Jason refuses to assign the patent to ABC Company, that's when the lawyers get involved.
However (when dealing with legal issues, there are always several “howevers”), eight states have laws that prohibit employers from making such agreements with their employees unless additional compensation is offered. So, theoretically, a company could have one set of employees whose inventions do not belong to the employer because they do not receive additional compensation, and have a second set of employees who do receive some type of additional compensation whose inventions do belong to the employer.
Incidentally, the same concept applies to researchers and scientists working at universities, medical centers and other not-for-profit organizations. Their employment agreements should include the understanding that inventions discovered during the course of their employment belong to the employer.
SCENARIO #2: SARAH
The second scenario about Sarah inventing something on her own time is actually fairly straightforward. Unless Sarah agreed as a condition of her employment that all IP created by her, even on her own time and not using company resources, belongs to ABC Company, Sarah owns the patent. In practice, it is unlikely that a company would ask an employee to sign such an agreement, and if ABC Company coerced Sarah to sign such an agreement, the courts might frown on such coercion. In fact, several states, including California, have laws prohibiting employers from requiring employees to sign over to the employer intellectual property created by the employee on his own time and not using company resources. As a general rule, an invention developed by a person on his own time using his own resources belongs to the inventor.
SCENARIO #3: MIKE
As for the invention of Mike from the mail room, there are a few dynamics at work here. First of all, it is unlikely that Mike, as an hourly employee, signed an employment agreement, much less an agreement to assign all IP developed by him to the company. It is traditionally employees who work in Engineering, Design, R&D and related areas that sign such agreements since it is far more likely that they will invent something. But unlike Sarah, Mike used ABC Company resources to develop his invention, and on that basis the company could claim what is called a “shop right” to Mike's invention. A company might be able to address this issue by including ownership by the company of all IP developed by all employees in the company's employee handbook. If properly worded and permitted by state law in the employer's state, it would give the employer blanket coverage to all IP developed by all employees in the course of their work for the employer.
ABC Company could claim a shop right to Mike's invention since Mike did use ABC Company facilities (i.e., its “shop”) to develop his invention. This would especially apply if Mike reduced the invention to practice using company facilities — that is, he got the thing to work using his employer's facilities or equipment. A shop right gives the inventor ownership of the patent, but gives the employer what is essentially a free license to use the employee's patent in a product or service it produces or offers for sale. The employer has a royalty-free, but non-exclusive license, for the patent, and the inventor as the owner can sell the patent or license it to other entities.
In addition to employees, there is the issue of consultants and subcontractors. When ABC Company engages a consultant or subcontractor such as a researcher, engineering or consulting firm, or other professional services provider, the agreement between ABC Company and the vendor should clearly state that all IP developed during an engagement with ABC Company belongs to ABC Company.
All of these concepts apply to not just patents, but any form of intellectual property such as trademarks, service marks and copyrights. For example, an employee in field sales comes up with a catchy name for the company's newest product. A company brand, once trademarked, can become an incredibly valuable asset. Imagine trying to put a value on “Coca-Cola”, “Blackberry”, or “Diehard”? In fact, a memorable brand can often make or break a new product.
Should ABC Company decide to file for a trademark based on a suggestion from an employee, the process and issues are different because trademarks (and also service marks that cover, not surprisingly, services) arise out of use. That is, the company has to provide an advertisement or catalog or other document that shows the product identified by the hoped-for trademark. When initially used, a “TM” or “SM” will appear after the trademark or service mark. Once the US Patent and Trademark Office issues the mark, the “®” is then used.
In fact, shortly after the launch of the iPhone, Apple was hit with a trademark infringement claim by none other than Cisco, the Internet equipment manufacturer.
Were an employee to claim later that he or she came up with the trademark, he would not have much of a legal claim. Nevertheless, the company might transfer him to the marketing department and set him to work on developing additional similarly imaginative brands for the company's other products!
Finally, there is the issue of trade secrets. The alternative to pursuing a patent for an invention is to keep it secret and take advantage of the competitive edge provided by the new technology. While this path will not afford the legal protections available to patent holders, it will avoid the need to publish the invention that is a prerequisite to issuance of a patent. Additionally, unlike a patent, a trade secret that is guarded well, like the formula for Coca-Cola, will never expire and enter into the public domain. Employees with roles in engineering, design and related fields should be legally required to keep their unpatented inventions, discoveries and creations in strict confidence only to be used for the benefit of their employer. Employment agreements should govern the employee's obligations not just with respect to patents, but all forms of intellectual property and intellectual assets.
When a patent is assigned to the employer, the names of all inventors still appear on the patent. As such, employees can display their patents in their offices and they should include them in their company bios. A patent should certainly be an accomplishment for which one should be acknowledged. And, of course, inventors can list their patents when it is time for their annual reviews and in their resumés.
Good employment contracts make good sense — i.e., fewer disagreements over ownership of patents and other intellectual property, and less employer-employee litigation.