Does An Employer Own the Rights to An Invention That Was the Idea of An Employee?
An Employee That Thinks Up An Idea and Creates An Invention From the Idea Usually Owns the Legal Rights to the Invention; However, There Are Exceptions to This General Principle That Deserve Careful Review.
Understanding When An Employee Owns the Rights to Inventions Created During the Course of Employment
Typically, the law provides the person who thinks of an idea and creates or invents a new product from the results of the idea with ownership of the idea as an intellectual property as well as the right to patent the invented product. The law applies even if the invention arises during employment with only two exceptions.
The general principle that the person who invents a product possesses the right to register a patent on the product was explained well within the case of Techform Products Ltd. v. Wolda, 2000 CanLII 22597, while citing the Patent Act, R.S.C. 1985, c. P-4, wherein it was said:
9 Immediately upon completing an invention an inventor acquires a right to apply for a patent pursuant to the provisions of the Patent Act, R.S.C. 1985, c. P-4. By providing a statutory scheme for the granting of patents the legislature allows inventors to expose their inventions to the world without at the same time losing their rights to control the use of those inventions. Once an inventor is granted a patent, he or she has the right to exclude the public from using his or her invention (Harold G. Fox, The Canadian Law & Practice Relating to Letters Patent for Inventions, 4th ed. (Toronto: Carswell, 1969) at 280).
10 Under the Patent Act, a patent must be granted to the inventor or the inventor’s legal representative unless the inventor has assigned or has bequeathed the right to obtain the patent to someone else (sections 27 and 49). Inventors who have been granted patents may assign them to other people as long as they do so in writing (section 50). Thus, under the provisions of the Patent Act, absent an assignment in writing, it is only inventors or their legal representatives who have the right to apply for patents to their inventions.
Notably, as a general principle only, the above said is merely the presumptive position in law as a starting point to which further review of the exceptions to the general principle of who owns an invention is required.
Exceptions to Ownership of Inventions
Although the general principle is that an employee who invents a product owns the rights to the product, and does so presumptively in law as per the Patent Act as explained above, there are two exceptions that are available to rebut the presumptive ownership of the invented product. The exceptions are based upon expressly written contractual terms of the employment contract or based impliedly from the character of the employment and even the nature of the invention itself. In regards to the exceptions, such were also well explained within the Techform case where it was said:
11 While the federal patent legislation provides that inventors are the first owners of their inventions, it says nothing about what happens when the inventor is an employee. This is a matter that is left to the common law. The provincial courts have concurrent jurisdiction with the federal court to determine cases where a remedy is sought at common law or in equity regarding the ownership of any patent of invention.
12 The common law rule in Canada is that the mere existence of an employment relationship does not disqualify employees from patenting inventions made during the course of their employment. This rule holds true even where the invention relates to an aspect of the employer’s business, the employee used the employer’s time and materials to bring his or her invention to completion, and the employee has allowed the employer to use the invention while he or she was employed (Piper v. Piper (1904), 3 O.W.R. 451 (Ont. C.A.), at 455, Moss C.J.O. (for a five member panel of the court); Worthington Pumping Engine Co. v. Moore (1902), 19 T.L.R. 84 (Eng. Ch. Div.), at 87).
13 There are two exceptions to the presumption that employees own their inventions:
(a) An express contract to the contrary; or
(b) Where the person was expressly employed for the purpose of inventing or innovating (Comstock Canada v. Electec Ltd. (1991), 38 C.P.R. (3d) 29 (Fed. T.D.), at 53; Re Equator Manufacturing Co., 1926 CanLII 343 (ON SC),  1 D.L.R. 1101 (Ont. S.C.), at 1105, 7 C.B.R. 472, 29 O.W.N. 473).
14 In deciding who owns an employee’s invention the court must take into account the “nature and context of the employer-employee relationship” and consider such factors as:
(a) Whether the employee was hired for the express purpose of inventing;
(b) Whether the employee at the time of hiring had previously made inventions;
(c) Whether the employer had incentive plans encouraging product development;
(d) Whether the conduct of the employee once the invention was created suggested ownership was held by the employer;
(e) Whether the invention was the product of the problem the employee was instructed to solve;
(f) Whether the employee’s invention arose following his or her consultation through normal company channels (i.e., was help sought?);
(g) Whether the employee was dealing with highly confidential information or confidential work; and
(h) Whether it was a term of the employee’s employment that he or she could not use the ideas that he or she developed to his or her own advantage (Comstock Canada v. Electec Ltd. (1991), 38 C.P.R. (3d) 29 (Fed. T.D.), at 53-54, Muldoon J.).
Contractors or Consultants
Interestingly, as was also explained in Techform, the legal rights to inventions arising out of an independent contractor relationship differ from the legal rights arising out of an employment relationship. Accordingly, the factors that review the separate and independent nature of a hired person and thereby determine whether a hired person was genuinely an employee or was an independent contractor may become a significant issue as the turning point in a dispute over the ownership of an invention. As per the Techform case it was said:
15 Two texts from two leading experts on intellectual property law were put before me dealing with the question of what principles apply when the inventor is an independent contractor or consultant rather than an employee. Surprisingly, the texts appear to take opposite positions.
