Editors Note: Kevin E. Flynn is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A. This is the second of a two part series directed to address several traps for inventors that want to retain rights to their off-hours invention. For those who have not read the first installment, this installment repeats the material necessary to set the stage.
PartOne: www.localtechwire.com/article.cfm?u=8759 In the beginning, you have all the ownership rights.
You are a creative person. Your mind is working all the time, even when not at work and even about things fairly removed from what you do at work. A few months ago, you had a great idea. Absolutely brilliant. Many companies will want to license this idea, even your current employer.
After calling your spouse’s second cousin, an attorney in California, you feel comfortable that your current employer cannot claim ownership of your invention. It is clear sailing now.
Three traps that can cause a loss of rights
Assuming that your spouse’s second cousin was right, you are in a good position but you are not safely home yet. There are a number of traps.
The first installment of this series discussed the potential trap of obtaining an unplanned co-inventor and the potential trap of overreaching exit papers. This installment addresses the third potential trap…shop rights.
3. Shop Rights
Fact Pattern: In order to expedite the development of the prototype of a novel machine for use in a warehouse, you tap skills that are rusty since you do not use them at this job. You find an empty office and use your employer’s computer aided design (CAD) software to draw up the drawings for your invention. As you know one of the supervisors in the machine shop that makes prototypes for your employer, you are allowed to use the equipment and stock material during the shop lunch break to build your prototype.
After you complete the prototype, you proudly show it to the warehouse manager for your employer. You are pleased when the company asks to use your prototype. You subsequently provide your CAD drawings to the machine shop so that additional machines can be made and so other machines can be modified to cooperate with your new machine.
Eventually you obtain a patent and then seek royalties from your employer for the employer’s use of your patented invention.
Result: This fact pattern raises an issue of “shop rights.” Shop rights arise under a notion of equity. The Supreme Court decided long ago that in some instances that fairness requires that the employer obtain a right to use the invention as the employer had partially financed the development through use of equipment, materials, and wages paid while people worked on this invention. In this case the wages went to you while you made phone calls and wrote emails during work hours in furtherance of your efforts to develop the invention and the wages paid to others to make the additional machines. In this fact pattern, you encouraged or at least allowed your employer to expend resources and adapt other machines to operate in conjunction with your machine. You acquiesced to the continued use of the machines. It would now be unfair to require the employer to remove these machines and thus scrap the money put into them.
The remedy is to give the employer a limited right to continue to use the invention to the extent that you previously allowed it. This allows the employer to continue without suffering but does not allow the employer a more generalized right to greatly expand the use or to license others.
If your actions lead to the creation of shop rights for one company out of a thousand that might license your invention or buy licensed products, then this may not be important. In contrast, if your invention is only going to be of interest to several companies, then this might be significant. Not only would you be unable to collect royalties from one of the small pool of companies, but you may find that a company interested in obtaining a monopoly for the use of your invention is not willing to pay as much for the patent since the patent will come with an irrevocable license for one of their competitors to continue to use the invention.
Ways to Avoid this Trap: The notion of Shop Rights was created by the courts rather than by the legislatures of the individual states. The original cases had both elements, use of employer’s resources to develop the invention and inducing or at least acquiescing to the employer’s use of the machine without discussing that you would ultimately seek patent royalties for subsequent use. While it is a good idea to minimize the use of employer resources (use a separate email address, separate computer, do not use any machines or materials from work, et cetera) the real emphasis is on the induce/acquiesce pattern. Thus, the doctrine of shop rights is often extended to a generalized concept of equitable estoppel that extends to any company that uses your invention with your knowledge and at least implied permission. So if you encourage your spouse’s employer or your friend to use your invention in their businesses, you run the risk of creating a license to continue to use the invention unless you make it clear (preferably in writing) that you will expect them to pay royalties after a patent issues for this invention.
Writer’s note: In order to keep this article short, I am forced to avoid getting into fine details, exceptions, and nuances. Thus, this article is not meant to be definitive legal advice, even if my fact pattern bears an eerie resemblance to your facts. The purpose of this article is to try to steer you clear of these three traps so that you do not need to litigate these issues and learn the hard way the various fine details, exceptions, and nuances.
Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Kevin Flynn provides guidance to clients on a range of patent and other legal issues. Kevin has been elected into Business North Carolina’s “Legal Elite” by the votes of North Carolina lawyers. Questions or Comments can be sent to firstname.lastname@example.org