Incentivizing Innovation – Is Your Enterprise Missing Opportunities to Generate and Capture Valuable IP?

Written by: Stephen D. Harper, Ph.D.

In today’s global business environment, a commercial enterprise must maintain its competitive edge by investing in research and development programs directed to innovative technologies.  If successful, such programs will create protectable intellectual property and help to ensure that the developing enterprise enjoys at least some measure of exclusivity with respect to the IP and new technologies arising out of its R&D investment.

If an innovation is technical in nature, it may be protectable by filing a patent application.  Should such an application be granted, the resulting patent provides its owner with the right to exclude others from, e.g., making, using or selling the invention claimed in the patent for a certain period of time.  If the innovation is not capable of being reverse-engineered, it could instead be maintained as a trade secret.  The owner of the trade secret may take action against others who misappropriate the trade secret, provided the legal requirements for trade secret protection (e.g., confidentiality) are met.

Typically, technical innovations are made by scientists and engineers whose primary job responsibilities include their participation in research and development programs, although marketing and business personnel may play an active role in such programs as well.  The compensation and advancement of such employees will, of course, depend at least in part on their ability to contribute in a significant way to the success of R&D programs as reflected in the launch of new commercial products or processes based on the IP originating from such programs.  While this may be sufficient incentive to motivate employees to actively participate in the process of legally protecting such intellectual property, many organizations have found it helpful or even necessary to implement inventor award programs to ensure the cooperation of innovators in securing adequate legal protection of their newly developed technology through either patent filings or trade secret programs.

In a patent application, for example, a detailed description of the invention being claimed must be provided to meet the statutory requirements for an adequate written description and enabling disclosure of the invention and to best position the claimed invention to establish that it is both novel and nonobvious over the state of the art.  The technical input of the inventor is usually critical to a successful outcome of the filing and examination process.  Moreover, the inventor must take responsibility for preparing an initial summary of his or her invention that is sufficient to allow the organization to decide whether to seek patent protection to begin with (or to instead safeguard the innovation as a trade secret).  In addition, the inventor must review and sign certain documents to meet formal filing requirements and to secure the employer’s intellectual property rights in the invention (an inventor, under U.S. law, is deemed to be the initial owner of any invention he or she makes as an employee, even if there is a contractual or other obligation to assign to an employer).

In the United States, there is no legal requirement for an employer to directly compensate an employee who is named as an inventor on a patent application filed by the employer.  However, other countries (notably, Germany and Japan) do have such requirements, which should be carefully adhered to in order to avoid any loss of rights or claim by the inventor against the employer.

Inventor recognition programs implemented by organizations within the United States often do include a financial component.  However, the amount of money paid to an inventor varies quite widely, from token amounts (e.g., $100-200 or perhaps the equivalent value in a gift selected by the employee) to more substantial sums (e.g., several thousands of dollars).  Consideration could also be given to paying an inventor a “royalty” which is a percentage of the net sales realized by a product embodying an invention made by that inventor, although such compensation systems can be quite cumbersome to administer.

Another important factor to consider is the timing of the award payments.  It is probably most common for U.S.-based enterprises to make a payment to the inventor upon the grant of the first U.S. patent directed to a particular invention made by that inventor.  If subsequent U.S. or foreign patents are also granted related to the same invention, additional payments may or may not be made.

As a way of incentivizing employees to take the time needed to prepare a detailed invention disclosure document memorializing their invention and initiating the patenting process, many employers have also found it helpful to pay inventors upon the receipt of such an invention disclosure document.  The amount of such payment should be carefully calibrated, however, to ensure that the document is of sufficient quality.  Alternatively, the incentive payment could be made conditional upon a decision to proceed with the actual filing of a patent application based on the invention disclosure.

To encourage the active participation of the inventor in the preparation of the patent application itself (which typically requires the inventor to provide significant technical information beyond what is captured in the original invention disclosure, as well as meaningful feedback on drafts of the application prepared by a patent attorney or agent), consideration should also be given to making a payment to the inventor when the application has been finalized and filed (including any documents that need to be executed by the inventor, such as an assignment of the patent rights to the employer and an inventor declaration).

