Employees' inventions

The transfer of rights on technical contributions by employees in Germany to their employer are governed by the German Employees’ Inventions Act (often abbreviated to „ArbEG“ ). Under this legal framework, employers have a wide margin of manoeuvre to avoid excessive costs for unwanted or less important inventions, while at the same time to foster and to protect inventions for their important markets. But how can this be achieved exactly?

I. Legal Basis

The German employees’ inventions act distinguishes between “inventions” (that can be patented) and “suggestions for technical improvements” (that cannot be patented).

After a proper notice about an invention by an employee, the employer has four months to decide whether she wants to claim the invention or not. If the employer has not reacted after four months, the claim is deemed to have been declared by the employer and both sides bear all consequences defined by the ArbEG.

For the employee inventor these consequences comprise a reasonable compensation and the duty to help the employer to understand the invention. And – of course –  an ongoing duty of secrecy. For the employer these consequences comprise – besides the duty to pay the compensation – several duties regarding the filing and prosecuting of patent applications in Germany and other countries and the benefit that she is the sole proprietor of the intellectual property.

Suggestions for technical improvements must be compensated for if they grant the employer a similarly preferential position as an industrial property right („qualified suggestion for technical improvement“).

The ArbEG further defines what happens if inventions are declared free. If a conflict arises between the employer and the employee, this can be settled before an arbitration board located at the German Patent and Trademark Office. Additionally, rights can be asserted by way of legal action, but only after proceedings before the Arbitration Board had been conducted.

II. Types of compensation schemes

If an invention has been claimed by the employer or if a qualified suggestion for technical improvement has been submitted, two types of compensation schemes are typically implemented:

a) Value-based compensation scheme

A detailed compensation R can be based on the equation

R = V * (I + C + P) * S,

wherein the parameters are defined as follows:

V := value of the invention, e.g. based on license analogy or an estimate of the business use;
I := the role of the inventor in identifying the problem solved by the invention;
C := the contribution of the inventor to the solution of the problem;
P := the duties and position of the inventor within the company;
:= the share of the inventor within a team of inventors.

Advantages: precise, individual, fair.
Disadvantages: large administrative costs to obtain the information, employer still has to fulfill further duties with respect to filing patents in Germany and other countries.

b) Lump-sum-based compensation scheme

A compensation based on a lump sum can involve a single payment upfront to account for the invention and to buy one or more of the additional legal rights from the inventor. Alternatively, multiple payments can be defined along the property right trajectory in order to take more information about the value of the invention into account.

Advantages: simple, all legal rights can be obtained from the inventor.
Disadvantages: the employee might not be satisfied, in particular if the invention turns out to be highly significant later on.

Best practice: For inventions with unclear value, the employer may want to file a German patent or a German utility model, which the employer can offer later to the inventor, if no further interest in the property right exists. Thereby, the remuneration can be kept low and the risk of waiving valuable subject matter can be reduced.

III. Individual Solutions

Employers regularly want maximum discretion when claiming an invention or a suggestion for technical improvement without violating the law and without incurring large costs. This can be achieved by an appropriate review process and a coordinated compensation scheme.

Based on our practical experience as inhouse counsels and as external counsels, we have experienced from inside and outside a wide variety of implementations of the two remuneration schemes outlined above. We are glad to strategize with you, help you to optimize your internal invention review process, and to elaborate a remuneration scheme that fits the needs of your company.

Dr. Martin Kuschel

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