IP Court’s Recent Judgment on Invention Made for Hire Favors Employers

According to Article 7.1 of Taiwan’s Patent Law, ownership of a work made for hire goes presumably to the employer but the employee has a claim for “appropriate remuneration.”  The Article has remained unchanged since its enactment in 1994 and reads:

Where an invention … is made by an employee in the course of performing his duties, the right to apply for a patent and the patent right thereof shall be vested in his employer and the employer shall pay the employee reasonable remuneration; where there is an agreement providing otherwise, such agreement shall prevail

The terse wording encounters knotty issues in application. From the definition of “employee” to the interpretation of “in the course of performing duties” to the criteria for determining the appropriateness of remuneration, the text of Article 7.1 is constantly challenging an in-house counsel’s ability of devising an invention incentive program that is efficient and legally feasible. Even the seemingly undemanding proviso permitting an “otherwise” agreement invites debate: one might wonder whether the proviso permits a service agreement to restrict or preempt the employee’s appropriate remuneration claim. The answer is arguably “yes” per a textualistic reading of the Article, and that is exactly the answer given by a recent IP Court judgment, Yang v. Epistar Corp., 108 Min Zhuan Su 9, Taiwan IP Court (June 2019) (being appealed), although it does not yet set opposite views at rest.

The agreement reviewed by this first-instance judgment is a “Regulation on Rewards and Incentives for Inventions” issued by the defendant, a renowned Taiwan-based LED manufacturer for whom the plaintiff once worked. While the Regulation itself is not an “agreement,” it is part of the defendant’s work rules, and work rules in Taiwan are routinely considered as what contributes to define employees and employer’s contractual relationship, regardless of whether or not they are cross-referenced in the employment agreement.  The Regulation provides:

The bonus provided in this Regulation applies to employees still working in this company when the bonus is granted.  If one of multiple co-inventors has left the company when the bonus is granted, the other co-inventors’ bonuses receivable do not consequently increase.

Patent application bonus: NT$8,000 per invention.
Patent issuance bonus:
- NT$15,000 per invention patent issued in TW or CN.
- NT$25,000 per invention patent issued in US, JP, DE, UK or any other jurisdiction.
- Each bonus can be granted only once; hence the bonuses for one invention are capped at NT$40,000.

The plaintiff is a (co-)inventor of three patent portfolios on LED/LED components manufacturing methods developed for the defendant during employment.  According to the plaintiff’s assertions (found unpersuasive by the court though), these patents covered defendant’s quaternary LED products which reaped profits up to NT$11.5 billion from 2006 to 2017 as supported by the defendant’s annual reports and news release.  At a conservative estimate, said the plaintiff, his contribution merited 1% of the said profits, or thousands times the patent application bonus he received.  As to the “patent issuance bonus,” he did not get any, since he left the defendant around 2003 before any of the patents was issued.  Even if both bonuses had been fully granted, they would still have been out of proportion to an “appropriate” remuneration, the plaintiff argued. 

However, the judge (Judge Wei-hua WU) held that the plaintiff was never entitled to an “appropriate remuneration claim” because it had been preempted by the Regulation. Per the judge’s interpretation, the Regulation is precisely “an agreement providing otherwise” than an “appropriate” remuneration claim centered rewards model and hence shall prevail and apply pursuant to the proviso of Article 7.1.  What the plaintiff was entitled to, the judge said, was the benefits conferred by the Regulation itself, but he had received them in full. 

Apart from the ruling about the proviso, there are other holdings/comments in the decision that employers may find heartening.  The judge went on to hold, to substantiate an appropriate remuneration claim, it is for the employee to first prove that his claimed amount is “appropriate” (rather than for the employer to first prove that the amount/value of the granted remuneration is appropriate.)  Meanwhile, the judge said, the employee should prove how much (in percentage) his invention contributes to the employer’s profits.  In Yang v. Epistar, however, the plaintiff failed to prove either, the judge held.

Moreover, in a dictum, the judge revealed a fairly generous position in determining whether and under what circumstances an inventor employee’s regular income and extra benefits received from her employer can be considered as part of an invention remuneration.  While the IP Court’s past decisions on this issue were basically in the employer’s favor, the Yang v. Epistar decision went steps further:

Before serving in the defendant company, the plaintiff had known that his position [in the defendant company] would be an R&D engineer… Also, he had known that the technologies and patents once developed should be vested in the defendant, and that his [potential] contribution in the R&D works had been inclusively considered in his agreed pay package. Notwithstanding, the plaintiff was still willing to take the position. He must have deemed his pay package as “appropriate;” otherwise he would not have accepted the company’s offer in the first place.  Further more, on top of this salary, the plaintiff has received [during his employment] from the defendant benefits including bonuses, stock grants, promotion, and pay increase, etc.  On this score, the plaintiff’s “performance” has been contractually evaluated; for this reason, I hold that … the plaintiff has received “appropriate remuneration” from the defendant [even if he had an appropriate remuneration claim]. 

With disputes arising out of remuneration for LED-related inventions, Yang v. Epistar is easily reminiscent of the lawsuit brought by the Nobel laureate Shuji Nakamura (co-inventor of blue LED) before the Tokyo District Court against his ex-employer Nichia Corp., a tortuous lawsuit that was eventually settled but triggered employer-friendly amendments to Japan’s patent law.  Where Yang will go and how far it will go are hard to predict, as the case is right now pending before a second-instance panel of the IP Court.  All that can be said at this moment is that the first instance decision, with its firm stance toward the freedom of contract as well as its approval of an invention rewards program commonly adopted by Taiwan’s tech companies, is something that many employers might wish to be upheld.