Inventions necessarily derive from the activity of one or more humans (considering that AI still seems to be at a primordial stage) but almost always refer to the scope of activity of a company. The laws do not ignore this issue and there are specific rules concerning the relationship between inventors and their companies. This article will explore the situation in Italy and the latest developments in national legislation regarding inventive activity.
Inventions developed by private entities
Article 64 of the Italian Industrial Property Code (IPC), a law governing intellectual property rights with the sole exception of copyright, provides for three options:
‘Service invention’ – the inventive activity is included among the employee's duties according to the employment contract and a part of the salary is specifically linked to that activity. If this is the case, the company owns the right to file a patent application for the invention and the employee is not entitled to receive any additional payment.
‘Company invention’ – the employment contract does not provide for remuneration for the inventive activity, but the invention is nevertheless made in fulfilment of an employment contract. The company still holds the right to file a patent application for the invention, but the inventor is entitled to obtain a fair compensation from the employer.
‘Occasional invention’ – the invention falls within the company's field of activity, but the duties of the employee/inventor do not concern inventive activity. In this case, the employee is required to disclose the invention to the company, which will have the option of purchasing the patent application or obtaining a right to use the invention, again for a fee. This third scenario occurs very rarely.
If there is more than one inventor, the applicable rules do not change, and the above rules apply in the case of a group consisting of employees of the same company and in the case of employees of different companies.
Inventions developed by universities or public research organisations
Until August 2023, Article 65 of the IPC applied the principle of ‘professor's privilege’ to inventions made by researchers working within universities or other public research organisations. These individuals were thus not subject to the conditions for employees of private companies, as they had the right to file patent applications in their own name. Exceptions were also provided for in the case of research funded by third parties, but the legislation, in nearly two decades of application, had not proved successful because researchers had not shown particular interest in filing patent applications, preferring in many cases to reach an agreement with the relevant universities or third parties that had funded the research.
As of August 2023, a reform of Article 65 came into effect that completely reversed the paradigm, with an appropriate abolition of the professor's privilege and a right to proceed with the filing of the patent application passing, in principle, to the university or research institution. The researcher has the right to file a patent application in their own name only if the relevant facility does not proceed with filing within six months of (mandatory) notice of the existence of a patentable invention.
The new Article 65 recognises the importance of university autonomy, and it is now standard practice for universities and public research organisations to regulate research activity and any intellectual property rights arising from it in great detail.
What companies should know… but usually do not ask about
An issue that has been much debated in doctrine and case law concerns the treatment of professional figures other than employees. There have been, and remain, conflicting opinions because Article 64 could be considered a special rule, thus not applicable, by analogy, to individuals who are not employees, or as an expression of a general principle and thus extendable, by analogy, to different professional figures.
A clarification in this regard was provided by a recent law (No. 81/2017, dealing with self-employment in general), which, in its Article 4, clarified that economic rights to an invention developed by a self-employed worker are generally owned by the latter, apart from in the case (similar to the one provided at the beginning of Article 64 of the IPC) of a consultancy agreement that makes specific reference to the inventive activity and provides for a specific compensation for such activity.
Another sensitive issue concerns employees who leave a company. The last paragraph of Article 64 clarifies that patent applications filed by a former employee in the year following the date of termination of employment are to be considered as developed within the company and thus subject to the rules set forth in Article 64.
This is a mere presumption, which can be overcome by the employee (by proving that the patent application relates to an invention that was not developed within the company) or by the company (which could prove ownership by the company of a patent application that was filed more than a year after the termination of the employment relationship with the former employee). In this regard, it is interesting to note that some judgments have found this rule to be applicable even to ‘fiduciary holders’ of the patent application (e.g., family members of the inventor who do not have technical expertise in a certain field but who were, nevertheless, listed as inventors).
One point that often gives rise to disputes between inventors and companies is, as one can easily imagine, the boundary between the hypotheses of service invention and company invention, with related discussions on whether the employee involved is entitled to receive additional economic remuneration (fair compensation).
The rulings of Italian courts have often espoused the arguments of employees in the most dubious cases. There would be no dispute, in fact, if there were specific clauses in the employment contracts stating that the employee “is paid for inventing”, or if “inventive activity” was explicitly mentioned among the employee's duties (or even equivalent wording such as “research and development”), and if the contracts clearly state that part of the remuneration is provided for as a “supplement against inventive activity”.
