Court Raises Questions about Fictitious Employment Agreement and Its IP Ownership Clause

In a second-instance decision rendered in July of this year on a patent ownership dispute, the IP & Commercial Court (IPC Court) held that a fictitious employment agreement could not support an employer’s patent ownership claim against a former employee. Uniflex Technology Inc. v. NORPEIsemicon Ltd., et al., 111 Min-Zhuan-Shang 20, IP & Commercial Court (July 2023).

Uniflex the plaintiff claimed that the Norpei Group should transfer several LED substrate-related patents to them. Additionally, Uniflex sought a penalty exceeding NT$1 million for asserted contractual breaches by Mr. Lee, the NORPEI Group’s lead. Uniflex argued that an employment contract signed with Lee in May 2018 granted them the exclusive ownership to any of Lee’s inventions made during his work. However, Lee turned out to patent such inventions in his own or NORPEI’s name, even before leaving Uniflex in 2019.

Typically, employees facing such allegations based on written employment contracts are at a disadvantage. Once the employer presents a prima facie case, the onus is on employees to prove the invention’s development was independent of their work and did not draw from company resources—an often formidable task. Delayed compensation for inventions made for hire does not justify employees patenting them preemptively.

In a departure from conventional defenses, Lee and NORPEI opted for an unusual argument. They contended that no parties, even Uniflex, ever intended to establish Mr. Lee as a Uniflex employee, nor did they intend to be bound by the employment contract. Instead, they argued that Lee functioned as an independent technical consultant and sales agent for Uniflex. According to them, the contract was signed solely to facilitate Uniflex’s application for a government funding on innovation which requires the person in charge of the project to be a worker of the applicant. Without an enforceable employment contract, Uniflex had no claims to ownership of Lee’s inventions, the defendants argued.

Although this defense placed Lee and his group in a more challenging burden of proof position compared to conventional defenses, they and their counsels did an admirable job in convincing the IP Court by presenting the following evidence:

- Previous contracts between the parties established a consultant relationship dating back to 2016, with Lee serving as the executing consultant.

- Uniflex’s former CEO testified that the 2018 contract was signed solely for getting government funding, and Lee functioned as an independent consultant aiding Uniflex in selling LED substrates he developed independently—since Uniflex lacked the expertise.

- Witnesses from Lee’s team during the collaboration affirmed their operational and financial autonomy within Uniflex, despite the team’s appearance on the organization chart. Lee’s payment package as a “Sales VP” under the 2018 contract was, according to them, a consultant fee in disguise, as it fell short of a genuine Sales VP’s compensation.

While it remains uncertain whether Uniflex has lodged an appeal with the Supreme Court, this entitlement dispute has sparked some thought-provoking questions.

For instance, when an employment contract—or any service agreement—faces validity issues, under what circumstances could its IP ownership/assignment clauses remain intact, separate from the contract’s other elements? Would this separation still hold ground when the employer assignee makes minimal contributions to the IP? Moreover, when a fictitious employment contract loses its validity or enforceability, under what circumstances could it convert to another type of contract, such as a research commission agreement?

Under Taiwan’s Civil Code, “If the fictitious expression of intent was intended to conceal another juridical act, the provisions of the act with respect to such another juridical act shall apply” (Article 87.2); “If a part of a juridical act is void, the whole juridical act is void; however, if the juridical act could exist excluding the void part, the other part remains valid” (Article 110).

For in-house counsels, the takeaway from this case could be: in complex strategic alliances, considering an independent standalone IP ownership/assignment agreement, detached from the main contract, could prove beneficial for all parties involved.