Oxford case (3): ownership of employee inventions

This is the third of five (or more) articles that focus on detailed issues that arise from the judgment in the case of Oxford University Innovation Ltd v Oxford Nanoimaging Ltd [2022] EWHC 3200 (Pat). The previous article discussed the judge’s conclusions on whether the wording of the university’s IP policy was fair under consumer protection laws. Later articles will consider whether, even if the policy itself is fair, a university might implement it in an unfair way.

This article moves away from the subject of fairness, and instead focuses on an IP law issue, namely whether an employer or employee owns an employee’s invention, particularly in a university setting. In the UK, this issue is governed by section 39 of the Patents Act 1977.

Attitudes in the 1970s were rather different to those today. The decade is famous for its industrial disputes, scheduled power cuts and the decline of British economy, but it was also a time when laws were passed that improved the rights of employees. Most famous of these were the new laws on equal pay, unfair dismissal and redundancy.

IP Draughts considers section 39 of the Patents Act 1977 to be another product of that era. Rather than adopt the simple “course of employment” test that governs ownership of employee-generated copyright, Parliament brought in a complex, three-limbed test to decide when the employer owns an employee invention; this test attempts to be “fair” to the employee. The theme of fairness is supplemented by making it impossible to contract out of the section 39 test (see section 42), and by providing for compensation to the employee in certain circumstances where the invention belongs to the employer (see sections 40 and 41).

In summary, an invention belongs to the employer where the invention is made in the course of:

(a) the employee’s normal duties;

(b) the employee’s specially assigned duties; or

(c) the employee’s duties, and the employee’s role was one where he had “a special obligation to further the interests of the employer’s undertaking”. This seems to be broader than just being a senior employee, but its precise limits are unclear.

Applying these tests to academic employees is not straightforward. We can probably ignore item (c). The difficulty comes in deciding what the academic’s employment duties are. In the case of a researcher in industry, their employment contract might well specify that they are employed to invent, but this is unlikely to be stated in an university employment contract.

So, we are left with interpreting the academic employee’s duties from looking at their role and what they were instructed to do, rather than getting clarity from the express terms of the employment contract. There has been some limited case law, eg a case about a surgeon in Glasgow whose employment duties did not include inventing a surgical instrument. It might be argued that usually an academic’s role is to do research and/or to teach, and not to make patentable inventions which is more of a commercial activity. In IP Draughts’ view, the prudent course for a university when filing patent applications, is always to get a formal assignment from the academic inventor, rather than cross one’s fingers and hope that a court will agree that the invention was made in the course of the employee’s normal or specially assigned duties. However, he knows of at least one UK “Russell Group” university that takes a different view.

The Oxford case is interesting for several reasons; one of them is the light it shines on the question of an employee’s duties for the purposes of section 39. Now read on…

Introduction

First, a drafting note on the judgment. IP Draughts is under the impression that judges use different templates for their judgments. Some of those templates start with an index, or table of contents. IP Draughts wishes Daniel Alexander had included an index in his 75,000 word judgment, so that he could quickly find the discussion of particular topics, in this case Mr Jing’s employment duties and the effect of section 39 of the Patents Act 1977. The topic is introduced in paragraphs 20-23, Mr Jing’s employment role is discussed particularly at paragraphs 130-146 and 172-173, and the main discussion of section 39 of the Patents Act is in paragraphs 201-221. The themes of intellectual contribution, employment duties, lowly status, rights and fairness are woven through the judgment, and this makes for a compelling narrative; but the structure doesn’t always help to isolate individual themes and the legal issues that relate to them.

Second, it is worth mentioning that the question of inventorship – who were the relevant inventors – was a peripheral issue in this case. The judge deals with this as follows:

44. …OUI was content to have the case determined on the basis that Mr Jing alone devised the Licensed IP. That was a sensible and pragmatic approach. However, it leads to a question as to how to evaluate contractual terms which provide for individuals to share in benefits obtained from patents who are not regarded as having devised the inventions in question under English law and whether a term which requires such benefits to be shared with those who are not regarded as inventors under the relevant statutory provisions is fair.
45. ONI originally also counterclaimed for declarations that Mr Jing was the sole inventor of the patents and consequential relief relating to rectification of the Register.
46. During the trial, I questioned what the status of that claim was, given the fact that the other inventors were not parties and the ordinary procedure before the Comptroller for determining inventorship disputes had not been followed. In the circumstances, it does not seem appropriate, notwithstanding the basis upon which OUI was prepared to have this case determined, to make the declarations and orders for rectification of the register sought by ONI. However, I will, if necessary, hear further submissions on this matter following judgment.

