THE BLOG

An Introduction: Hired to Invent and the Shop Right Doctrine

04/15/2014 12:33 pm ET | Updated Jun 15, 2014

An engineer or other talented person may design and patent or protect by trade secret a valuable technology. If this person has been "hired to invent," the employer frequently owns the invention in the absence of a contrary employment contract provision. If she was not hired to invent and the project is outside of her scope of her employment, she may own the invention.

Employment contracts may contain a broad job description such as "design engineer." Is this person "hired to invent" and what projects, if any, are outside of the scope of employment? Regarding the "scope of employment," a necessary understanding is if the employee were hired to generally be creative, to undertake a specific research and development project, or to do routine tasks not requiring inventive creativity. Employers have the strongest legal claim on the product of a specific project. Hired to invent legal disputes are fact specific and often hinge on express or implied contracts.

Even if the employee would otherwise own the invention, the "shop right" doctrine may apply. If she used the employer's equipment and resources to create the invention, the employer has the right to use the invention without being liable for patent or intellectual property infringement. The employer may not sell or assign the right to use to a third party. In legal terms, the employer has a royalty free, nonexclusive and nontransferable license. If the employer is a large manufacturer, the inventor may lose millions of dollars in potential royalty payments. This is the essence of the shop right doctrine.

Many creative individuals are transient employees or independent contractors. In a previous comment concerning home created inventions, I listed factors that courts consider in distinguishing employees and independent contractors. In one case, a candy company obtained a shop right to use a chocolate spray pump created in the candy company's plant by an independent contractor engineer who was working for a third party separate from the candy company (Crowe v. M&M Mars). This illustrates the potential reach of the shop right doctrine.

If the employer's supplied equipment only consisted of a laptop computer and/or cellphone, is this sufficient to trigger a shop right? Conventional wisdom cautions the inventor from utilizing any employer owned location or items, however trivial, when engaged in personal projects. Precise employment contract language, frequently missing in litigated disputes, may resolve these questions. Detailed analysis of the sequence of events, conversations, course of conduct, and implied understandings are important but these facts are frequently in dispute. If a team moves a project forward from conception to manufacture, are all the individual team members contractually bound for all of their activities or only some actions? Affiliated individuals such as interns, suppliers, and advisors complicate the situation. An employment contract with one individual may be inadequate.

A related issue involves the extent to which the transient inventor may utilize the experience learned from the current project on future projects. The "inevitable disclosure doctrine" may allow the current employer to prevent the inventor from working for competitors under the theory that currently protected trade secrets would be used on a new assignment. A contrasting public policy reasons that one should always be free to use acquired skills and experience. Courts must balance the two concepts. Broadly speaking, legal doctrines should encourage innovation and the economic investment required to actualize ideas. As I have previously commented, a more systematic and unified intellectual property law might better serve our complex manufacturing and post-manufacturing economy.

As previously indicated, the frequent practical solution is a carefully created and signed employment contract or contracts. A few states have legislation granting employees at least some rights to their inventions and restricting pre-invention assignments. However, many states have no particular restrictions on pre-invention contracts. In 2012 the Wyoming Supreme Court upheld an agreement in which the employee assigned all intellectual property developed during employment. The employee signed the agreement after being employed. The court wrote that because of employment-at-will, no new consideration need be granted by the employer since the employee could quit if he did not like the agreement (Preston v. Marathon Oil Co.).

If a pre-invention contract is not restricted by law, the contractual language is critical. Precisely what categories of intellectual property rights (such as patents, copyrights, trade secrets, etc.) are being transferred for what purposes and duration? Is the transfer a right to use (license) or a transfer of ownership? Does the inventor or team retain any residual rights? Are there any limitations on how the transferee may use the invention? What occurs if future technologies converge or overlap? What is the time period of the agreement and are there any reversionary interests that may benefit the inventor? What is the status of outlined but undeveloped ideas, works in progress, collateral and derivative works? These are a few of many considerations.

Employers, employees, and independent contractors should beware of utilizing a standardized form. It may be incomplete or not appropriate for your situation. Additionally, lack of planning or relying on unarticulated assumptions may be disastrous. The services of an experienced attorney are essential in the situations under discussion.