16 The excerpt relied upon by Techform is from David Vaver’s book, Intellectual Property Law: Copyright, Patents, Trademarks (Concord, Ont.: Irwin Law, 1997). At page 148 Professor Vaver states:
Freelancers are treated less favourably in patent law than in copyright law… the Patent Act starts with no presumption favouring the commissioned freelance inventor. It leaves his rights to be worked out entirely by provincial law. The firm that calls in a consultant to help with a problem will usually own the benefit of any invention he develops as a solution. This is especially likely where the consultant is given access to the firm’s trade secrets or confidential information, or is employed to put into practice an idea that the firm partly developed. The firm will then be entitled to patent the invention. This prima facie position may, however, be modified by express or implied agreement.
17 The implication of this quote, as applied to the facts of this case, would appear to be that it makes no real difference whether Mr. Wolda was an employee or an independent contractor. If he was hired to invent then his inventions are prima facie owned by Techform.
18 In contrast, Leslie W. Melville (who was relied upon by the Supreme Court of Canada, although not on this point, in Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC),  2 S.C.R. 129 (S.C.C.)) states the following at s. 3.05 of Forms and Agreements on Intellectual Property and International Licensing, 3rd ed., revised 1998 (New York: West Group, 1979):
The principles discussed in relation to employees would not appear to be wholly applicable in the case of other contractual relationships. There is no implication that an invention made by a consultant is the properly of the client notwithstanding that he is clearly employed to invent. This situation no doubt has its origin in the difference in attitude of the courts towards the bargaining power of a person seeking wholetime employment and a person entering into a business contract relating to a specific project. In the latter case the parties are free to provide for the ownership of any inventions or other property rights arising from the enterprise.
The consultant or other contracting party who makes an invention in relation to his work under the contract will be the true and first inventor according to the ordinary rules, so that if the client applies for a patent based on a method or design obtained from the consultant any patent granted thereon would be void. This matter can be provided for in the contract under which the consultant or specialist is engaged [footnotes omitted].
In other words, according to Melville, if Mr. Wolda was an independent contractor his inventions were his own unless his contract provided otherwise.
19 No authority is cited for the position taken by either author. However, counsel for Techform did put forward a case that he maintained supported the proposition that if a consultant is retained to invent then his or her invention belongs to the client unless otherwise agreed. The case was Re Bogrich and Shape Machines Ltd. ‘s Application, an unreported English decision of the Chancery Division (Patents Court) released on November 4th, 1994, that was referred to by Lord Cullen in Goddin and Rennie’s Application,  R.P.C. 141 at 178. The governing principle that emerges from Re Bogrich is the one articulated at page 7 of the transcript of that decision: an independent consultant who makes an invention owns the invention unless there is an agreement, express or implied, to the contrary. Further, whether a term transferring ownership of an invention to the client is to be implied “depends upon whether such a term is necessary having regard to the circumstances of the case” (Re Bogrich, supra, at page 9).
20 This principle strikes the appropriate balance between two concerns. The first is recognizing and protecting what has been referred to by the United States Supreme Court as “the peculiar nature of the act of invention, which consists neither in finding the laws of nature, nor in fruitful research as to the operation of natural laws, but in discovering how these laws may be utilized or applied for some beneficial purpose, by process, a device or a machine” (United States v. Dubilier Condenser Corp., 289 U.S. 178 (U.S. Sup. Ct., 1933), at 188, Roberts J.). The second is acknowledging that there are circumstances in which an inventor agrees, either expressly or by necessary implication to give up ownership of his or her invention. Thus, if I find that Mr. Wolda was an independent consultant as opposed to an employee, Techform, in order to establish its ownership of Mr. Wolda’s inventions, must demonstrate either:
(a) That there was a valid and binding express agreement the terms of which provided that Techform would own Mr. Wolda’s inventions (the agreement relied upon is the Employee Technology Agreement); or
(b) That looking at all the circumstances surrounding the relationship between Mr. Wolda and Techform it is necessary to imply that a term of that relationship was that Techform would own Mr. Wolda’s inventions.
Concerns to Consider
Similar to other aspects of employment law, the rights of an employee or employer should be carefully set out prior to finalizing the contract that will establish the employment relationship. Where an employment contract is commenced without terms relating to, among other things, intellectual property rights such as ownership of inventions, and the employer wishes to add such terms afterward, significant care is required when amending the contract so as to ensure that the changes are legally enforceable.
An employee that creates an invention, generally, owns the rights to the invention unless the employment contract states otherwise or the employee was hired for the purpose of inventing a solution to a specific problem and the invention is indeed the solution to the specific problem.