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Inventions by employees

From Dr. rer. nat. Dipl.-Chem. Martina Winter, patent attorney,
and Dipl.-Ing. Klaus Lewandowsky, patent attorney

1. What is the Employee Invention Act (ArbEG)?

The ArbEG serves to balance the interests of an employee who has made an invention and his employer. When an employee makes an invention, he as the inventor initially has all rights to his invention. The employee could therefore use, license or sell his invention himself. Often, however, the employee's invention goes back to his tasks and experience in his employer's company, and the employer has an economic interest in using the invention made in his company there too.

The ArbEG now regulates whether and how the rights to the invention are transferred from the employee to the employer. After the rights to the invention have been transferred to the employer, he can exploit the invention in his company at will, e.g. use, license or sell it. In return, the employer is generally obliged to register a patent for this invention. As compensation for the transfer of his inventor rights to his employer, the employee is entitled to appropriate financial remuneration if the employer achieves financial advantages with a granted patent resulting from this invention, e.g. in the form of sales, license income or sales proceeds.

2. When is the ArbEG to be used?

The inventions and technical improvement suggestions of employees in the private and public service as well as civil servants and soldiers are subject to the ArbEG. That means:
Inventions within the meaning of this law are only technical ideas that can be patented or utility models. The ArbEG differentiates between service inventions and free inventions.

Technical suggestions for improvement within the meaning of this law are only those technical ideas that are not patentable or suitable for utility models.

The ArbEG does not apply to services that can be protected by copyright such as texts or drawings, services such as product designs, the development of labels such as product or company names and non-technical suggestions for improvement such as business methods.

An employee within the meaning of the ArbEG is understood to mean an employee employed in the private or public sector who is obliged to work for his employer in a personally dependent position and who is bound by instructions from his employer. These include, for example, blue-collar workers, employees, executives, trainees and working students. This does not include, for example, freelancers, graduate and doctoral students, managing directors, board members, but also contract workers.

3. What are a service invention and a free invention?

A service invention is an invention that arose during the duration of a service or employment relationship from the activity incumbent on the employee (task invention) or is based largely on experience or work in the company or public administration (experience invention). That means:
A service invention always exists if it can be assigned in the broadest sense to the technical branch in which the employer is active. Here is an example: If the employer's company develops and produces electronic controls for CNC machines, every electronic circuit or control is a service invention, regardless of whether it is intended for CNC machines or, for example, for wind turbines. A service invention is also always present if there is an employment or service relationship between the inventor and the company. It is completely irrelevant whether the idea for the invention occurred to the employee while he was at the company or in his private free time, e.g. while gardening or doing sports.

In contrast to a service invention is a free invention. Such a free invention was not created on the basis of operational experience, and it is also not part of the employee's area of ​​responsibility and does not represent a direct operational result of work to develop, and he makes an invention in the field of hairdressing, e.g. a new type of hair curler, this invention does not belong in the technical branch in which his employer is active, it did not arise from the tasks of the engineer at his workplace, nor is it based on the experience of the engineer in the company of his employer.

4. How are the rights to the invention transferred from the employee to the employer?

An employee who has made a service invention is obliged to report this to his employer immediately and separately in text form and to mark it as an invention report. The employer is then obliged to immediately confirm the time of receipt of this so-called invention disclosure to the employee in writing.

“Immediately” means: The employee must submit his invention disclosure as soon as possible after the invention has been completed.

"Separately in text form" means: The employee must submit his invention disclosure in the form of a separate paper or electronic document, which is entitled "Invention disclosure" and which can be read and, if necessary, also printed out. A purely verbal communication during the coffee break or a slip of paper lying between construction drawings, for example, are not valid invention reports.

It is important for the employee that he receives a confirmation of receipt as a printed or electronic receipt from his employer and that he keeps it carefully. If necessary, the employee should actively request confirmation of receipt.

If the employer is interested in the service invention, he does not need to do anything at first. If he remains silent for four months after receiving the invention disclosure, this silence counts as a claim on the invention by the employer. This means that all rights to the service invention are automatically transferred to the employer.

Of course, the employer can also explain to his employee in text form that he is making use of the service invention. From this point in time, all rights to the service invention are transferred to the employer.

