Employee Compensation Incentives for Patents (Only): Does It Make Sense?

This Kat had occasion this week to revisit the issue of employee compensation for inventions. There may no subject in IP that has yielded as many different national schemes—statutory, judicial, or other—as has this topic. Indeed, for those readers of IPKat who are not aware, Blogmeister Jeremy Phillips devoted his Ph.D. studies back in the 1970s to this topic. As with so many other IP subjects that have garnered his attention, his research was very much a pioneering effort in the field.

To be clear--the issue is not who owns the invention—the employer or employee—but rather, irrespective of how the matter of initial ownership is resolved, the separate and distinct question of the extent to which the employee is entitled to additional compensation for his invention beyond his regular salary or the like. Should there be a statutory scheme governing the issue? If so, under what conditions should the employee be entitled to compensation for his employee-related inventions in addition to his regular compensation? On what basis should the compensation be calculated? As noted, there is no single answer to these and related questions and I graciously defer to Jeremy to provide learned guidance about them.

In fact, the precise question that occupied me in this regard was not about employee compensation for patents, but a query of more general concern—why is there no parallel treatment regarding copyright and even trade marks? To the best of this Kat’s understanding, there are no statutes or judgments that have recognized a right of the creator of a work, created in the employer-employee relationship, to claim additional compensation for his work. Nor I am aware of any legal arrangement that entitles the employee who comes up with a world-beating slogan or tag line to claim compensation for his successful creative efforts.

One can simply respond that the question itself is preposterous. In this context, patents are fundamentally different from copyrights and even more so from trade marks. Patents are a patrician right and should be treated as such. The grant of a patent is an infrequent and expensive activity, whose potential value to the company, either through direct use, licensing, litigation or sale to the a third party, can be enormous. “Real men (and women) do patents.”

By contrast, copyright is the most plebian of IP rights. In today’s service-based economy, large numbers of employees are creating multiple copyright works every day. The value of any single work protected by copyright is generally low and well-nigh impossible to measure. As for the clever employee who came up with that unforgetable slogan, true, we can pinpoint the discrete slogan at issue, but the brand value of the slogan derives from the connection between that slogan and the goods or services of the company, not because of the intrinsic value of the slogan itself. No matter how creative a company’s in-house brand-creating “Mad Men” might be, talk of additional compensation in such circumstances is simply folly.

At a first glance, policy considerations would not seem to be to the contrary. The argument is that patents do the heavy lifting of innovation. To the extent that innovation becomes a matter of national concern (and indeed, where is this not the case?), it is in the national interest to take reasonable steps to optimize the use of employee incentives to invent. Creative works and catchy slogans do not rise to the level of being a material driver of innovation. As such, there is no interest in possibly imposing upon employers arrangements for providing incentives via additional compensation to the creative employee. No compelling national interest is present.

And yet—is all the foregoing necessarily true? This Kat would like to offer several reasons why the answer may not be categorically “yes”.

1. The argument can be made that the patent compensation system for employees is an artifact of the historical time in which these arrangements arose, namely the apex of the industrial age. The relevant legal framework was therefore developed within the context of a certain period, where patents were the undisputed IP king. Creative works were of no or little commercial significance.

2. However, this is not the case today, where creative works also contribute materially to innovation. At the most graphic level, our world is an increasingly digital one, and digital rights are protected first and foremost by copyright. Discriminating against creative works in favour of patents with respect to possible additional employee compensation might distort incentives for innovation and thereby work against the national innovation interest.

3. Inventions are ever more the result of collaborative efforts. Where the number of inventors increases, the underlying romantic notion of inventorship — the solitary inventor — becomes an anachronism. With this change, the ultimate justification for additional employee compensation becomes less compelling.

4. But there is a push-back here. Even if one accepts these claims, the practical problem still remains. Employee Mr Smith, and his contribution to the stock of patented inventions owned by the company, can be readily identified. The same cannot be generally said with respect to creative works, where teams collectively create the ultimate final work. It is one thing to have a single digit number of inventors contributing to an invention, but it is quite another to identify everyone who created the software code.

And so, permit this Kat to make a heretical suggestion. Perhaps all statutory and judicial attempts to impose an employee compensation system, whatever the IP right, should be abrogated. This does not preclude employers from reaching private arrangements with their employees; indeed, such contractual agreement might be critical in maintaining talented employees. In so doing, however, incentives are brought down to the private, consensual level, rather than being imposed on high.

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