Obviously, the content of contracts is often not so clear and both situations need to be reconstructed, perhaps by referring to the overall structure of the contract examined.
On the reconstruction of inventive activity as the subject matter of the agreement, there is more flexibility in the sense that it is easier, for that type of subject matter, to be detected by referring to more generic definitions and looking at the actual tasks performed by the employee within the company structure. It is more complicated to detect specific remuneration when the contract does not specifically provide for it, and this is related to the fact that the employee is usually considered a ‘weaker party’ and therefore deserving of greater protection in disputes with the company to which they belong.
A number of rulings issued by Italian courts have identified dedicated remuneration for inventive activity in situations where the employment contract, while not taking an explicit position on the ‘special’ nature of the remuneration, showed that the remuneration was significantly higher than that payable to co-workers performing similar functions. Obviously, this assessment is subject to some discretion and is made on a case-by-case basis, as there is no exact benchmark.
In the absence of specific remuneration for inventive activity, the company, as mentioned earlier, is required to pay the employee a fair compensation. The moment from which the amount becomes payable is that at which the patent is granted or, as specified in the above-mentioned Article 64, that at which the company decides to exploit the invention as a trade secret.
The fair compensation, again according to the applicable regulations, must be calculated considering:
The importance of the invention to the company;
The tasks performed by the employee and the remuneration due to them; and
The contribution that the company has made to the achievement of the invention.
The value of the compensation will thus tend to be lowered, for example, in the case of particularly qualified researchers who are put in charge of a team or in the case where the machinery or, at any rate, the facilities set up by the company play a key role in achieving the invention.
Italian courts apply the so-called German formula to determine the amount of the fair compensation. The formula, as is well known, results from the following combination of values:
EP = (V x C) x P
V denotes the value of the patent (discounting of future economic benefits), C is a coefficient for lowering the value of the invention, and P is a factor that proportionally decreases the amount of EP and is derived by combining three elements (degree of the employee's autonomy in dealing with the problem, contribution made by the company, and the employee's duties and their position within the company). However, some Italian rulings (in particular, by the Court of Cassation in January 2020) have questioned the importance of the German formula by criticising its exclusive focus on economic aspects and thus admitting the possibility of correctives related to the importance of the invention for the company in other respects.
The existence and amount of the fair compensation may be disputed as part of a lawsuit, but it is not ruled out that the employee and the employer may reach an agreement on a certain amount, or even that the employee may waive the compensation. In such cases, it should be remembered that:
Any waiver made before the granting of the patent is null and void; in fact, the rules mean to prevent the employee (the weaker party to the negotiation) from waiving their right before they have even acquired it, and therefore before knowing the details;
Agreements regarding the amount of the compensation (or the waiver thereof) may also be concluded directly between the parties, without the intervention of a third party, but in that case they are appealable by the employee within six months from the date of termination of employment;
Agreements relating to the fair compensation in which the employee was assisted by a trade union representative or that were otherwise concluded “in a protected setting” (i.e., as part of a judicial or administrative settlement) are not appealable;
The agreement regarding the compensation, if reached between a single inventor and the company, has no impact on the amounts payable to the remaining co-inventors (whose position may be different, both with regard to their inventive contribution and with regard to duties within the company, remuneration, etc.); and
The right to the fair compensation is subject to prescription once ten years have elapsed from the date the patent was granted (or from the date the company decided to exploit the invention as a trade secret).
Final remarks: some advice for companies
Italian law, as can be seen, provides a mechanism that attributes to the company almost all inventions that are developed within the company. Thus, cases in which an inventor retains the right to file a patent application in their name for an invention developed within the company are very rare.
On the other hand, it is appropriate for companies to raise the question of how to regulate the economic aspect of the matter, especially in cases of particularly innovative companies with many employees theoretically able to participate in inventive activity. In those cases, in the author’s opinion, companies should seriously consider the option of modifying the employment contracts of the most productive researchers so as to include a reference to inventive activity and, more importantly, specific remuneration for the inventive activity performed. There is no specific parameter for determining such an amount, but it certainly cannot be a token increase; instead, there needs to be a real pay increase that considers the added value that potential inventions bring to the company.
In general, it is appropriate for Italian companies to be aware of the problem and see innovation as an investment and not just an expense. This awareness will help companies and employees to grow innovation and consequently enhance the quality of work within the company.
