Determining remuneration for work-for-hire inventions following patent transfer

In Korea, an employee has the right to obtain reasonable remuneration for a work-for-hire invention when he or she transfers a patent right (or the right to obtain a patent) or grants an exclusive licence to the employer in accordance with a contract or service regulation. Further, the employer’s expected profit from the work-for-hire invention is considered when determining the reasonable remuneration. A recent Supreme Court opinion (Supreme Court Case 2010 Da 26769, 11th November 2010) provides insight on whether the assignee’s expected profit, in addition to the assignor’s expected profit, should be considered when determining the reasonable remuneration if both the patent related to the work-for-hire invention and the relevant business are transferred from the assignor to the assignee.

Background
The plaintiff developed an invention relating to a method for manufacturing polytetramethylene etherglycol diester (PTMEG) around 1995 when he was an employee of Company 1. Thereafter, the plaintiff implicitly transferred a right to obtain a patent to Company 2, which Company 1 established to manufacture the PTMEG, and Company 2 was merged into Company 3. Companies 1, 2 and 3 paid the plaintiff no remuneration for the work-for-hire invention.

The plaintiff left Company 1 in August 2000 and began working for the defendant in October 2000. The defendant acquired the PTMEG business relating to the invention from Company 3 in accordance with a contract between the defendant and Company 3. The plaintiff stopped working for the defendant in December 2005.

On 30th March 2005 the plaintiff notified the defendant by contents-certified mail that it had the right to obtain remuneration for the work-for-hire invention. Thereafter, the defendant had several discussions with the plaintiff regarding the amount of remuneration to be paid.

Supreme Court decision 
The Supreme Court clarified who should pay remuneration to the plaintiff and how the amount of remuneration should be determined. 

The Supreme Court held that the plaintiff did not abandon his right to receive compensation through the implicit assignment of the right to obtain a patent to Company 2. It found that there was an implied contract between the plaintiff and Company 2 that an amount corresponding to the remuneration for the work-for-hire invention (assuming that the invention was a work-for-hire invention) should be paid to the plaintiff as compensation for the assignment.

The court also held that in consideration of the details of the assignment contract regarding the PTMEG business between the defendant and Company 3 (merged from Company 2), the defendant did not expressly take over liability for paying the amount corresponding to the remuneration for the work-for-hire invention to the plaintiff through the assignment contract regarding the PTMEG business. However, the court held that the defendant later showed an intent to take over liability for paying the remuneration for the work-for-hire invention, because the defendant had several discussions with the plaintiff about the amount of the remuneration after receiving the certified letter. Accordingly, the court held that the defendant was liable to pay the remuneration for the work-for-hire invention to the plaintiff as compensation for the assignment of the invention.

As to whether the defendant’s profit or expected profit from the invention should be considered when determining the amount of remuneration for the work-for-hire invention, the Supreme Court held:

"After an employer transfers a work-for-hire invention to a third party, there is no more profit obtainable from the invention. Further, the profit of the assignee of the invention (the defendant in this case) obtained by practising the work-for-hire invention now rests with the assignee. Thus, it is unreasonable to consider the assignee’s profit for determining the remuneration for the work-for-hire invention to be paid by the employer. Accordingly, if the employer transferred the work-for-hire invention to the third party, unless there are special circumstances, only the employer’s profit (including the amount paid by the third party for the assignment) obtained until the employer transferred the invention should be considered when determining the remuneration for the work-for-hire invention to be paid to the employee by the employer (assignor)."

According to the implied contract between the plaintiff and Company 2 that the remuneration for the work-for-hire invention be paid to the plaintiff as compensation for the assignment of the invention from the plaintiff to Company 2, the remuneration should be determined by referring only to the profit obtained until the invention was transferred to a third party, unless there were special circumstances to the contrary. In other words, compensation for the assignment should not be determined by referring to the third party’s expected profit.

Thus, unless there were special circumstances between the plaintiff and the defendant (eg, they entered into a new contract that the assignment reward would be determined based on the defendant’s expected profits), the defendant was liable for paying remuneration for the work-for-hire invention to the plaintiff by referring only to the profit of Company 2 and Company 3, and not the future profits of the defendant.

The court held that the defendant should pay remuneration for the work-for-hire invention to the plaintiff by referring only to the profit of Company 2 and Company 3, and that there was no need to consider the defendant’s expected profit when determining the remuneration for the work-for-hire invention.

Comment
The Supreme Court's decision indicates that, considering all circumstances surrounding the transfer of a business relating to a work-for-hire invention, the defendant which acquires the business by the assignment is liable to pay remuneration for the work-for-hire invention to the plaintiff. However, future profits to be obtained after the patent assignment (ie, the defendant’s expected profit) should not be considered when determining the amount of the remuneration.

This decision is significant in determining the remuneration for work-for-hire inventions, since it overturned the decisions of lower courts which considered the defendant’s expected profits (a High Court decision) and that there was no basis to calculate the remuneration amount (a district court decision).