Employee inventions and supporting innovation

The Finnish world of intellectual property rights is governed by a few rules of thumb. Firstly, the rights to intellectual property typically belong to the individual who created it. Secondly, such rights do not automatically transfer to an employer or any other company. And finally, despite the fact that the rights do not transfer automatically, the holder of the exclusive right can, if they want, transfer the right to another, either partially or completely.

Naturally, the list is not exhaustive and these rules are supplemented by a host of exceptions. However, due to their wide-spread effects, these basics should be familiar to everyone working with innovation, regardless of their title or educational background. Even so, as the due diligence processes in transactions reveal time after time, the reality is very different.

From legislation to invention policy

Finland, like the other Nordic countries, has a specific act on employee inventions. It sets out how and when an employer is entitled to claim the rights to an employee-made, patentable invention.

Despite the relative straightforwardness of the wording of the act, it conceals a variety of minute details that can have wide-spread practical effects. For example, the act states that in order for the provisions of the act to apply, an invention must be “patentable”. In order to fulfil this requirement, the employer does not actually have to patent the relevant invention; it is typically enough that the employer begins to use an invention that could be patented. Therefore, the employer cannot, for example, avoid its obligation to pay a reasonable compensation for the employee who created the invention by merely taking the invention into use, but purposefully leaving it unpatented.

Once you have worked your way around the scope of the act, the setup is this: the original rights to the invention belong to the innovator-employee. However, subject to certain conditions, the employer is entitled to claim the rights to the invention, either partially or completely. Procedurally, it can be said that employees have the statutory obligation to report their inventions to the employer and the statutory right to receive reasonable compensation if the employer uses its right to claim the invention.

Although the act sets out provisions on the preconditions, procedures, extent and terms under which the employer can assume the rights to an invention created by its employee, many of these provisions are non-mandatory by nature. As a result, many aspects related to employee inventions can be agreed on in a way, which supplements the legislation or even deviates from it. It is especially these non-mandatory aspects that create the opportunity – and the need – for companies to organise their employee invention processes so that they support the company’s business operations in the best way possible.

As a result, each organisation’s internal instructions on employee invention procedures form the backbone of a carefully executed innovation process. These procedures and measures are usually compiled into an employee invention policy (“invention policy”). Such an invention policy is meant to, among others, highlight the significance and importance of employee inventions, and create efficient and transparent procedures, which ensure that not only do employees report their inventions to the employer without hesitation, but also receive appropriate compensation for them.

Each organisation’s internal instructions on employee invention procedures form the backbone of a carefully executed innovation process.

A well drafted invention policy encourages innovation

A well drafted invention policy includes transparent, efficient and comprehensive instructions on how employee inventions are handled within the organisation. In practice, such a policy is also a strong message to employees that the company holds innovation in high regard and sees it as something worth rewarding.

As a result, an organisation’s invention policy can, in itself, encourage employees to innovate and can help create and maintain a corporate culture that appreciates innovation. When drafted correctly, an invention policy can also lower the threshold of reporting inventions (thus increasing the amount of reports and reducing the amount of work related to such reports), make processing reports more efficient, improve decision-making transparency, and reduce disputes related to compensation.

At the end of the day, by drafting an invention policy and ensuring that employees are aware of it, companies can ensure that employees do not hesitate to report the results of their innovative work or the inventions itself to the employer.

“An organisation’s invention policy can, in itself, encourage employees to innovate and can help create and maintain a corporate culture that appreciates innovation.”

Can an employee invention remain unrecognised?

In practice, many inventions created by employees can remain unrecognised. This may be due to, for example, the fact that the employer and employee are not sufficiently aware of the inventions created within the company, or they do not recognise their worth. On the other hand, the employer should not focus too much on whether the invention is an employee invention or some other type of innovation. The only truly important thing is that the employer is aware of all the results of its employees’ innovation work. In order for all inventions to become known to the employer and for the employer to be able to assess such inventions, employees should be encouraged to report all the results of their inventive work to the employer. The employer has plenty of time to evaluate the true nature of an invention once it has been reported to it.

Therefore, it is crucial that the organisation provides sufficient training on employee inventions and other innovation. In order for employee inventions to be created and recognised, the employer must ensure that every employee has at least basic-level competence in recognising and reporting employee inventions and other innovation results. A basic level of knowledge is achieved by first using the invention policy to create clear processes and then training the employees on these processes.

Who defines ‘reasonable’ compensation?

As shown by the rulings of the statutory Employee Invention Committee, which issues opinions on the application of the Act on the Right in Employee Inventions, the employer and employee may have different opinions on fair compensation. In practice, such differences of opinion lead too often to unnecessary disputes. In order to prevent such disputes, the invention policy drafted by an organisation should clearly set out how “reasonable compensation” is determined.

The above mentioned act states that when determining the reasonable compensation for an invention, particular attention should be paid to the value of the invention and the scope of the right which the employer acquires. Additionally, the employer should take into account the employee inventions related terms and conditions of the employment agreement as well as the contribution which other circumstances connected to the employment had to the conception of the invention. Despite this lengthy list of statutory requirements, the employer is left with plenty of latitude to create compensation practices that work for its organisation.

From act to agreement – a labour law perspective

When drafting employment agreements, it should be kept in mind that employment inventions and the transfer of rights related to them deviate from other intellectual property rights created within the employment. When dealing with inventions, an employee cannot give up their right to separate compensation for their invention prior to the actual creation of the invention. An employment agreement term saying otherwise is void.

In many other respects, the Act on the Right in Employee Inventions is non-mandatory by nature and leaves room for negotiations between the employer and employee. However, especially in cases where the organisation’s invention policy deviates from the non-mandatory starting point of the legislation, the parties must explicitly agree on the employee’s obligation to abide by the invention policy in, for example, the employment agreement. The employer’s unilateral notification that the invention policy applies is not enough to bind the employee to a provision in the invention policy that deviates from a statutory provision.

Even despite an express agreement, a court of law can amend an agreed compensation if conditions have materially changed. Additionally, a court can also otherwise adjust the terms of an agreement on employment inventions if the court finds them unreasonable. For example, this can happen if standard compensation set out in the applicable invention policy is not, in a particular case, objectively deemed to be reasonable.

From IPR rules of thumb for innovation

In the spirit of the IPR rules of thumb mentioned at the very beginning of this article, the aim for an organisation’s innovation work could be summarised as follows: Through comprehensive instructions and training, the company actively strives to support and increase innovation by its employees. When doing so, the company acknowledges that the rights to these innovations do not belong to nor are they transferred to it automatically. Due to this, the company systematically ensures that every employee is willing to, knows how to, and is obligated to report their innovations to the company and to transfer to the employer the rights related to them as extensively as possible.

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