IP Draughts is troubled by this aspect, for several reasons:

(1) When looking at whether the employer owns the invention, it seems relevant to consider whether there are other inventors. A group effort feels more likely to be part of the employer’s domain. But this is not a strictly legal point.

(2) When looking at fairness in dealing with junior employees (a central theme of this case, to be discussed further in later articles), it seems highly relevant to consider whether senior staff have been incorrectly named as co-inventors. As well as being a matter of professional pride as to who is the inventor, decisions on inventorship flow through into decisions on revenue-sharing. IP Draughts has been involved in a dispute between students and their supervising professor over whether the latter should be named as an inventor. The professor seemed to feel it was his right to be named as head of the research group. It was very messy, and the students felt that the university was reluctant to stand up to the professor.

(3) Perhaps this issue doesn’t matter in the present case, because OUI was willing to concede that Mr Jing was the sole inventor for the purpose of deciding the case. But IP Draughts is not yet reconciled to the way this issue was handled, particularly given that the case is likely to be a guide to universities on IP issues for many years to come.

Relevant period of time: internship not studentship

The previous articles in this series considered the judge’s comments in relation to Mr Jing’s status as a consumer while doing his DPhil and whether Oxford’s IP policy was fair. This article is concerned with the 7-month period before Mr Jing started his DPhil studies, when Oxford (at the instigation of Professor Achilles Kapanidis who ran the relevant laboratory, and was later named as a co-inventor on the relevant patent) engaged him as an intern. It seems that the key inventions were made during this time.

The judgment records that the prof hired Mr Jing on a 3-month contract, because this was easier to do under Oxford’s internal rules, even though he was to work for a 7-month period, for a lump sum of £6,000. ONI tried to use this rule-breaking to advance their case, but the judge didn’t think it relevant.

IP Draughts comments further on the internship vs studentship issue at the end of this article.

The general law on ownership

After quoting the words of section 39, the judgment summarises the general legal position as follows:

202. Oxford rely on section 39(1)(a), the interpretation of which was considered by the Court of Appeal in LIFFE v Pinkava [2007] EWCA Civ 217; [2007] R.P.C. 30. Oxford summarise the propositions from that case as follows. These were not seriously disputed.
(1) “Normal” and “specifically assigned” duties are mutually exclusive. Unless the invention was made under a duty falling within one or other description, section 39(1)(a) cannot apply and the invention will belong to the employee.
(2) The key question is what was it that the employee was employed to do? The section focuses on the employee’s “duties”, i.e. obligations. The primary source of a duty is the contract of employment.
(3) However, the contract is not the sole arbiter of the duty. The contract and the general nature of the job call for examination. Contracts evolve and the actions of employer and employee over time can give rise to an expansion or contraction. In the end, one is asking whether an employee is employed to innovate and if so what general sort of area those innovation duties cover.
(4) Normal duties are not limited to “day to day” or “primary” duties.
(5) The relevant date is the date on which the invention was made.
(6) For the section to apply the ‘reasonable expectation’ test must also be satisfied. This is not concerned with whether the particular invention was foreseeable but is addressed to whether “an invention” in general terms might result from the work.
203. Jacob LJ said in Pinkava (at [102]):
“If the employee is employed to innovate then it will normally follow that the provision is satisfied.”
204. The majority (Chancellor Morritt and Longmore LJ) also held that the particular attributes of the employee in question were relevant to the ‘reasonable expectation’ limb of section 39(1)(a).
205. Although ONI made quite extensive submissions on this, there was no dispute that these principles were correct. It is therefore unnecessary to cite more than this from Pinkava or to discuss the facts of that case in detail or the (different) provisions of Australian law discussed in University of Western Australia v. Gray [2008] FCA 498, [2009] FCAFC 116, to which ONI also referred.

IP Draughts commented on the University of Western Australia v Gray case in 2009, and a copy of his note can be found via a link on this blog here.

