Employee inventions: The right to be recognised as inventor and the right to reasonable remuneration
Frostating Lagmannsrett recently delivered it’s judgement in the case of Arthur Lyngøy v Stim AS / ACD Pharmaceuticals AS. The decision is an important one concerning the rights employee inventors in relation to inventions created in the course of employment. It provides guidance on two key issues: (i) who has the right to be named as an inventor in relation to employee inventions; and (ii) the what factors are taken into account when considering the employee’s right to reasonable remuneration in return for the transfer of rights in the invention to the employer. The decision provides rare guidance on the application of §7 Arbeidstakeroppfinnelsesloven (Law on Employee Inventions), which entitles employee inventors to reasonable remuneration “rimelig godtgjøring’. It also serves as a reminder to employers that an employee inventor’s right to reasonable remuneration cannot be limited or waived by contract and will apply even in circumstances where the employee is exclusively employed within research and development.
The ownership of rights in employee inventions is an area in which the fundamental principles of intellectual property law and employment law collide. Firstly, from an intellectual property perspective, it is the creator of an intellectual property right who is the first owner of the rights to it. This conflicts with the basic employment law principle, that an employer who has funded and facilitated the creation of the invention should have the right to own it. The compromise position is that employees are afforded the right to reasonable compensation in return for the transfer of rights to their employer. This is the background to the Arbeidstakeroppfinnelsesloven and equivalent provisions in other jurisdictions.
Arbeidstakeroppfinnelsesloven (Law on Employee Inventions)
The rules set out in Arbeidstakeroppfinnelsesloven will apply in respect of inventions which are, or were; (ii) patentable in Norway at the date of creation; and (ii) created during the course of employment. There is no requirement for a patent application to be submitted, only that the invention would technically have been patentable. The law does not apply to inventions created by non-employees such as consultants and suppliers and also does not apply to other intellectual property rights such as designs, trademarks, and copyright.
In most cases, the employment contract will contain an express provision which transfers the ownership of any intellectual property rights created in the course of employment to the employer. If there is no express provision in the employment contract, then the provisions of §4 Arbeidstakeroppfinnelsesloven will apply to determine the scope of rights which can be transferred to the employer. The scope of rights transferred will depend on; (i) whether the invention lies within the scope of the employer’s business interests; and (ii) the degree of proximity between the employee’s role and the invention.
However, many employers are less familiar with the §7 Arbeidstakeroppfinnelsesloven, which entitles an employee inventor to reasonable remuneration, ‘rimelig godkjøring in return for the transfer of rights’. §7 cannot be limited or excluded by contract and is particularly relevant in cases where a patentable invention goes on to be a commercial success. The aim is to provide the employee inventor with a share of the commercial success which their invention has afforded their employer.
ACD Pharmaceuticals AS (“ACD”) specializes in the development and sale nutritional products and vaccines for aquaculture. In 2003, an American company, MariCal, developed a method for increasing the effectiveness of the smoltification process in salmon fry. The drawback of the process was that it required excess amounts of salt to be added to the water. In 2008 MariCal was acquired by ACD who took over the global rights to the technology.
Arthur Lyngøy, studied veterinary and has many years of experience in aquaculture. He was employed by ACD in a primarily research and development role, to lead a project with the aim of identifying and developing a fish feed product with an optimal ion balance to avoid the need for additional additives in the water. His employment contract with ACD contained a clause which referred to a 3% royalty to be calculated based on net turnover generated from the sale of any products for which he had been responsible for developing. The clause went on to provide that the products in relation to which the royalty applied would be agreed in writing between Arthur Lyngøy and ACDs board of directors.
Arthur Lyngøy identified the correct composition of fish feed formula and the product, known as “SuperSmolt Feed Only” (“SSFO”) was developed. In September 2014, ACD filed an initial patent application in the US for SSFO, which was followed then by three European patent applications. Arthur Lyngøy was named as a co-inventor in the patent applications together with Jim Roger Nordly, the owner of ACD and STIM, and Claudio Retamal, who manged the testing process and research team in Chile.
