Products protected by patents that also generate substantial revenue are, of course, a positive outcome – both for companies and the inventors involved. However, there can be some clouds on the horizon, potentially leading to costly consequences for the employer if unclear circumstances arise. These issues may stem from vague or incorrect descriptions of employment terms, flaws in procedures for handling inventions, or ambiguities in identifying inventors and calculating reasonable compensation.

Despite companies’ efforts to fulfill their obligations and compensate employees, courts may still find those efforts insufficient. In a recent case adjudicated by the Swedish Patent and Market Court of Appeal (PMÖD), the court ruled that an employee was entitled to reasonable compensation beyond the salary and bonuses they had previously received.

The Swedish Act on Employee Inventions (1949:345) (LAU) clarifies that, as a general rule, employees have the same rights to their inventions as other inventors and are entitled to reasonable compensation for their inventions. In the case recently decided by PMÖD, the employer and the former employee disagreed on several issues, including whether the former employee was the sole inventor or whether there were co-inventors. The most contentious issue, however, was the size of the compensation the former employee was entitled to.

In the first instance, the Patent and Market Court (PMD) dismissed the former employee’s claim for additional compensation of SEK 21.9 million, along with 5% of sales or licensing revenue (from products utilizing the patent in question) over a ten-year period. The former employee appealed to the next instance, PMÖD, which partially sided with the employee. PMÖD ordered the employer to pay just over SEK 4 million and 1% of sales or licensing revenue during the specified ten-year period.

Key Considerations in the Court’s Decision

No single factor was decisive in PMÖD’s decision to overturn PMD’s ruling. Instead, the court conducted a comprehensive assessment of several criteria, including:

• The nature of the employee’s duties.
• The role of the employment in enabling the invention.
• Whether the invention was created by one or several co-inventors.
• Whether the inventor had already received compensation related to the invention.

The employer argued that the employee had already been compensated through salary and other benefits. Additionally, the employee had signed a questionnaire affirming they had no claims against the company. However, PMÖD ultimately concluded that the former employee was entitled to additional compensation based on a holistic assessment.

Calculating Reasonable Compensation

The court put significant effort into determining what constituted reasonable compensation. PMÖD concluded that while the invention lacked significant technical value, it held considerable commercial value. The court also took into account the fact that the former employee had access to the employer’s resources and knowledge of the problems that needed solving as part of their role.

The employer, dissatisfied with PMÖD’s ruling, sought to appeal to the Supreme Court by requesting leave to appeal, which was denied.

Who Is Affected by This Case?

This ruling has implications for a broad range of businesses, particularly in the private sector.

Recommendations for Businesses

It is advisable for companies to familiarize themselves with applicable regulations relevant to their operations. They should also review existing collective agreements, contracts, policies, and process descriptions. Based on these, a detailed action plan with appropriate measures can be developed to ensure compliance and mitigate risks related to disputes over inventions.