The patent for a piece of innovative IT software developed by an employee whilst working at the Stock Exchange belonged to his employer, the Court of Appeal controversially ruled recently (Liffe Administration and Management v Pavel Pinkava and De Novo Markets Ltd ([2007] EWCA Civ.217). This recent case raised important issues about the ownership of intellectual property rights and in particular creative work done by staff in the course of their employment but not related to their formal duties. This case is one of the first to test these types of issues at Court of Appeal level. It provides us with an opportunity to compare the positions in England and France relating to the ownership of an invention created by an employee.

In the United Kingdom, pursuant to the Patents Act 1977 (“PA 1977”), s 39(1)(a), an invention made by an employee belongs to the employer provided it is made in the course of the employee’s normal duties, or in the course of duties falling outside his normal duties but specifically assigned to him, and in circumstances from which an invention might reasonably be expected to result. Under s.39(1) (b), the invention belongs to the employer if the employee was required to further the interests of the employer’s undertaking.

The Court of Appeal’s approach was to look at Mr. Pinkava’s job description to determine whether research into software which allowed the trading on an electronic exchange of various types of swaps (financial instruments), formed part of his duties. In this given instance, the Court held that the circumstances were such that an invention may reasonably have been expected to result from Dr Pinkava performing the duties assigned to him under his employment contract. The reason for this included Dr Pinkava’s acknowledged ability to devise solutions, which were far from obvious, and the fact that the assigned task was not straightforward and was likely to require an innovative and creative approach. Moreover, whether or not s 39(1)(a) applies is not determined by the size of the invention itself. Further, Dr Pinkava had already patented the invention in the US and set up a company to hold and manage the patent; Dr. Pinkava had already assigned 4 patents to De Novo Markets (a company set up by himself), hence their involvement in this matter. It is important to realise that the particular products at stake in this case were not capable of being patented in the EU, and only US patents were applied for.

Under French law, article L. 611-7 of the French Intellectual Property Code states that the ownership of the intellectual property rights associated with an employee’s invention, in the absence of any contractual clause which is more favourable to the employee, is determined by the following rules, distinguishing 3 categories of inventions:

1/ Inventions that are made in the course of an employee’s normal duties (inventions de mission), i.e. those made by the employee in the course of an employment contract comprising a mandate to invent connected to other functions that have been explicitly entrusted to him. Inventions that fall under this first category afford the employee no rights over the related intellectual property, but may give rise to compensation.

It might be concluded that French law is more generous towards the employee. In light of the position adopted by Courts in France, the recent decision of the Court of Appeal in England would appear harsh, since under English law the employee would not receive any form of compensation as he does not own any rights. Further, the definition of what constitutes a normal duty is now particularly wide in England & Wales. Whilst the judge at first instance deemed that Dr. Pinkava’s IT assignment that eventually led to his invention fell outside the scope of his normal duties, but that he had been specifically commissioned to work on this idea, the Court of Appeal held that it was wrong to confine normal duties to everyday activities. Dr. Pinkova’s employment contract provided that he should be flexible in his approach to work. The Court found that “extra or different duties” from those initially envisaged under the employment contract were not to be regarded only as duties “specifically assigned”, since it was quite possible for them to become “normal” over time. Accordingly, the Court concluded that all of Dr. Pinkava’s inventions flowed from ideas which had come to him during the performance of normal duties. Whilst It is true that the qualification of a task as “normal” or as “specifically assigned” is somewhat academic, in that both qualifications lead to the same conclusion (i.e. that the rights in the invention belong to the employer), it does nonetheless illustrate how employer-friendly the courts in England are becoming in this area, which, once again, contrasts with the position in France.

It should be noted at this juncture, however, that the Patents Act 2004, large parts of which came into force in late 2004 and early 2005, sets out the precise criteria under which an employee’s right to compensation is to be assessed. The relevant provisions are incorporated into s.40 of the PA 1977. The result is as follows: an employee may be awarded compensation for his invention (s.40(1)) if it appears, having regard to the size of the employer’s undertaking, that the invention and the patent are of outstanding benefit to the employer (s.40 (1)(b)). Under s.40(2) compensation may also be awarded where a patent was granted to the employee, but the patent was then assigned to the employer. In reality, compensation will not be that easy to obtain. The relative bargaining power of the parties will play a key role, and an individual employee is unlikely to have much chance of success.

It is interesting to note that following public consultation prior to the introduction of the new Act, very few respondents were in favour of making wider changes. There is a widely held sentiment that if employees were granted more rights in this field, it would have a negative impact on Research and Development and on industry in general. The decision of the Court of Appeal in Pinkava is therefore entirely consistent with this view, and not at all surprising in this context.

2/ Inventions made outside the employee’s normal duties (inventions hors mission attribuable), i.e. those made by an employee during the execution of his functions, or in the field of activity of the company or by the use of knowledge or technologies or data acquired by the company, are subject to a right by the employer. The employee is entitled to compensation. This right can be total, partial or may be governed by means of a licence agreement. Caselaw establishes that an invention may be considered as falling under this category even though a clause of the employment contract prohibits the use of the company’s technologies. Both employee and employer may enter into an agreement to forgo this right, but only once the invention is made – and therefore once the right exists.

For this reason it is customary in France, but not in England, for co-owners of a patent to enter into a co-ownership agreement in order to specify, in particular, the terms and conditions for the granting of a licence to third parties. In the absence of such an agreement, statutory provisions apply. Each co-owner of a patent may grant non-exclusive licences, subject to him informing the other co-owners and providing fair compensation to those who do not personally use the patent or have not granted any third party licence. But the other co-owners may object to the proposed licence. However, it is possible for the parties to draft a co-ownership agreement to override the pre-emption rights. Also, the French Code of Intellectual Property prohibits the granting of an exclusive licence without the prior agreement of all co-owners or a judicial authorization.

3/ The employee is the only owner of all other inventions, provided that the employer cannot establish that it falls under either of the above-mentioned categories.

Interestingly, an agreement between the employee and his employer concerning an invention made by the employee must under French law be in writing otherwise it may be declared null and void. Also, the employee is under an obligation to inform his employer that he has invented something and the latter shall confirm receipt of such letter.

This case adds another lawyer to the growing body of caselaw on patent ownership. The upshot of this Court of Appeal ruling is that companies need to measure the importance of setting out detailed job descriptions and titles as well as specific provisions with regards to any intellectual property that may arise out of both normal and specifically assigned duties. Accordingly, we would advise companies, whether under French or English law (albeit for different reasons), to carefully draft any clauses that relate to the creation of inventions that may arise during the course of employment.