Sale of Employee’s invention with R&D agreement

May the employer sell a full right to an invention that was made as Employee’s invention according to German ArbEG? What then applies to the claim to remuneration? And is he even allowed to do so via a fixed contract R&D agreement, which also transfers future inventor rights?

The short answer is: Yes – and there follows a detailed “but”. Let us therefore take a closer look at the sale of an Employee’s invention according to German ArbEG.

In principle, in the case of a Employee’s invention, all rights to the invention are transferred to the employer, and in return the employer is obliged to pay the inventor appropriate remuneration. The employer can therefore also decide to sell the invention at any time.

But what happens then with regard to the claim to remuneration from the Employee’s invention?

Sale of Employee’s invention – and the claim to remuneration

Basically, there are two possibilities: either the employer enters into a one-time remuneration agreement pursuant to § 12 (1) German ArbEG, which settles all pecuniary claims arising from the service invention planned for sale. This is permissible and can also be agreed as a lump sum remuneration.

If the employer does not make such an agreement, the inventor retains pecuniary claims from the Employee’s invention even upon sale, they are quasi sold along with it. The buyer of the invention is then obliged to pay remuneration for this Employee’s invention from the time of sale. He can free himself from this obligation by relinquishing the property right after the sale of the Employee’s invention. In such a case, however, the buyer of the invention must inform the inventor of his intention and transfer all rights to the invention to him at his request.

Moreover, companies have often agreements (“Contract Research and Development Agreement”) that an Employee’s invention that arises within the scope of a research or development contract is to be transferred to the employer.

Sale of Employee’s invention with R&D agreement

Particularly in company or university structures, the transfer of patents / patent applications or the sale of IP rights often takes place by means of fixed research contracts in which even future invention rights and patents are transferred, e.g. via ‘Research and Devolopment Agreement’. Is this permissible?

Yes, it is permissible, the German Arbitration Board decided in such a case already in 2013 (Arb.Erf. 57/11) – if the future inventor’s rights, patent applications or patents are “sufficiently determined”. This is to be understood as meaning that the future property rights can then be transferred via a permanent research agreement if the affiliation of an invention to a clearly defined technical field is given. The Arbitration Board made it clear that “sufficiently defined” expressly does not mean that the content of an invention must already be fixed.

Please note: the transfer of future “sufficiently determined” rights can even be agreed in such a way that it takes place automatically with the development of the rights and without any further declaration of transfer.

In principle, the inventor of the Employee’s invention has the right to be participated in the purchase price for the transfer of rights; for the gross purchase price of the Employee’s invention created within the scope of a R&D contract and transferred to the client, the Arbitration Board considered the amount of 8% of the contract sum to be appropriate in the negotiated case from 2013. According to the Arbitration Board’s experience, the purchase price to be fictitiously determined for all inventions developed within the scope of the R&D contract amounts to 1% of the total contract sum; in the present case, this resulted in 8% of the contract sum as the gross purchase price for the service invention at issue in the proceedings.

Sale of Employee’s invention – with re-licensing

The sale of IP rights is often combined with a simultaneous re-licensing. The full right to the invention is transferred to the purchaser, but at the same time the purchaser undertakes to re-license the invention to the employer of the inventor against payment. In this case, too, it is regulated how this affects the remuneration of the service invention. In short, it depends on the circumstances.

For only if the grant-back is comparable to a so-called ‘reserved right of use’ does the inventor also have a claim to remuneration with regard to the employer’s own use in the course of the grant-back. But when is the re-licensing comparable to a reservation of use? The Arbitration Board explained that this is particularly the case if the employer’s own use of the Employee’s invention is already certain at the time of the transfer of the IP right.

However, if the employer shares the monopoly right to the Employee’s invention with the purchaser of the invention on the basis of a grant of a licence back, the Arbitration Board considers it justified to halve the usual market licence rate for this use.

Graduation – reduction of remuneration

Incidentally, the Arbitration Board also determined in this decision that the application of net turnovers (within the meaning of No. 7, sentence 1, second half-sentence of the Directive) in addition to the graduation does not constitute multiple consideration of the same aspect for a reduction of the remuneration.

In this respect, it should be clearly stated once again that according to general case law, a graduation of high turnovers is permissible, i.e. de facto a significant reduction of the inventor’s remuneration. A cumulative graduation is common, which is justified with the so-called causality shift. Behind this is the – legally recognised – assumption that factors such as distribution network, market leadership, quality and brand name contribute a lot to the commercial success of a product based on an Employee’s invention. Accordingly, the inventor’s merit is estimated to be lower, and this is reflected in the graduation.

If, in the end, there are doubts, that the remuneration is “not appropriate”, we refer at this point to the details on limitation periods in employee invention law. In short, the claim for remuneration expires after 3 years and the claim for damages after 10 years; however, a prerequisite for any claim for damages is a previous claim for remuneration.

Do you have questions about an Employee’s invention ?

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