In a recent decision, a three-judge panel of the IP & Commercial Court (IPC Court) responded to an inventor’s complaint about Taiwan Patent Law’s rules on employee-inventor compensation. Even if the current law over-favored the employer, the Panel said, courts had no power to change the law. Yang v. Epistar Corp., 108 Min Zhuan Shang 26, Taiwan IP Court (Feb. 2022).
In this case, the plaintiff inventor asserted that his former employer undercompensated him for his LED-related inventions which he asserted had brought the employer tens of billions of dollars of profits. The inventor sued the employer for “appropriate remuneration” based on Article 7.1 of Taiwan’s Patent Law, the amount of which per his assessment should be no less than NT$ 40 million (roughly US$ 1.5 million). He lost in the first instance three years ago (see our report here) and appealed, but now he lost in the second instance also, because the court found that his Article 7.1 claim had been preempted by a contract..
Article 7.1 of the Patent Law provides:
| Where an invention … is made by an employee in the course of performing his or her duties, the right to apply for a patent and the patent right thereof shall be vested in his or her employer and the employer shall pay the employee appropriate remuneration; where there is an agreement providing otherwise, such agreement shall prevail (italics added by the writer). |
The first question is: does the “otherwise” proviso allow an agreement to preempt an employee-inventor’s claim to “appropriate remuneration?”
The first instance decision, also rendered by the IPC Court when it was still named the IP Court, said the answer should be “yes,” and this holding was now upheld by a second instance panel of the IPC Court. The Panel stressed that their interpretation found support not only from the plain meaning of the Article’s text but also from the legislative history. According to the Panel’s historical review, Article 7.1 came to its current wording in 1994 after an intense debate in Taiwan’s Congress and has never been amended ever since despite attempts of lobbying groups. In the past 28 years, the Congress have discussed at least twice over proposals of delineating a baseline or guidelines on employee-inventors’ compensation where the contract is silent, but these proposals never entered a third reading session. This fact, the Panel said, proves that the Congress intended not to interfere with employers and employees’ contractual arrangements about compensation for inventions made for hire.
The Panel further indicated:
Although the appellant (i.e. the inventor) cited the laws of Japan, Germany and Mainland China, all these laws differ from Taiwanese law in terms of compensation for inventions made for hire, and none of them contains a proviso that allows a contract “providing otherwise.”
Further, even if there were evidence supporting the appellant’s assertions that “Taiwan’s current rules go against the international trend, provide inadequate protection for inventors who are disadvantaged [compared with their employers], and thus compromise Taiwan’s competitiveness,” this would just reflect a considered choice of legislative policy, and should be resolved through law amendment by the legislature …. As a judiciary organ, we cannot take over the Congressional power to engage in law-making by interpreting a law beyond its meaning as understood by the public at the time of its enactment, or by introducing a complement [to the law] based on a teleological expansion [of its meaning] or a foreign law asserted to reflect a general legal principle. |
The second question is: what if a contract signed by an employee-inventor not just preempts but denies or substantially restricts his/her compensation claim by saying, for example, that his/her contributions in any inventions to be made for the employer have been fully compensated in the pay packages? The Panel’s position is less clear and more indirect on this question.
First, the appellant argued that the Taiwan IP Office (TIPO) unmistakably indicated in a publication called “Annotations to the Patent Law, Article by Article (2014)” that the Article 7.1 claim for an invention made for hire cannot be signed away. In response to this argument, the Panel replied that this view from the TIPO cannot bind the court—which seems to have somewhat revealed the Panel’s position.
On the other hand, in the face of the appellant’s another strong argument that the agreement in dispute was a standard form contract and should be subject to stringent scrutiny, the Panel replied that although it was indeed a standard form contract prepared by the employer, it did not “release or reduce the responsibility” of the employer. This holding may be interpreted as suggesting that a contract which entirely denies an employee-inventor’s compensation claim would fall prey to the Civil Code’s rules against standard form contract.
Under Article 247-1 of the Civil Code, a standard form contract clause will be deemed void if that clause is obviously unfair and (1) releases or reduces the responsibility of the party who prepared the the contract; (2) increases the responsibility of the other party; (3) makes the other party waive his/her right or to restrict the exercise of his/her right; or (4) is gravely disadvantageous to the other party.
The last questions are: suppose zero compensation is not allowed, then what range of compensation will be considered fair and reasonable by the IPC Court? What factors should be weighed in for setting a compensation mechanism?
While the reported decision did not touch on these questions, the readers may get some hints from the Panel’s holdings and dicta on the contract in dispute, which bore the name “Regulation on Rewards and Incentives for Inventions” and contained the following rules (the writer’s translation):
- 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 bonuses:
- 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 Panel held that the above rules had amply preempted Article 7.1 with respect to the inventor’s “claim for appropriate remuneration;” therefore, what he was entitled to was the benefits conferred by the Regulation instead, and he had received them in full.
Further, the Panel held that the inventor was not undercompensated anyway, since the bonuses he received under the Regulation were not obviously too low, and were not inappropriate or unreasonable either. In a dictum, the Panel explained:
| Once the appellant achieved the invention by using the company’s resources, he could receive the remuneration under this Regulation, and he did not bear the huge research and development expenses and other costs in connection with production, marketing, and personnel management. In contrast, the appellant needed to bear these costs and expenses, and needed to pay the compensation for the invention, while their patent applications and patent rights might not bring any profits…. Moreover, while the appellant made other inventions during his employment with the company, he never declined the bonuses the company paid him for these inventions in accordance with the Regulation. |
Whether the employee-inventor has appealed the decision to the Supreme Court is not clear yet, so it may be a bit too early to aver that the Panel’s decision has set opposite views at rest. Nevertheless, the IPC Court’s stance in favor of the freedom of contract is already good news to tech companies doing businesses in Taiwan, not least because many of them adopt similar contract-based compensation mechanisms for inventions made for hire.