New and higher compensation for employee’s invention

A veterinarian was employed to develop a new and important invention for a company who produced products for fish health. After the invention had been developed, the company referred to it as a “game changer”. Shortly after, the employee resigned and claimed royalties for the net income of the invention, in accordance with his employment contract. The company rejected his claim, stating that the conditions for receiving royalties were not met.

As a result, the employee brought his claim for royalties to court. He argued that his employment contract entitled him royalties after the commercialization of the invention, although the invention had not been his idea. The company disagreed and claimed that the agreement on royalties only applied to ideas the employee had brought into the company. His entitlement to royalties had also been conditioned upon a prior written agreement with the board. In addition, the company argued that the employee was not entitled to statutory compensation because he had been employed to develop inventions, which was reflected in his salary terms.

The main question for the Norwegian Court of Appeals was therefore whether the employee was entitled to royalties and/or compensation for his invention.

Three times higher compensation than the usual threshold

On the first question, on the employees claim for royalties, the court found that the employment contract had been written jointly by the parties, and that the employee on several occasions had revised the contract. Despite this, the employee had never questioned the conditions on royalties and the contract could therefore not be considered unreasonable. Consequently, the employee was only entitled to royalties if a written agreement had been made with the company’s board of directors on the specific invention. As such an agreement had never been made, the employee was not entitled to royalties.

On the second question, on the claim for statutory compensation, the conditions under Norwegian law had been satisfied already because the company had acquired the invention, and as the value of it exceed the employee’s salary and benefits.

The Norwegian Court of Appeals therefore proceeded to considering what a reasonable compensation would be. Its assessment included:

• What the value of the invention was
  
  
• To what extent the company had acquired the patent rights to the invention
  
  
• What the conditions of the employment was, and
  
  
• What resources the company had provided to develop the invention

In addition to the usual assessment, the Norwegian Court of Appeals also emphasized that compensation as a main rule cannot exceed one year’s salary.

Despite this, the court decided not to follow the main rule in this case. The reason was that the company had acquired the rights for the entire invention, that the industry generally had high turnover, that the product generated large revenues and that the company had recognized that the invention had been a “game changer”. On this basis, the Norwegian Court of Appeals decided to award compensation corresponding to three years’ salary, a level of compensation which exceeded the usual threshold by three times.

IUNO’s opinion

This case shows that companies in some cases may be liable for compensation to employees when transferring the rights to an invention made during the employment, even in situations, where the company is entitled to the invention without compensation under the employment agreement. However, the case still illustrates the importance of companies ensuring that their employment agreements contain sufficient clauses to protect the company with respect to IP, including employee inventions.

IUNO recommends that companies consider the expected value of potential inventions when determining an employee’s salary and benefits to prevent potential additional costs. Companies should also be aware of the special procedure, including the 4-month deadline, which applies when companies want to transfer the rights of employee inventions.

[Frostating Court of Appeal’s judgement LF-2020-105397 of 18 February 2021]