The Real Owner of Innovation: Understanding Inventorship and Employee Rights
When a new product, formula, or technology changes the market, the question that follows is not just “Who created it?” but “Who owns it?”
In the world of business, that answer can define entire empires.
From tech startups in Singapore to engineering firms in Germany, the question of **who is the inventor—and who legally owns the invention—**is at the heart of every innovation-based company.
1. Who Is an Inventor?
An inventor is the person (or group of people) who made the creative contribution that resulted in a new and patentable idea.
It’s not about who funded the project, who approved it, or who helped test it—only the person who made the intellectual step that produced the invention can be called the inventor.
Example:
If a company’s engineer designs a new eco-friendly packaging method, and the manager only suggests “make it cheaper,” the engineer—not the manager—is the inventor.
Being named as the inventor is more than recognition. It affects:
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Legal rights (who can apply for the patent)
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Financial benefits (who can earn royalties)
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Moral reputation (who gets credit in the innovation record)
2. Why Inventorship Matters in Business
Getting inventorship wrong can destroy deals and reputations.
If a company falsely names someone as an inventor—or excludes the real one—the patent can later be challenged or invalidated.
This isn’t just theory. Around the world, courts have voided patents when inventorship was misattributed. Investors lose confidence, and startups lose protection.
So before filing for a patent, companies must answer:
“Who actually made the inventive step?”
In growing businesses, it’s common to work in teams—marketing, design, R&D, finance—but only those who contributed to the technical concept count as inventors.
3. The Role of Employers and Employees
In modern companies, most inventions are created by employees as part of their job.
That leads to a crucial legal question:
Does the invention belong to the employee who created it—or to the employer who paid for it?
Before 1977, courts used complex case law to decide this. Some employers claimed everything created at work belonged to them; others argued the opposite.
This confusion ended with the Patents Act 1977 (UK), which inspired many similar systems across the EU and beyond.
4. The Modern Rule: Employee Inventions After 1977
After years of debate, the law established a clear test to determine ownership.
The reform came from the Banks Committee Report (1970) and the White Paper on Patent Law Reform (1975), which pushed for fairer treatment of employee inventors.
Three key changes reshaped the system:
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A new statutory test replaced old case law—now the rules are written directly in law.
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A right to compensation was introduced for employee inventors when their creations bring major benefit to the company.
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Unfair employment clauses (that tried to remove employee rights) were made unenforceable.
5. Section 39: The Core of Ownership
Section 39 of the Patents Act 1977 defines who owns the invention when it’s made by an employee.
There are two main principles:
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Default rule (s.39(2)) – The invention belongs to the employee, unless specific conditions apply.
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Employer ownership (s.39(1)) – The invention belongs to the employer only if certain criteria are met.
This creates a fair balance: not everything created at work automatically belongs to the company—ownership depends on the employee’s duties and the circumstances.
6. When the Invention Belongs to the Employer
Under s.39(1)(a), the employer owns the invention if:
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It was made in the course of the employee’s normal or assigned duties, and
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It was reasonable to expect that invention could result from those duties.
In simple words:
If your job is to invent, then what you invent belongs to your employer.
Example:
A software developer hired to design AI tools invents a new machine-learning model.
Since it was part of her assigned duties and invention was expected, the company owns the patent.
But if a sales manager, not expected to invent, creates a new product idea independently, that invention usually belongs to the employee.
This logic was confirmed in several real cases.
7. Changing Duties Over Time
Job roles evolve. A person who was not initially hired to invent can later become responsible for innovation.
For instance, after a promotion to a research director role, the same employee could later be “expected to invent.”
This concept was reinforced in LIFFE —ownership depends on what your job responsibilities are at the time the invention is made, not when you were first hired.
8. When the Employee Has a “Special Obligation” (s.39(1)(b))
Even if invention isn’t their direct duty, the law may still give ownership to the employer if:
This usually applies to:
Example:
A company’s Chief Technology Officer develops a new chip design during work. Even if invention wasn’t her specific task, her high-level responsibility means the patent belongs to the company.
9. The Law Protects Employee Rights
Section 42 of the Act prevents companies from forcing employees to sign away their invention rights in advance.
Any contract clause that tries to “reduce” the inventor’s legal rights is unenforceable.
In short:
✅ Employers can own inventions under fair conditions.
❌ But they can’t take everything by contract.
10. Why This Matters for Entrepreneurs and Startups
If you’re building a startup or managing a global business, understanding these rules protects you from future disputes.
Many co-founders and early employees fall into legal traps by:
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Not clarifying invention ownership from the start,
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Ignoring the difference between idea contribution and inventive contribution,
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Forgetting to register assignments or agreements properly.
In today’s global business environment, this clarity is your shield—especially if you plan to expand into multiple regions or attract investors.
Turning Invention into Assets: Compensation, Licensing, and the Global Life of a Patent
Innovation is not just about ideas — it’s about ownership, reward, and management.
Once a patent is granted, it becomes more than a certificate of creativity; it turns into a business asset that can be licensed, sold, or monetized.
But what happens when the inventor is an employee, and the patent belongs to the employer? Can the inventor still get paid?
Let’s break down how modern patent law answers that question — and how global businesses can use these principles to grow responsibly.
1. When the Company Owns the Patent, but the Employee Created It
Under Section 40(1) of the Patents Act 1977 (and similar laws in many countries), an employee-inventor can receive financial compensation even if the patent legally belongs to the company.
