An International Guide to
Patent Case Management for Judges

8.7.2 Compensation for employee inventions

8.7.2.1 Overview

An employee invention refers to an invention, utility model or creation protected under the Patent Act, Utility Model Act or Design Protection Act, respectively [hereinafter collectively referred to as an “invention” unless otherwise specified], that an employee, executive officer of a corporation or government employee [hereinafter collectively referred to as an “employee” unless otherwise specified] makes in connection with their duties, where it falls within the scope of the business of the employer, the corporation, or the national or local government, and where the activities that have led to the invention fall within the present or past duties of the employee (Article 2(ii) of the Invention Promotion Act). An employer is automatically entitled to a free nonexclusive license to an employee’s invention (Article 10(1) of the Invention Promotion Act). Where the employer succeeds, under a contract or employment regulations, the patent, utility model or design rights related to the employee’s invention – or the right to acquire them – or is to be granted an exclusive license to the right, the employee is entitled to fair compensation (Article 15(1) of the Invention Promotion Act).

Provisions concerning compensation for employee inventions fall within the sphere governed jointly by civil law, labor law and patent law. Such provisions are regarded as compulsory provisions intended to protect employees, who are often in the weaker position at the negotiation table, so that the distinct legal nature of the employee invention is acknowledged, and the employee enjoys compensation for the invention separately from the wages compensating them for their service. Typical defenses against the claim for compensation are that the statute of limitations has run (10 years, as in general credit cases) or that a certain amount was already paid to the employee and should be deducted accordingly.

8.7.2.2 Elements

The plaintiff should contend and prove (i) that they invented the employee invention; (ii) that the defendant, who is the employer, succeeded from the plaintiff the patent, utility model or design right – or the rights to acquire them – for the employee invention; (iii) that the employer earned sole and exclusive profits generated by the employee invention; and (iv) the scope of compensation for the employee invention.

First, to prove the fact that the plaintiff is the inventor of the employee invention, it must be established that (i) they are an employee; (ii) the invention falls within the scope of business of the employer; and (iii) the invention falls within the present or past duties of the employee. More importantly, the plaintiff must have contributed to the completion of the invention. The advancements of science and technology in modern society often require a group of departments or multiple parties to cooperate for inventions, raising the issue of inventorship. An employee can be a co-inventor only if they have had a mutually cooperative relationship with others for the completion of the invention. More specifically, the employee must have contributed to the actual creation of a technical idea by, for example, (i) suggesting, adding or supplementing a concrete idea to solve technical problems of the invention; (ii) embodying a new idea through experiments; (iii) providing a specific means or method to achieve the purpose and effects of the invention; or (iv) providing detailed advice or guidance to enable the creation of the invention.¹⁵⁷

Second, considering that the employer is entitled to a nonexclusive license for free even if they do not succeed the right relating to the employee invention (Article 10(1) of the Invention Promotion Act), the term “employer’s profits,” when calculating the amount of compensation for the employee, refers to the profits the employer is expected to earn by acquiring a sole and exclusive position to practice the employee invention that surpasses a nonexclusive license.¹⁵⁸

Third and most importantly, all these elements must be taken into consideration to reach a fair sum for compensation. The Invention Promotion Act sets forth the following factors for calculation:

1. A. the profits the employer anticipates obtaining with the employee invention. This is calculated by product sales revenue × hypothetical royalty rate × contribution ratio of the exclusivity of the right;
2. B. the employee’s ratio of contribution, with respect to the employer’s contribution, to the completion of the invention. This is calculated by (1 – the employer’s contribution ratio) (Article 15(6) of the Invention Promotion Act);
3. C. if the employee invention is a joint invention, the employee’s ratio of contribution with respect to co-inventors; and
4. D. if the product that embodies the invention is a part or component of a multicomponent final product, the employee’s ratio of contribution to the final product. In this case, the sales revenue of the final product should be used for (A).

The resulting formula calculation for the amount of compensation is A × B × C × D: the amount of the employer’s profits × the ratio of the employee’s contribution with respect to the employer’s contribution × the ratio of the employee’s contribution with respect to co-inventors (for joint inventions) × the ratio of the employee’s contribution to the final product (for inventions that form a part or component of a multicomponent final product).