Arthur Lyngøy later bought a claim for: (i) determination as to who was entitled to be named as inventor on the patent applications; and (ii) payment of reasonable remuneration for the invention, in accordance with the royalty provision in his employment contract, or alternatively in accordance with §7 Arbeidstakeroppfinneslesloven. The case was referred to the Mediation Tribunal for Employee Inventions in 2019, where unusually mediation was not successful.
In May 2020, Ålesund Tingrett ruled that Arthur Lyngøy’ was entitled to be named as the sole inventor on the patent applications and awarded him a sum of 7 million NOK based upon the royalty provision in his employment contract. The court did not address the issue of reasonable remuneration in accordance with §7 or how such an award would be calculated.
The Appeal Decision
Frostating Lagmannsrett upheld the decision to name Arthur Lyngøy as the sole inventor on the patent records. It provided a useful summary of what level of individual contribution is required to be named as inventor. The court ruled that an inventor must have contributed independently and intellectually to the subject matter of the invention, in this case the actual composition of the fish feed formula. Merely following testing procedures in accordance with instructions, collecting and recording data, and contributing to the administrative management of the process was not a sufficient contribution, nor was the provision of financial support and use of contact and sales networks. ACD were directed to make the relevant application to the Patent registers to amend the records of inventorship.
This serves as important guidance for employers, as it can be common practice to name R&D managers, CTO’s or other management employees as co-inventors on a patent application. The question to be asked when drafting the patent application should be whether the individual to be named as inventor has actually contributed to the invention.
Calculation of ‘reasonable remuneration’
In looking at the level of compensation to be awarded to Arthur Lyngøy, Frostating Lagmannsrett applied a strict interpretation of the royalty provision in the employment contract. They ruled that there was a clear requirement for a separate written agreement specifying the products for which the royalty was to apply. Such an agreement had not been entered into and therefore there was no contractual claim. The case then turned to the question of reasonable remuneration in accordance with the background law.
§7 Arbeidstakeroppfinneslesloven sets out four factors which may be taken into account when considering the level of reasonable remuneration to be awarded to an employee inventor: (i) the value of the invention; (ii) the extent of the rights which have been transferred to the employer; (iii) the employee’s terms and conditions of employment, including remuneration; and (iv) the significance of the employee’s role in the development of the invention. The preamble to the law provides that in considering the value of the invention, the correct value to be applied is the ‘actual objective value of the invention in the market’ and not the subjective value of the invention to the employer.
In this case, in the period from 2015 to 2020, the SSFO product had generated turnover of approximately 250M NOK. The validity of the patent had been tested in the Norwegian courts and validity had been upheld. This meant that the patent was regarded as strong and having a significant blocking effect in the market. However, the market value of the patent was not the only thing to be considered.
Arthur Lyngøy was specifically hired by ACD into a research and development role. Where the inventor’s is primarily employed in a research and development role, a lesser proportion of the invention’s value is usually awarded under §7. This is on the basis that the employee is specifically compensated for their research and development activity through their salary and benefits. Referring to legal commentary, the appeal court outlined that the usual starting point in measuring the level of compensation in such cases was the employee’s annual salary. There is, however, an exception to this general principle in cases where the invention has resulted in a significant financial benefit for the employer.
In this case Arthur Lyngøy’s annual salary when he finished working at ACD was 930 000 NOK. His work led to the development of a new product which was described by ACD itself as a complete ‘game -changer’ in the market. It had generated high levels of turnover for ACD and the patents protecting the invention had been actively defended by the company. The appeal court, using its discretion, awarded Arthur Lyngøy a sum of 3 million NOK in compensation.
The case serves as a reminder to employers of the importance of having the correct procedures in place to record and manage employee inventions, to record ownership and identify the correct inventors. It also serves as a reminder that an employee’s right to reasonable remuneration for patentable inventions which are transferred to the employer, is not a right which can be waived or limited. It is also a right which will still apply in the case of employees specifically employed in R&D roles. In many cases having an employee inventor bonus or reward scheme in place can not only help to resolve any claims at an earlier stage and on a more amicable basis but can also act to stimulate innovation and build a culture of innovation.
For more information on recording and managing employee inventions and developing inventor reward schemes please contact Emma