On the other hand, the employer can also release the invention to his employee by means of a declaration in text form within the four-month period after receipt of the invention disclosure. In this case, the employee can do whatever he wants with his invention, e.g. he can apply for a patent or utility model himself, he can manufacture the object of his invention himself or have it manufactured and marketed.

If the employee is of the opinion that he has made a free invention, he must inform his employer of this by means of a declaration in text form. In this case, too, the employee should definitely get a confirmation of receipt. If the employer does not respond within three months of receiving the notification, the invention remains free.

If the employee wants to exploit a free invention himself, he must first offer his employer a simple license against payment of a reasonable license fee.

In this context, it makes sense for the employee to add a declaration to his notification that, in the opinion of his employer, it is a free invention and the employer is not interested in obtaining a license. The employee should immediately have his employer sign this declaration. Then he saves the three-month waiting period and can immediately use the invention himself.

If the employer assesses the allegedly free invention as a service invention, he must explain this to the employee in writing within the three-month period. Here it makes sense for the employer to explain the use of the invention right away.

5. What must be in the invention report to the employer?

In the invention report, the employee must describe the subject of his invention as precisely and, if possible, provide sketches and drawings so that the structure and function of the subject of his invention are clearly recognizable and comprehensible. As a rule of thumb, the employer must be able to recognize what the invention consists of and he must be able to assess whether it is a service invention and whether it makes sense to make use of it.

In the invention disclosure, the technical problem, for example a simplified structure, fewer components, lower maintenance costs or the like, must be specified, and the solution to this problem and the means that lead to this solution must be precisely described. Furthermore, the employee must provide information about how the invention came about, e.g. that he was given a specific development task from his superior or that he himself recognized how a product can be further developed based on his operational knowledge.

It is also advantageous if the employee reports the state of the art known to him, e.g. patent documents, articles or the like relating to the subject matter of the invention in his invention disclosure and, if possible, encloses copies of these documents immediately.

Finally, information about the inventor's own person such as name, address, position in the company and any co-inventors must be given in the invention report. In order to anticipate ambiguities or disputes in the event of any later remuneration, the shares of the individual co-inventors in the invention must be stated in percent.

Many companies offer ready-made forms for invention reports, either printed or in electronic form, in which all the necessary information is requested.

The employer can assert deficiencies, such as an unclear description or missing drawings, within two months of receiving the invention disclosure. Then the four-month period for the declaration of release only begins when the employee has given the employer an invention disclosure that is understandable for the employer. On the other hand, the invention disclosure is deemed to be correct if it is not objected to in due time. This means that the employer cannot subsequently complain that information that is important for him to understand the invention is missing.

6. Which property rights does the employer have to register and maintain for a service invention?

The employer is obliged to submit a patent application immediately after making use of a service invention in Germany. A utility model application is sufficient under certain conditions. This obligation to register does not apply if the employee consents to the non-registration or if the service invention is to be treated as a trade secret. In this case, the employer must recognize the protectability of the service invention. This means that the employee is treated as if there were a granted patent, with the consequence that he is entitled to fair remuneration as soon as the invention is used.

7. What is the inventor remuneration?

The employee is entitled to appropriate remuneration as soon as the employer has made use of the service invention. This remuneration is known as the inventor's remuneration. The inventor remuneration is a reward for the employee for having given his employer a monopoly right, namely a patent (or a utility model). The inventor's remuneration is not a wage or salary, but represents an additional financial contribution to wages and salaries and outside of collective agreements.

The payment of an inventor's remuneration is, however, linked to two further conditions. The first prerequisite is usually that the employer generates sales or other income from the subject of the patent or utility model, such as license income or sales proceeds for the patent or utility model. There is an exception to this: so-called blocking patents or reserve patents, which are strategically important for the employer but are not used by him, are remunerated after a certain waiting period of a few years despite not being used. Another prerequisite for the payment of an inventor's fee is the existence of a granted patent or registered utility model. However, remuneration is already paid if the employer generates sales or other income with the invention, but only a patent or utility model application exists. Then the amount of the remuneration is usually reduced by 50%. This is known as the risk discount. If the patent is granted later or the utility model is registered later, the risk discount will be reimbursed.