Of course, the patenting process does not end with the filing of a first priority application.  It is common practice for the first priority application (which typically is a provisional U.S. application) to be followed by a non-provisional  or continuation-in-part U.S. application and/or a PCT or other foreign application which includes additional subject matter not included in the original filing, as a result of further R&D work done on the invention.  The inventor will play an important role in adding such further disclosure to the application and thus it will often be appropriate to provide an additional financial incentive in connection with such expanded or revised follow-up applications.

The inventor’s assistance may be needed beyond the filing stage.  For example, the application may be initially rejected based on certain prior art documents cited by an examiner.  The inventor may need to critically evaluate those prior art documents and otherwise assist an attorney or agent in preparing a convincing rebuttal to such a rejection (including perhaps carrying out comparative testing and/or submitting a technical declaration).  In view of such challenges, requiring the active and significant participation of an inventor, most inventor recognition programs provide for a payment to the inventor upon allowance or grant of an application.

Additionally, an employee’s job performance, and thus potential for bonuses and/or promotions, could be formally based in part on his or her level of achievement during the relevant evaluation period with respect to the number of invention disclosures submitted and/or approved for filing, the number of patent applications filed, and/or the number of patents actually granted.  This approach should clearly incentivize the active participation of the employee in the patenting process.

In addition to financial incentives, the following types of inventor recognition initiatives could be considered:

  1. Patent Plaques – A plaque listing the patent number, the inventor’s name, the patent title, the organization’s name, an abstract of the invention, and possibly other relevant information may be awarded to the inventor. Such plaques are readily available from multiple commercial sources and may be customized to meet a particular organization’s needs.  The inventor may receive a plaque for each patent issued, or only for his or her first patent.
  2. Technical Achievement Awards – An employee who has made a technical contribution that is considered commercially significant, but either not patentable or better protected as a trade secret, may be acknowledged by awarding him or her a commemorative item, in lieu of a patent plaque.
  3. Inventor Recognition Events – Individuals who have been listed as inventors on granted patents or who have been given a technical achievement award may be publicly recognized at an event such as an annual awards lunch or dinner, which could include the individual’s family. Such events could include special recognition of veteran/prolific inventors (for example, employees who have been named on 10 or more granted patents).
  4. Inventor Hall of Fame – If deemed appropriate, an organization may maintain an inventor hall of fame in a publicly accessible location (such as the lobby of its main R&D facility or corporate office). Such a display may include patent plaques, ribboned copies of granted patents, a listing of inventors and the patents they received each year, copies of press releases and articles recognizing technical advances made by company employees (including published technical papers) and/or other such IP-related paraphernalia.
  5. Company Newsletters and Internal Announcements – If the organization publishes an internal newsletter or routinely disseminates information regarding new hires, promotions and the like, such publications can be supplemented by including patent grant information which recognizes the contributions of the individual inventors.

Such measures can be as equally effective as financial payments in motivating employees to diligently participate in the IP protection process.  Most technical personnel take great pride in their contributions to an R&D program and very much appreciate receiving appropriate recognition for their particular role in a successful outcome.

A successful inventor recognition program may be defined as a program which ensures that inventors diligently and enthusiastically participate in the process of developing and protecting their employer’s key intellectual property rights, while staying within appropriate budget and administrative limits.  Clearly, there is no one way such a program must be structured in order to be successful.  An inventor recognition program that falls far short of what others (e.g., competitors) offer may be perceived by inventors as a message that their contributions are not truly valued by their employer.  Another approach is to examine (and remedy) the deficiencies in the employer’s existing IP protection system.  For example, if it is clear that innovations are being made but are not being captured in timely submitted invention disclosures, then consideration should be given to making appropriate financial payments when such invention disclosures are received and actively publicizing the availability of such potential payments within the organization.

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