Ju Young Kim and Stephen T Bang, Kim & Chang
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. The employer's expected profit from the work-for-hire invention is considered when determining the reasonable remuneration. A recent Supreme Court opinion provides insight on whether an assignee's expected profit, in addition to an assignor's expected profit, should be considered when determining the remuneration if both the patent for the work-for-hire invention and the relevant business are transferred from the assignor to the assignee.
The plaintiff developed an invention around 1995 when he was an employee of company 1. Then the plaintiff implicitly transferred a right to obtain a patent to company 2, which company 1 established to manufacture the product relating to the invention, and company 2 was merged into company 3. Company 1, company 2 and company 3 did not pay the plaintiff remuneration for the work-for-hire invention.
The defendant acquired the business relating to the invention from company 3 in accordance with a contract between the defendant and company 3.
The plaintiff notified the defendant by contents-certified mail that the plaintiff has the right to obtain remuneration. Then the defendant had several discussions with the plaintiff about the amount of the remuneration to be paid.
The Supreme Court found that as there was an implied contract between the plaintiff and company 2 that an amount, corresponding to the remuneration for the work-for-hire invention, should be paid to the plaintiff as compensation for the assignment.
The Supreme Court also held that the defendant did not expressly take over liability for paying the amount corresponding to the remuneration to the plaintiff through the assignment contract regarding the business. However, the Supreme Court held that the defendant later showed intent to take over liability for paying the remuneration because the defendant had several discussions with the plaintiff about the amount of the remuneration after receiving the certified letter. The Supreme Court held that the defendant is liable to pay the remuneration to the plaintiff as compensation for the assignment of the invention.
As to whether the defendant's profit from the invention should be considered when determining the amount of remuneration, 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 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 obtained until the employer transferred the invention should be considered when determining the remuneration to be paid to the employee by the employer (assignor).
According to the implied contract between the plaintiff and company 2 that the remuneration 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 is transferred to a third party, unless there are 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.
Unless there are special circumstances between the plaintiff and the defendant, such as the plaintiff and the defendant enter into a new contract that the assignment reward is determined based on the defendant's expected profits, the defendant is liable to pay 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 above decision indicates that, considering all the circumstances surrounding the transfer of a business relating to a work-for-hire invention, the defendant who acquires the business by the assignment is liable to pay the remuneration to the plaintiff. However, the future profits to be obtained after the patent assignment — the defendant's expected profit — should not be considered when determining the amount of the remuneration.
The Supreme Court decision is significant in determining the remuneration for the work-for-hire inventions since it overturns the decisions from the lower courts to consider the defendant's expected profits (High Court Decision) or that there was no basis to calculate the remuneration amount (District Court Decision).