8. How is the inventor remuneration calculated?

The calculation of the inventor's remuneration practiced today is not based directly on the ArbEG, which only grants the employee the right to appropriate remuneration. Rather, the Ministry of Labor issued guidelines on remuneration as early as 1957, which are still in use today and are generally recognized due to this decades-long practice.

Depending on the nature and the way in which the invention came about, the calculation of the inventor's remuneration on the basis of these guidelines can be extremely complicated. Therefore, only the essential principles are explained below.

The basis of the remuneration calculation is the so-called invention value. The invention value corresponds to the purchase price or the license fee that the employer would have to pay a free inventor for using the invention.

In most cases, the invention is sold in the form of a product or service by the employer; the employer thus generates sales with the invention. Then the invention value is calculated in the form of the so-called license analogy. Quite simply, this means that the invention value corresponds to a certain percentage of the turnover achieved. This percentage is known as the royalty rate. The license rate depends very much on the technical field of the invention and on the industry in which the employer is active. If the license rate customary in the industry is, for example, 2%, the inventive value is equal to 2% of the turnover achieved. With a turnover of one million euros, the invention value is 20,000 euros.

The value of the invention is also dependent on the share that the invention has in the turnover achieved. A simple example would be a novel piston for a diesel engine, where the employer makes the piston, installs it in diesel engines, and sells them. The inventive value is now not calculated from the sales that are achieved with the diesel engines, but from a reduced sales, which corresponds to the value share of the piston in the diesel engine.

Once the invention value has been determined, the actual inventor remuneration is calculated in such a way that the invention value is multiplied by a proportional factor:

Remuneration = inventive value × share factor.

The share factor characterizes the performance that the employee had to provide due to his training, his experience and his position in the company when his invention came about. This means: An invention is, for example, a lower performance for a development engineer with many years of experience than for an assembly worker or craftsman. The development engineer is therefore given a smaller share than the assembly worker or craftsman. The assembly worker or craftsman receives a higher invention fee than the development engineer with the same invention value.

The proportional factor is made up of three numbers: A = a + b + c. These value numbers are determined by answering the following questions.

Value number a: Has the employee recognized the problem on which the invention is based (large value number) or was it communicated to him by a third party (small value number)?
Value number b: Did the employee come up with the solution to this problem and thus come up with the invention on his own (large value number) or did a third party provide suggestions (small value number)?
Value number c: Based on his training and his position in the company, could one expect the employee to be able to make such an invention (e.g. as a development engineer; small value number) or not (e.g. as an assembly worker or craftsman; high value number)?

If there are several inventors, the invention value is divided according to the percentage shares of the co-inventors in the invention and each share is multiplied by the personal share factor of the respective co-inventor in order to calculate the inventor's remuneration.

Experience has shown that the inventor remuneration is around 12% to 18% of the license fee that the employer would have to pay a free inventor.

If the employer does not generate any sales with the invention, but only uses, licenses or sells it in-house, it must be clarified in each individual case how high the value of the invention is set.

9. What is the arbitration board?

The arbitration board is an institution at the German Patent and Trademark Office. It is responsible if employers and employees have different opinions about the invention, its use and remuneration.The arbitration board has the task of bringing about an amicable agreement between employer and employee by examining the differing views of employer and employee and making a proposal for an agreement. If this settlement proposal is accepted by employer and employee, it acts like a court ruling. If the settlement proposal is rejected by the employer or the employee, the proceedings before the arbitration board have failed.

The arbitration board can be called at any time by anyone who is affected by the regulations of the ArbEG. However, in an emergency, an employer or employee can only go to court if proceedings have previously taken place before the arbitration board and the settlement proposal of the arbitration board has been rejected by both sides. Employers and employees bear the costs they incur themselves.

The arbitration board is also happy to advise employees and employers who get on well with each other on the application of the ArbEG and, above all, on the calculation of the inventor's remuneration, if it becomes complicated or the employer and the employee are inexperienced or unsure. In this way disputes or arbitration proceedings can be avoided and the peace of the company can be preserved.

It is important that the rights and obligations imposed on the employee and the employer by the ArbEG still apply if the employee has left the company or retired. This means, for example, that the employee may not withhold a finished or almost finished service invention from his employer when he leaves. This also means, for example, that an employer must also pay a former employee the inventor's remuneration for as long as he is using the invention.