IP Risk Management for Employee

I. RISK MANAGEMENT SYSTEM

A well-arranged risk management system is key for developing a successful business model. Effective management and consulting aim to prevent disputes and conflict situations as best as possible.

However, over the last few years, the number of court disputes related to intellectual property (IP) created in the workplace has materially increased, since it is salaried employees that create most intellectual property through their creative work.

As practice shows, the lack of due diligence to this issue may result in severe consequences for a company’s IP assets, including losing the right to obtain a patent, being able to contest existing patents, to terminate legal protection of know-how and to incur employee demands to be paid a fee for work-related IP, etc. Russian inventors and engineers often file claims against representative offices of foreign companies, and foreign-owned Russian subsidiaries that act as their employers.

To use a recent example, a former subsidiary employee of a foreign company filed a claim years after his dismissal. The claimant wanted to be named as an author of an invention, to be paid a royalty fee for the invention’s use covering a 3-year period, and to be compensated for emotional damages. The case proceedings have not yet been completed, but it is obvious that any foreign company carrying out innovative or manufacturing activities in Russia may face such a risk. The rights to IP assets are frequently used as leverage against opponents in labour or corporate disputes. This situation can arise if there are no documents formally establishing the allocation of rights between the inventing employee and the employer; this also has the knock-on effect of leaving the ownership rights undefined. By way of illustration, Gorodissky & Partners has lately represented a defendant in a court dispute over the recovery of debts (numbering in the millions) under a licence agreement for granting the right to use several inventions. After a thorough examination of the case files, it was found that some of the defendant’s employees were indeed the authors of the patented inventions, but the defendant had not been defined in the patents as a patent holder or co-holder. On this basis, an effective defence strategy was devised, which has resulted not only in the dismissal of the stated claims against the client but also in the issuance of new patents; in some of which the client has been stated as a patent co-holder or as a patent holder in others.

II. MAIN RISK GROUPS IN SERVICE-RELATED IP

Experience dictates that it makes sense to divide the main risks in this area into the following assumed groups:

1. Classification and documentation on the relationship with RIA authors
2. Employee failure to notify the employer about the creation of a work-related RIA
3. Disclosure of a work-related RIA by the author
4. Employer adoption of measures aimed at registering work-related RIA in its name, keeping them secret or transferring the rights of a work-related RIA to any third parties
5. Paying a royalty fee for a work-related RIA.

Let us consider some key points of each risk group in more detail.

1. Classification and documentation on the relationship with RIA authors

Many employers often make the mistake of assuming that the payment of salaries to employees automatically guarantees the transfer of intellectual property rights to the company from the employee.

There are a number of binding provisions, and failure to comply with them may result in a loss of rights to the RIA created by regular employees.

This risk group includes the cases where there are no documents that determine the scope of the employee’s official duties/duty assignment in the company, or cases where an RIA created by an employee is beyond his or her official duties/duty assignment.

In addition, it is often the case that employees are employed in two (or more) places simultaneously. A classic example is concurrent employment at both a research institute and a business entity. In such an event, there are risks of incorrect determination of ownership and documentation of rights to a work-related RIA.

2. Employee failure to notify the employer about the creation of a work-related RIA

The failure to notify an employer about the creation of an RIA often results from the employee’s negligent attitude or poor awareness of the need to do so. At the same time, willfully concealing work-related RIAs to misappropriate further the rights of the employee happens often, too.

In this case, a helpful reminder is to determine the list of individual categories of employees/positions that may potentially create an RIA and to regularly monitor the work of said employees and maintain regular reporting on their activities. It is also recommended to use a written form of notice specifying the authors, creative input, the scope of application, and examples of implementation of an RIA.

3. Disclosure of work-related RIA by the author

With the best intentions, inventors seek to share their discovery by publishing a research article or by reporting a new solution to conferences and other public events.

Having said that, the value of an RIA depends on its novelty and being unknown to any third parties. In the event of disclosing an RIA, an employer runs the risk of losing the opportunity to protect it as an invention, since the invention should comply with the ‘novelty’ patentability criterion. To mitigate the above risks, therefore, an employer should implement a set of measures aimed at keeping the information on work-related RIAs secret.

4. Employer failure to implement measures on registering work-related RIAs in its name, or keeping them secret

The law has set a strictly defined list of actions to be taken by the employer so that the rights to work-related RIAs are passed from the employee to the employer. In particular, within four months of the date that the employee notifies the employer about the creation of a work-related RIA, the employer may apply for a patent, transfer the right to obtain a patent to any third party and decide on keeping the information on the RIA secret. If none of the above actions is taken, the rights to the work-related RIA are returned to the employee.

5. Paying a royalty fee for a work-related RIA

The conflicts related to royalty fee payments comprise a separate risk group. Even though disputes on royalty fees cannot formally result in a change of a right holder, this issue is topical for each employer, since it is the employer that is obliged to pay the royalty fee, regardless of who owns the rights to the RIA when the author lodges a claim.

Usually, disagreements surface about the basis and amount of a royalty fee, since the law classifies the relations range as subject to contractual regulation. With no agreement/consent between the parties, a court may apply a minimum/recommended fee.

III. RISK MITIGATION

Because Russian legislation has its specific features of regulating work-related inventions and employment relations, which are irrelevant to foreign jurisdictions, foreign-owned subsidiaries are often among those companies that are specifically recommended to check this area for compliance with Russian legal requirements.

The implementation of an intellectual property risk management system in the company will help to mitigate the mentioned risks. This system, among other things, entails a set of local documents, contracts, agreements and other documents to be signed with employees, contracting parties and any other third parties. Such documents may include:

• 1. Intellectual property management policy. The most important document regulating activities in managing risks arising from the creation, documentation, recording, acquisition, use, disposal, and protection of rights to the RIA
• 2. Regulation on intellectual property. A large and important document regulating the relations associated with creating, documenting, recording, acquiring, using, disposing, and protecting the rights to an RIA
• 3. Regulations on trade secrets (know-how). A local act setting forth the procedure for handling information constituting trade secrets (know-how), including the procedure for implementing legal protection of know-how and for accessing such information by any third parties
• 4. Documents mediating the creation of a company’s knowledge assets
• 5. Employment agreements and job descriptions.

To enhance the effectiveness of a work-related RIA risk management system, additional training to the designated staff in the form of seminars and presentations should be provided. During the training, the particular scenarios should be studied along with recommendations and explanations on the introduction of, and control over compliance with, the documents regulating the relations associated with work-related RIAs.