How Can an Employer Claim Against Former Employee for Making Similar Patent Applications?

In Acron International Technology Limited v Chan Yiu Wai & Anor HCA 1709/2010 (date of judgment: 25 January 2016), the Court of First Instance delivered the first-ever judgment on section 57(1) of the Patents Ordinance (the “Ordinance”). The Plaintiff succeeded in its claim against one of its former employees who had made a patent application which is similar to a technology developed by the Plaintiff after their termination of employment with the Plaintiff.  

Key Facts
The Plaintiff is a technology based start-up company incorporated in Hong Kong. The 1^st and 2^nd Defendants were its former employees. The Defendants tendered their resignations from the Plaintiff on 18 October 2004. Eight days after their resignations, the Defendants jointly filed a patent application in the PRC on 26 November 2004 (the “Defendants’ Patent Application”), which was eventually granted on 7 January 2009.

In fact, before the Defendants’ Patent Application was made, the Plaintiff had already made a patent application with the use of the same technology under the Patent Cooperation Treaty in April 2002 (the “Plaintiff’s PCT Application”) and a standard patent was granted in Hong Kong on 29 May 2009 with the term commencing on 29 April 2002. Thus, the application for the standard patent was made at the time when both Defendants were still employed by the Plaintiff.

The Plaintiff alleged that the subject matter of the Defendants’ Patent Application (the “Defendants’ Invention”)incorporated the entire or a substantial part of the invention and claims under the Plaintiff’s PCT Application (the “Plaintiff’s Invention”)and made a claim against the Defendants pursuant to section 57(1) of the Ordinance.

The Law and Authority
Section 57(1) of the Ordinance provides that an invention made by an employee shall be taken to belong to his employer if (i) it was made in the course of the normal duties of the employee; or (ii) the invention was made in the course of the duties of the employee and, at the time of making the invention, he had a special obligation to further the interests of the employer’s undertaking.

The Court noted that there does not appear to have any Hong Kong authority which has considered the meaning of section 57 of the Ordinance and the leading authority in this regard is the English Court of Appeal judgment in LIFFE Administration and Management v Pinkava [2007] 4 AER 981.

Analysis
As the Plaintiff’s pleaded case was based on “normal duties” and not “specifically assigned duties”, the Plaintiff must accordingly satisfy the following requirements:

1.         The Defendants’ Inventionwas made in the course of the Defendants’ normal duties; and

2.         The circumstances were such that an invention might reasonably be expected to result from the carrying out of such duties.

With regard to normal duties, Sir Andrew Morritt in LIFFE held that the source of an employee’s duty is primarily contractual though some of the terms are implied by law. In respect of the second limb, the Court, citing LIFFE, held that the use of the phrase “an invention” as opposed to “the invention” means that an employer will own any invention made from the carrying out of an employee’s duties if the circumstances are such that an invention might result, i.e. within the reasonable expectation of the employer.

The Defendants’ Normal Duties
Before addressing the Defendants’ liabilities, it is important to first identify their normal duties. In considering this issue, the court takes a realistic approach but not in an overly analytical fashion. Ultimately, the question is whether an employee is employed to try and innovate and if he is, the general sort of areas of his innovation duties.

In respect of the 1^st Defendant’s duties, the Court held that his normal duties were in the context of an administrator, coordinator and an organiser. As the 1^st Defendant was not employed to try to innovate, the Plaintiff’s claim against the 1^st Defendant was bound to fail.

As for the 2^nd Defendant, the Court accepted the Plaintiff’s evidence that the reason why the Plaintiff hired the 2^nd Defendant was because the Plaintiff wanted to further develop the technology and put into practice by utilising the 2^nd Defendant’s expertise. The 2^nd Defendant was heavily involved in a number of projects related to the technology – she conducted analysis and performed laboratory tests in some of the projects; and was responsible for the experimental set up and implementation and was even the chief coordinator in other projects. As demonstrated by her involvement in the Plaintiff’s work projects and the publication of various articles in academic journals, it was found that the normal duties of the 2^nd Defendant involved innovative research and development of the technology. The Court also held that the Defendants’ Invention was made in the course of the 2^nd Defendant’s normal duties with the Plaintiff.

Reasonable Expectation
The next question is whether the circumstances were such that the Defendants’ Invention might reasonably be expected to result from the carrying out of the 2^nd Defendant’s duties. The essence of the test is whether an invention, regardless of whether it is the invention in question or an invention similar to the invention in question, might reasonably be expected from the carrying out of an employee’s duties. It was concluded that the Defendants’ Invention might reasonably be expected to result from the carrying out of the 2^ndDefendant’s normal duties. In this premise, the Plaintiff’s claim against the 2^nd Defendant succeeded.

Other Noteworthy Issues
In addition to the above, there are two issues which are worth to take note:

Nature of the Plaintiffs Business
The Plaintiff contended that it was engaged in the business of research and development of patentable and proprietary scientific processes and inventions, which the Defendants denied. In this regard, the Court held that “research and development” is not a necessary requirement to a claim under section 57 of the Ordinance. Nevertheless, the Court will take the nature of the employer’s business into account when identifying the normal duties undertaken by the employees.

Similarities of the Defendants’ Invention and the Plaintiff’s Invention
Although the Defendants’ expert had identified a number of differences between the Plaintiff’s Invention and the Defendants’ Invention, the differences were not significant enough to render the Defendants’ Patent Application novel. On the other hand, the Defendants’ expert agreed that there were actually 10 similarities between the Plaintiff’s Invention and the Defendants’ Invention.

Notwithstanding that the Plaintiff’s expert accepted that there were three points which were unique or novel in the Defendants’ Invention, after reviewing the evidence, the Court was of the opinion that the Defendants’ Invention was strikingly similar to the Plaintiff’s Invention, which constituted compelling evidence that the Defendants’ Invention was indeed derived from the Plaintiff’s Invention such that the Defendants’ Invention might reasonably have been expected to result from the carrying out of the normal duties of the 2^nd Defendant.

Concluding Remarks
The Plaintiff succeeded the claim against the 2^nd Defendant but failed the claim against the 1^st Defendant. The gist of the difference is due to their different job duties. The 1^st Defendant’s duties involved oversight and coordination of the work projects while the 2^nd Defendant was involved in innovative research and development of the technology for the Plaintiff. This means that, if an employee’s duty does not include a duty to innovate, it may pose a hurdle to the employer to make a claim against the employee under section 57(1) of the Ordinance. Nevertheless, subject to the terms of the employment agreement, the employer may be able to pursue a claim for breach of contract. As regards the claim for damages, it is noteworthy that no damages and/or account for profits will be allowed where no probative evidence is placed before the court of any damage suffered by the employer.

Published by ONC Lawyers © 2016