IPC Court Affirmed a Work Rule being a Reasonable Basis to Reward Service Invention Patents

On March 7, 2022, the IPC Court issued a decision 108-CivilPatAppeal-No.36 regarding the adequacy of inventor remuneration. The court stated that interpretations of laws should not go beyond the choice of legislative policies.

Yang was an employee in United Epitaxy, where he had been engaged in the research and development of LED-related new products from 2000 to 2003. United Epitaxy filed and was granted three Taiwanese patents resulting from Yang’s inventions. Yang complained that United Epitaxy failed to reasonably compensate him when the company subsequently generated a significant profit from Yang’s patented inventions. 

As United Epitaxy merged into Epistar in 2005, Yang sued Epistar for TWD 10 million as an outstanding employee’s invention remuneration. The IPC Court in the trial ruled against Yang. He appealed the case (remaining in the jurisdiction of the IPC Court) and claimed an additional sum of TWD 40 million.

The appellate court began its analysis by defining the statutory provisions and a work rule in relation to the remuneration. Article 7(1) of the Patent Act reads: “where an invention is made by an employee in the course of performing work duties, the ownership of invention and the patent right thereof shall be vested in the employer (“ownership clause”) and the employer shall pay the employee reasonable remuneration (“remuneration clause”); where there is an agreement providing otherwise, such agreement shall prevail (“overriding clause”)”. That is, the ownership of a work-for-hire belongs to the employer and, meanwhile, the employee is entitled to an extra payment rewarding his or her contribution which is, notably, in addition to the salary package. This is however a default rather than a mandatory rule. If there is an alternative agreement or a work rule stipulating differently, the default rule shall be overridden. As the overriding clause of an agreement comes after both the ownership clause and the remuneration clause in Article 7(1), an agreement, if one so exists, should govern not only by whom the service invention be possessed but also the practices for rewarding an employee. In other words, if there is an agreement between parties with regard to the ownership of right or adequate remuneration, this agreement shall prevail.

In the present case, the court found that United Epitaxy had promulgated a Reward Protocol which had clear and manifest guidance on the fixed amounts of remuneration. Specifically, in Section 5.2 of the Reward Protocol, “the amount of reward is: NTD 8,000 per patent application filed; NTD 15,000 per Taiwan or mainland China patent granted…” Apparently, the Reward Protocol was an established alternative over the default rule in Article 7(1). Since Yang admitted that he had received his service invention reward according to the Reward Protocol, Yang’s extra claim for the sum of NTD 50 million was groundless, the court stressed.

Yang raised several other supporting arguments but, discouragingly, none of them were admitted.  

Firstly, Yang wrongfully interpreted the structure of the statutory text in Article 7(1). He argued that the original version of the bill for Article 7(1) contained only the default ownership clause and the overriding clause. The reasonable remuneration clause was inserted between said two other provisions at a very late stage in the legislation—just prior to the passing of Article 7(1). Yang therefore insisted that the original legislative intent required that an agreement such as a work rule would not be able to override the remuneration obligation. However, the court repudiated this, explaining that such an interpretation did not bind the court. The court investigated the bill’s legislative history and discovered that congresspersons had been discussing whether there should be a law to demand a specific remuneration amount in the absence of a work agreement. Hence, it was clearly evident that the overriding clause should cover both the default rules of the ownership clause and the remuneration clause.

Referring to the introduction of another bill of amendment to Article 7, Yang highlighted a proposal aimed at improving the employee’s benefits to be remunerated. In the proposed Article 7(2), instead of only obliging the employer to pay, the employee was conferred an entitlement to claim a reasonable remuneration. Furthermore, in the proposed Article 7(3), on the subject of whether a payment of remuneration is adequate, it was suggested that the consideration factors should include the employer’s profits gained, the employer’s costs and contributions, and the employee’s overall compensation. However, as the court emphasized, this proposal was ultimately not passed. This proposal had no place in the interpretation of the currently effective Article 7. Since United Epitaxy’s Reward Protocol was a lawful agreement under Article 7, Yang accordingly received a set amount which did not contravene any mandatory rules as per Article 71 of the Civil Code. United Epitaxy’s Reward Protocol was valid.

Yang continued to criticize the reward amounts from said Reward Protocol for being excessively low. Article 247-1 of the Civil Code is a fair treatment provision to nullify a term in a standardized contract set by one party when the term is found to be clearly unfair to the counterparty that has minimal or no power to change it, including by means of waiving or lightening the obligations of the party setting the contract. In Yang’s opinion, the Reward Protocol according to which he received payments was unfairly miserly. The court refuted Yang’s argument on the grounds that the Reward Protocol was a lawful basis for awarding a service invention prize and it did not waive the employer from such an obligation. The court further elaborated that an employer’s investments in patents did not necessarily translate into generation of profits dollar for dollar. A commercial success might rely on a series of other massive costs in production, management, human resources and so on. In view of these factors leading to an employer’s expenditures and gains, the remuneration amounts set in the Reward Protocol were not obviously excessively low, inadequate or unreasonable. Even though Yang argued—by citing comparative legislations from various countries—that the current rule does not safeguard the interests of inventors who are in a disadvantageous position, the court rebutted this claim and indicated that interpretations of laws should not go beyond the choice of legislative policies. The question should be left to the legislative department for consideration and should be resolved through legislative procedures.

To summarize, the IPC Court affirmed the trial decision, deeming it to be correct. Yang’s appeal, together with claims totaling NTD 50 million, were dismissed. The decision is appealable to the Supreme Court.