Billions in Litigation over the Employee Invention System? Essential Response Strategies for Companies Expanding Abroad

Under Article 15(6) of Korea's Invention Promotion Act, an employee who has assigned the rights in an employee invention to the employer has the right to receive ‘fair compensation.’

The amount of compensation is determined by considering the profit the employer will gain and the respective contributions of the employer and the employee to the completion of the invention.

The Supreme Court held that the profit the employer will gain refers to the profit obtained through exclusive and monopolistic exploitation beyond a non-exclusive, royalty-free working right (Supreme Court, 2009 Da 75178).

The courts generally use the following structure.

• Calculation of total sales
• Application of a hypothetical royalty rate
• Reflection of the contribution rate of the exclusive right

This structure is theoretically refined, but it has the limitation that, from a company's perspective, it is difficult to predict the precise amount of compensation in advance.

Japan has a structure similar to Korea's.

Under Article 35(7) of the Japanese Patent Act, compensation takes into account the profit the employer obtained, the employer's burden and contribution, the treatment of the employee, and other circumstances.

Japanese courts regard only the ‘excess profit’ the employer obtained beyond a non-exclusive working right as the basis for calculating compensation.

In practice, a method of calculating sales × excess sales rate and then applying a hypothetical royalty rate to that result is used.

In the past, Japan saw a series of large compensation judgments, and as a result companies substantially overhauled their employee invention regulations.

Article 40 of the UK Patents Act provides that employee invention compensation requires that the following two conditions be satisfied.

• The invention provides an outstanding benefit to the employer
• The compensation is fair

Key Precedents

• Kelly and Chiu v. GE Healthcare Ltd. (2009)
• Shanks v. Unilever Plc (2019)

The UK Supreme Court has recognized an ‘outstanding benefit’ by comparing the contribution of the invention against the company's overall profit.

In the United Kingdom, instances in which compensation is recognized are themselves rare, and the structure is regarded as business-friendly.

The United States has no separate statute on employee inventions, and the key is the principle of freedom of contract.

Accordingly, companies commonly include a prior assignment clause in the employment contract and stipulate that compensation is included in the salary, so they generally do not provide separate compensation.

In the 1978 case of Mosser Indus. Inc. v. Hagar, it was held that paying only one dollar as compensation for an employee invention was valid.

In this way, the United States has an employer-centered structure, and disputes come down to a matter of contract interpretation.

Germany is one of the countries with the strictest system for protecting employee inventions in the world.

Under Article 9 of the German Employee Invention Act, employee invention compensation = the value of the invention × the employee's share rate is the basis of calculation.

• Value of the invention → sales × standard royalty rate
• Share rate → comprehensively considering the contribution to setting the task, the contribution to its solution, position, and the like

The German Federal Court of Justice held that where there is significant unfairness, a compensation agreement may be recognized as invalid (Judgment of November 12, 2024).

Germany is the country that requires the most management from a company's perspective.

For an invention to be legally recognized, the following requirements must be satisfied.

① Industrial applicability: the technology must be capable of being used repeatedly in industry, and an idea at the theoretical or experimental stage is insufficient.

② Novelty: it must not be identical to technology disclosed at home or abroad before the filing.

③ Inventive step: it must be at a level that a person ordinarily skilled in the relevant technical field could not easily derive.

④ Satisfaction of the specification requirements: the content of the invention must be described clearly and specifically so that a third party can reproduce it

The employee invention system is an area of management risk directly connected to a company's intellectual property strategy.

Through a collaborative system of attorneys handling intellectual property matters, attorneys handling corporate matters, attorneys experienced in analyzing foreign legal systems, and patent attorneys, Daeryun Law Firm provides the following one-stop legal services.