Having set out the law, the judge turns to analysing Mr Jing’s employment duties during the 7 month period when he was an intern, before he started his DPhil studies at Oxford. In essence, he says that Mr Jing was employed to invent a new type of microscope (referred to as the Small Setup) for use in his supervisor’s research project. A prototype for this instrument had been made before Mr Jing joined the Oxford team, and he greatly improved it. His role was comparable to that of an industrial designer working in a company. IP Draughts won’t quote all of the arguments that were made on this subject (see paragraphs 207-219). Here are are some of the highlights:

206. It is common ground that, at least from 26 April 2013 onwards, Mr Jing’s duties included development of the Small Setup and Oxford’s position is that he was employed to assist with that development from the outset. There appeared to be a dispute on this upon which nothing turns.
207. In any event, I find that Mr Jing’s duties as an intern from the start of the project included development of the Small Setup. It is also clear that, from at least 26 April 2013, after which date the focus control system of the Internship Invention was devised, Mr Jing was employed to innovate in the sense of being specifically asked to drive forward the development of a compact single molecule fluorescence microscope of a type that did not then exist. Oxford refers to the Synthetic Biology Grant Application which records the fact that the Oxford Physics group “is developing a compact and affordable single-molecule fluorescence instrument…”
208. I also find that Mr Jing was originally employed as an intern at least in part because of his attributes recorded above which made it particularly likely that he would make inventions. In particular, Mr Jing’s education had involved design of a complete set up of a cryogenic epi-fluorescence microscope, with self-designed microscope components such as objective mount systems that minimize temperature-related instabilities using principles of symmetry.

212. …ONI submits that inventions are not normally expected of PhD students, still less pre-PhD students. That is too sweeping a statement. On the evidence, it is clear that an invention could reasonably have been expected of a person fulfilling that role and specifically of Mr Jing.
213. Third, ONI relies on the “very modest” salary paid to Mr Jing. The pay of an employee is not a relevant consideration under s.39 if, because of their duties and characteristics, invention would be expected from them. I do not accept the argument that, where very limited sums are paid, the expectation of invention is thereby automatically limited or that it is not reasonable to expect it. What an employee is paid may be a relevant consideration in determining whether they are doing the kind of work from which invention is to be expected but where, as here, it is clear that the employee is doing such work, pay adds nothing. Moreover, this was a rather unusual situation in which in effect he had stop gap funding for 7 months pending commencement of his DPhil.
214. It is also not, in my view, correct to look at Mr Jing’s basic pay as an intern in isolation. Under the IP Provisions, Mr Jing was also entitled to a share in the benefits from any invention he made during his time as an intern. So, the total benefits obtained attributable to his work as an intern could be large (and in this case were, albeit that they did not accrue until much later). Quite apart from that he received the benefit of being able to work in one of the leading research labs in the world in this area.

218. Oxford summarises its position as follows. If ONI’s case were accepted, it would follow that Mr Jing was hired into Professor Kapanidis’ lab with the express task of improving the Small Setup because of his skills and experience, was paid to carry out that task (inter alia with potential rights to benefit from doing so), demonstrated that he was adept at it and was, therefore, asked to continue his work under the supervision of Professor Kapanidis and Dr Crawford but nevertheless, was entitled to keep the fruits of his efforts from Professor Kapanidis and the University and to exploit them entirely for his own benefit. In my view, Oxford is right to submit that this would be a surprising outcome. It is not what section 39 of the Act provides.

The judge’s conclusion on section 39 is:

219. The University was properly entitled to any inventions created in the course of Mr Jing’s internship (and specifically the focus control system of the Internship Invention) pursuant to section 39(1) of the Act.

It seems to IP Draughts that, throughout the judgment, the judge places too much emphasis on the benefits to Mr Jing of working at Oxford University, both in career terms (working in a prestigious laboratory with access to research funding), and potential financial rewards (under the revenue sharing terms of Oxford’s IP policy).

One could present the same information in a very different way. The university needs someone with specialist skills; Mr Jing is talented, has relevant skills and needs a job. Both parties benefit from the employment. The terms of employment of junior academic staff are atrocious. The university hires a specialist for a very low salary (possibly illegally low- see below) plus the remote possibility of financial benefits under a revenue sharing policy (which might reasonably be discounted to a net present value of zero at the time the contract is made).

This alternative analysis probably doesn’t affect the question of employment duties under section 39. IP Draughts is persuaded that Mr Jing was employed to invent. IP Draughts wonders how common it is to set a student to work on developing a product that has commercial potential, under the framework of an academic research project and a PhD studentship. In what sense is developing a product “research”?

But he has some sympathy with Mr Jing’s view that the set-up at Oxford, in common with other universities, did not treat him fairly in a general sense. IP Draughts would summarise that position as:

(1) Mr Jing alone made the invention, which was a very focused invention with clear commercial potential that drew upon his exceptional talents and experience

(2) he was in a very junior role, and paid very little

(3) he should have received the lion’s share of the financial benefits from the invention, both in terms of patent royalties and initial equity in the spin-out company

(4) his professor should have received nothing, other than via the department’s share under the university’s revenue sharing terms

(5) the university should have accepted a lower percentage of revenue than usual, in the circumstances of this case

IP Draughts will return to some of these themes in later articles in the series.

