LOCAL VOICE: Paying (inventors) to play in foreign countries

By Matt Schmidt and Corey Beaubien

Innovation is the lifeblood of most companies. And in today's global economy, U.S. companies innovate around the world and use patented technology created abroad by foreign inventors. Although rewards are sometimes used as an incentive to invent, not all companies address foreign laws that often require payment to foreign inventors in addition to salary.

While the U.S. does not, many of the world's largest economies have laws that grant an employee-inventor the right to receive some sort of payment for use of their patented innovations. China, Japan, South Korea, Germany, France, and Italy are a few countries that grant this right, and Brazil offers the right under limited circumstances. Some countries require payment only for commercial use of the patented innovation, and other countries require payment at certain stages of patent proceedings such as at patent filing, at patent issuance, or at both.

Exactly when a particular country's laws apply differs, but most often depends on the location of inventive activity. For example, if a product or process was invented in Brazil, Germany, Italy, or South Korea, that country's laws control the inventor payment issues. This is commonly true with indifference to where an employee-inventor resides or the countries in which patent applications are filed.

In countries where payments to an employee-inventor are required by law, the amounts to be paid are not always easy to determine. Some countries' laws consider the employee-inventor's salary, the usefulness or profitability of the patented technology, and the relative contributions that led to the patented technology between the employee-inventor and company. For example, in Germany the amount owed to an employee-inventor is determined by looking at -- among other factors -- licensing of the patent, problem recognition, and the employee-inventor's position within the company. China, in contrast, has enacted new laws that require a minimum payment of RMB 3,000 Yuan to the employee-inventor for a granted utility model patent, and could require a yearly payment of 2 percent of the profits earned as a result of the innovation covered by the utility model patent.

As a bit of relief, the clutter and uncertainty concerning what is owed to an employee-inventor can be resolved in Brazil, China, France, Germany, Italy, Japan, and South Korea by fixing the payment amount in an agreement between the company and the employee-inventor. Agreements like these can be made before or after an innovation has been created and patented, and can be accomplished in an employment agreement like those ordinarily signed by new employees hired by a company.

Failing to comply with a country's laws can expose the company to a lawsuit brought by the employee-inventor to recover what they claim is owed to them. Employee-inventors have been awarded large sums by courts recently in China, France, and Japan. This right to recover, however, expires over time. In Italy, Japan, and South Korea an employee-inventor's right to recover payments for patents lasts 10 years. This period is shorter in France and China lasting 2 years and 5 years, respectively.

In summary, for business leaders and company attorneys, addressing foreign inventor payment laws is an inevitable circumstance of a global economy. And while the laws are still maturing and there may not be a one-size-fits-all solution, paying employee-inventors for their patents almost certainly reduces the risks of running afoul of foreign laws and can have the benefit of encouraging innovation.


Matt Schmidt and Corey Beaubien are shareholders at Reising, Ethington, P.C. (www.reising.com), an Intellectual Property law firm with offices in Troy, Michigan and Southlake, Tx., and which has specialized solely in the practice of IP law since 1865. Schmidt's practice covers a broad range of intellectual property matters in the mechanical and electro-mechanical technologies. He currently serves on the firm's Management Committee, and is a co-author of the textbook "Patent Law Including Trade Secrets-Copyrights-Trademarks," sixth edition, published by West Publishing Company and used in law schools across the USA. Beaubien has worked with large international corporations, universities, and solo inventors on technologies in different sciences. While completing his undergraduate degree in Mechanical Engineering, he studied in Germany at the Esslingen University of Applied Sciences.

Published: Tue, Jul 17, 2012