Remuneration for Employee Inventions in Companies

An employee working under a valid employment contract may, during his or her employment, be able to create valuable intellectual property and an issue may arise as to the true ownership of such intellectual property. Being an employee, he or she becomes limited in his or her rights to the property, but this is not always the case. Employment contracts are covered by Republic Act No. 8293, or the Intellectual Property Code of the Philippines, as amended by Republic Act No. 10372.

 

Philippine Law on Employee Inventions

 

There are two instances that could arise in the event of work created by an employee during and in the course of his employment. The copyright of the work belongs to the employee, if the creation of the object of copyright is not a part of his regular duties.[1] This is the case even if the employee used the time, facilities and materials of the employer. The second instance is the copyright belonging to the employer, if the work is the result of the performance of his regularly-assigned duties, unless there is an agreement, express or implied to the contrary.[2] However, it has consistently been the view that absent any agreement, the employer will own the intellectual property if the work is commissioned or produced as part of the regular duties.[3]

 

It is therefore suggested that companies, especially those that are heavily focused on creations to drive business, aptly tackle the ownership of intellectual property in employment agreements. However, ownership is not the only issue when it comes to intellectual property created by employees. Creations may be considered as having great value, and the only way the creators will part with such is if they are properly remunerated by the companies they work for.

 

To decrease any possible litigation or issues in the future, companies must prepare for such remuneration that shall be delineated in their employment contracts. The legal rules of the Philippines allow for a wide range of possible remuneration strategies. Corporations should use various strategies in order to build reasonable remuneration systems. Apart from properly compensating its employees, a good employee invention system can also work as an incentive for idea generation, motivating employees to perform better in their inventions.

 

However, what constitutes as reasonable and will be able to achieve the goals of an effective remuneration system? An effective and reasonable system is that which takes into account both the employee’s and the employer’s perspectives for optimum reward characteristics. Doing such will lessen any possible conflict between the two parties. Building a proper remuneration system is based on balancing the relationship between the benefits received by the corporations and the reward given to employees.

 

Designing a Reasonable Remuneration System

 

A research paper titled Rewarding Employee Inventions in Corporations made an empirical study on nine Czech private companies in order to create an analysis as to creating a multi-criteria evaluation framework and discussing the most optimal remuneration system.[4] A seven-criteria evaluation model or framework had emerged from the study which includes various criteria which must be balanced with one another to create the most optimal system. These seven criteria are as follows: timing, risk manageability, exactness, materiality, equity, transparency, and system costs.

 

It is to be noted that because of the differing interests between employer and employee, trade-offs between the systems will naturally appear.[5] Balancing the timing with risk management may mean that the earlier an amount is given to the employee, the more risky it is for the employer because the expected benefits from such invention have not been fully materialized. Another important trade-off is the earlier an amount is given to the employee, the less exact the amount can be because of uncertain benefits. With regard to the exactness vis-à-vis system costs, the more exact the calculation of amount, the higher the system costs.

 

An important criterion which will eventually lead to creating the most optimal remuneration system is balancing equity with the other various criteria. The remuneration system must be able to capture various remuneration situations, in terms of inventions with different value to the company. Results of the study pointed to the most optimal system being that of a Czech pharmaceutical company which provided a typological system, with five distinct categories according to the strategic value of the disclosed inventions. This means that there was a set amount to be paid to the employee depending on its possible value to be gained by the company.

 

Reasonability of a remuneration system is a function of multi-amount rewarding, certain level of amounts, and invention benefits as a decisive remuneration factor. Multi-amount rewarding means that the overall reward to the employee is phased in time and is connected to various milestones reached during the invention protection and commercialization. The compensation of the employee is divided into a schedule based on the different steps of protecting the invention. For an employee to be paid in phases, rather than a lump-sum payment is to answer for unpredictable benefits to the company.

 

Level of rewards function points to how early phases of inventions are rewarded by smaller amounts. This is simply explained by how the more complete an invention is, the more an employee should be compensated for. Finally, benefits are the critical factor because the reward calculation must be decided by the benefit to the company generated by the employee invention. The reward to the employee correlates positively with the internal benefit to be obtained by the company.

 

The optimal remuneration system is not about exact calculable monetary benefits, but rather strategic benefits which consider both monetary benefits and strategic ones for the company. It puts focus on the strategic value of patents, and properly balances all the other criteria. A flexible system can be created by creating one based on reasonableness and the seven-criteria model. 

 

No one single approach can be used to say that it is the most effective system for all corporations. Rather, corporations must find a unique balance in order to properly compensate its employees and lessen any risk of conflicts in the future – all working towards a sustainable working environment between the employers who own the intellectual property and its satisfied remunerated employees.

 

[1] R.A. 8293 as amended by R.A. 10372, Sec. 178.3

[2] Id.

[3] https://elegal.ph/guerilla-guide-for-startups/index.php/xi-intellectual-property-law-basics/

[4]Svacina, Pavel, Rewarding Employee Inventions in Corporations: Designing a Framework to Evaluate Adequacy of Remuneration and Offering an Optimal Remuneration System (March 9, 2020). European Journal of Innovation Management, Forthcoming, DOI: 10.1108/EJIM-06-2019-0178 , Available at SSRN: 

https://ssrn.com/abstract=3638317

[5] Id.

Post a Comment