Internship vs studentship

This article has discussed the first 7 months of Mr Jing’s work in Professor Kapanidis’ laboratory at Oxford, when the judge concluded that he was an employee. The previous article discussed the remaining period of Mr Jing’s time, when he was a DPhil student, and according to the judgment he was a consumer. During the first period, section 39 governed ownership of his inventions. Section 39 has some elements of fairness “baked in” to the law, but there is no requirement to consider general principles of fairness. During the second period, Oxford’s IP policy governed and had be shown to meet general principles of fairness under consumer law; the judge concluded it was fair.

The judge was keen to make the point that it was artificial, when looking at the role of a PhD student as consumer, to distinguish between different types of funding arrangement. It seems equally artificial to IP Draughts to distinguish between the internship phase and the studentship phase, given that Mr Jing did the same work during both periods. If he was a consumer as a student, surely he was also a consumer as an intern?

The judgement makes clear that counsel did not fully argue all the points that arose in the case, as they wanted to focus on “big picture” issues. IP Draughts wonders whether this issue slipped through the net. He offers the following arguments.

(1) Professor Kapinidis had no authority to employ anyone on behalf of Oxford University. He deliberately broke the rules by informing the university that he wished to engage Mr Jing as a 3 month intern, while making it clear to Mr Jing that he was really being engaged for 7 months as a product designer. This is recorded in the judgment as follows:

128. On 11 March 2013, after Mr Jing had started work as an intern, Professor Kapanidis confirmed that his laboratory would pay Mr Jing £6,000 for his internship in an e-mail which said:
“OK. I will pay you £6000 for a 7-months internship (although the employment will appear as a casual 3-month contract to make hiring easier), which will include your summer vacation. OK? There will be a single payment.”

(2) Thus, Oxford University officially hired Mr Jing as a 3 month intern. From looking at the “internship office” pages on Oxford’s website, and noting the reference to “summer vacation” above, it looks most likely that the category of internship chosen was the Summer Internship Programme. These pages mention that under this programme, the intern gets work experience and is paid the minimum wage.

(3) However, this was not what happened. £6,000 might be the minimum wage for 3 months, but it seems to be less than the minimum over 7 months. The job Mr Jing was hired to do wasn’t really work experience, it was a way of enabling the prof to put Mr Jing in his lab before the start of his studentship. Thus, the set-up was artificial and clearly not within the official university parameters.

(4) It is open to a judge to analyse this relationship in different ways. In IP Draughts’ view the better way to analyse it is as an unofficial start date for the studentship, to be assessed under consumer protection law in the same way as the studentship. If the judge is able to treat students as consumers, even if they technically have an employment contract, he should be able to do the same thing with this type of internship. Going down the route of saying that he was an employee and that he was employed to invent seems unnecessary and inappropriate.

The amount paid is also troubling IP Draughts. As was quoted earlier, the judge said:

…ONI relies on the “very modest” salary paid to Mr Jing. The pay of an employee is not a relevant consideration under s.39 if, because of their duties and characteristics, invention would be expected from them.

While this statement may be technically correct, it seems relevant to point out that the salary was so modest that it was less than the lawful minimum wage (IP Draughts is not certain about this but the numbers seem too low, roughly £5 per hour if you scale up £6k over 7 months to £10k over a year, and divide by 2000 hours) and therefore didn’t comply with Oxford’s policy. It was, in effect, a sham or, in modern jargon, “fake news”. This seems to IP Draughts very relevant to the issues of whether Mr Jing was an employee at all, and if so what his duties were. Or perhaps he was employed for the first 3 months, but self-employed for the other 4 months: during which of these periods was the invention made?

Is it going too far to quote the famous line from Lord Denning in Lazarus Estates v Beasley [1956] EWCA Civ J0124-1?

…fraud unravels everything. The Court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved it vitiates judgments, contracts and all transactions whatsoever

It might be harsh on Professor Kapanidis to characterise a dodgy internship contract, designed to get around what an academic might regard as institutional bureaucrary, as an instance of fraud, and it clearly hasn’t been “distinctly pleaded and proved” in the present case. But it seems not beyond the bounds of possibility to vitiate the internship contract on this ground, if a judge felt so inclined.