Four strict conditions must be met:
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The employee made an invention that belongs to the employer;
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The invention received a granted patent;
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The patent (or the invention itself) brought an outstanding benefit to the employer’s business; and
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It’s fair and just to give the inventor a reward.
2. What Counts as an “Outstanding Benefit”?
This is where most claims fail — the benefit must be exceptional, not just “useful.”
If the invention helped the company save only a small fraction of costs or improved efficiency slightly, it’s usually not enough.
But if it brought a major financial advantage, opened new markets, or generated long-term profit, the court may consider compensation.
Example:
A biotech engineer in Tokyo creates a new enzyme that allows her company to produce medicine at half the usual cost.
Even though the patent belongs to her employer, the invention produces huge global savings.
If the court agrees this is an outstanding benefit, she can be compensated.
3. The Famous “Shanks v Unilever” Case — and What It Means Globally
In 2019, the UK Supreme Court decided one of the most important cases on this topic: Shanks v Unilever.
Professor Shanks, who invented a testing device while working for Unilever, received £2 million after years of litigation.
The Court said that:
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“Outstanding” means exceptional or standing out from the ordinary,
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The benefit must be judged relative to the business unit that used the invention, not the entire multinational group, and
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The inventor should receive a fair share (in that case, 5% of the total benefit).
This decision changed how businesses worldwide approach inventor rewards — it encouraged fairer recognition and reduced the risk of losing talent.
4. When the Employee Originally Owned the Patent
Sometimes the situation is reversed.
Under Section 40(2), the employee might originally own the patent (because invention wasn’t part of their assigned duties) but later assigns or licenses it to the employer.
In that case, compensation may still apply if:
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The employee owned the invention and later transferred it,
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The patent was granted,
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The payment received for the transfer was inadequate compared to the employer’s gain, and
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It’s fair to award more compensation.
Example:
A designer in Seoul creates an energy-efficient packaging method at home, later sells the patent to her company for a small sum.
If that patent later earns the company millions, she could claim additional compensation for inadequate benefit.
5. What Does “Fair Share” Mean in Practice?
There’s no fixed formula — courts and patent offices usually look at:
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The size of the company,
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The inventor’s role and contribution,
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The value of the patent to the company, and
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The fairness of previous payments.
In most real cases, inventors receive between 1% and 5% of the proven financial benefit.
The amount may seem small — but for highly valuable patents, that can mean hundreds of thousands or even millions.
6. Patents as Business Property
Once granted, patents become personal property — just like shares, machinery, or real estate.
They can be:
All these transactions must be in writing and registered with the national Patent Office to be valid and enforceable.
Tip for Startups:
Always register transfers or licences officially.
If you don’t, you might lose rights in court or be unable to claim damages for infringement.
7. Licensing: Exclusive vs Non-Exclusive
Businesses can grant others permission to use their patents through licences.
There are two main types:
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Exclusive Licence → Only one licensee can use the patent.
(Often used in tech partnerships or joint ventures.)
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Non-Exclusive Licence → Multiple licensees can use the same patent.
(Common in manufacturing or distribution.)
In some systems, an exclusive licensee can even sue infringers directly — but only if the licence is properly registered.
8. Compulsory Licences and “Licences of Right”
Governments can sometimes force a patent owner to license their invention — usually if:
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The invention isn’t being used enough, or
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It’s needed for public benefit (e.g., healthcare or national security).
This is called a compulsory licence.
It ensures patents serve society, not just private profit.
Similarly, an inventor can voluntarily endorse their patent as a “licence of right,” allowing others to use it under fair terms — often in exchange for lower maintenance fees or faster collaboration.
9. The Crown and Government Use
Many countries give their governments special powers to use patented technology in the public interest — for example, during emergencies, defense operations, or public health crises.
This concept (under Section 55 in the UK) ensures that innovation can serve the nation when necessary, while inventors still receive reasonable compensation.
10. Competition Law and Global Patent Dealings
When businesses license or share patents, they must respect competition law — both in their own country and in cross-border deals.
In Europe, this means following the EU’s Technology Transfer Regulation, which allows certain licensing agreements if they don’t restrict fair competition (for example, banning others from innovating).
In Asia, many countries — such as Singapore, Japan, and South Korea — have adopted similar fair-competition rules for patent use.
The goal is to balance innovation protection with market fairness.
11. What This Means for Entrepreneurs and Global Businesses
For modern companies, patents are not just about protection — they’re a form of intellectual capital.
Handled correctly, they can:
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Attract investors,
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Build trust with partners,
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Generate licensing income, and
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Strengthen your brand’s global position.
But mishandled patents — unclear ownership, missing records, unfair contracts — can lead to years of legal disputes.
So whether you’re a solo inventor in Mumbai or a startup in Milan, always treat your inventions as strategic assets, not just creative projects.
Key Takeaway
Innovation builds the future, but ownership builds the value.
Every successful company needs both:
Q1: Who is legally recognized as the inventor of a patentable idea?
The person(s) who made the creative intellectual contribution that produced the invention The person who funded the project or approved it The manager or director overseeing the project
Q2: Under Section 39 of the UK Patents Act 1977, when does an employer automatically own the invention?
If the invention was made in the course of normal duties where it was reasonable to expect such an invention For any invention created at home or outside work hours Only if the employee explicitly signs a waiver of rights
Q3: When can an employee receive compensation for an invention that legally belongs to the employer?
If the invention is patented, brings an outstanding benefit to the employer, and it is fair to reward the inventor Automatically, for every invention created at work Only if the invention was created outside normal duties
