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Strategy in Assigning Patents

By Essenese Obhan

By Sumathi Chandrashekaran

In the absence of specific regulations, the ownership of inventions made by employees is governed by common law in India. Essenese Obhan and SumathiChandrashekaran, of Obhan and Associates in New Delhi, examine what this means for employers and employees.

Employer-employee relations have evolved considerably beyond the traditional ties that bind master and servant, and have significant implications on the intellectual property created in the course of such a relationship. At one time, it may have been unthinkable to challenge the employer’s authority or right in such matters. Increasingly, employees are questioning the routine of transferring their creations to employers. With subtle changes taking place in the corporate world, it is perhaps appropriate to understand how employee inventions are treated in India, in practice, statute and precedent, particularly with respect to employees in multinational corporations with Indian subsidiaries. There are no industry norms in this regard, which portends trouble for companies if assumptions about their IP portfolio are later found to be incorrect. We will identify the principles concerning employee inventions in India. In part, discuss the design of assignments for employee creations, and attempt to clarify procedural requirements.

EMPLOYEE INVENTIONS: General Principles

The assignment of rights in employee inventions has a special place in IP law. General principles direct that no one but the inventor has the rights to an invention. An exception to the rule can be found in inventions made in the course of employment, to which an employer may stake a claim. In India, legal precedent has established that such inventions by default lie with the employer, subject to circumstances where the invention may have been created without using the employer’s time, material or other resources, or may be beyond the employee’s scope of work.

Unlike its counterpart in copyright, Indian patent law offers little guidance on handling employee inventions. Indeed, a definitive stand on the issue is difficult simply because of a lack of direction in domestic statute. While states like the United Kingdom, Japan, and Germany have already codified principles relating to employee inventions, India persists with the common law. With a maturing economy and an evolving workplace, it is now perhaps time to cement a position on the ownership of such inventions. More ambitious still would be a discussion on the treatment of employee compensation for outstanding patents, upon which too Indian law is silent.

 Nevertheless, certain basic principles do exist in law and practice. In the absence of an employment contract, it may be argued that the ownership of employee inventions lies with the employee, and not the employer. But implied in an employer-employee relationship is a general duty of fidelity, and the understanding that the employee’s skills and expertise are to be used to the benefit of the employer alone. Therefore, where an employment contract does exist, but without any reference to employee inventions, it might be argued that the rights to such inventions implicitly lie with the employer. The Indian Patent Office too has held that in the absence of an explicit assignment agreement, the employment contract may serve as a proof of right to apply for a patent. However, employers are encouraged to enter into contracts of employment (also known as contracts of service) that clarify the status of any intellectual property developed in the course of work.

Indian law does not directly legislate upon the enforceability of contracts or covenants employee inventions. But, there is clear statutory authority and judicial precedent about contracts that tend to restrict the trade and practice of an individual. Courts have generally ruled in favour of reasonably restrictive covenants in a contract that apply during an employee’s period of service. But they may refuse to enforce covenants that are broad or unreasonable in scope and duration, such as contracts which contain clauses that require an employee to assign all future inventions subsequent to the employment term. Hastily concluded employment contracts containing a blanket clause on employee inventions are fairly common, and are replete with lapses that may rebound when enforcement is attempted. For instance, an employee inventor may successfully argue that the invention was unrelated to the scope of their work, and no company time or resources were used in creating the invention. It would thus be safest to design contracts that set out in writing the normal scope of work of an employee, as well as any special work that the employee may be required to undertake in employment. Similarly, any changes in the scope of work ought to be recorded in appropriate contractual amendments to establish the employee’s evolved nature of work.

EMPLOYEE INVENTIONS: Assigning to Affiliate or Parent Companies

There exists a common assumption that any assignment contained in an employment contract executed by an Indian subsidiary is by default accessible to the parent company. Time and again, the Indian Patent Office has established principles that suggest otherwise. The Office has held that an agreement or other document transferring the rights in a patent or creating an interest in a patent would be invalid unless executed by a party with the right, authority or competence to execute the same. Separately, it has also noted that any agreement sought to be registered as a legitimate title deed under Indian patent law must be an agreement intervivos that is it must be an agreement between two or more parties, and should specifically relate to at least one patent.

The possibilities of assigning employee inventions by an employee working for an Indian subsidiary of a parent company located anywhere in the world are many. Here we address three such generic assignments. First, an employee may assign their invention solely to the Indian subsidiary. There is rarely any issue here, so long as there is a clear contract of service delineating the terms of assigning inventions made during the normal course of work. Second, an employee may assign their invention to the Indian subsidiary and its parent company, on a joint ownership basis. In such a case, the employment contract should state in writing that the invention is to be assigned to the employer and its affiliates.

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