Sanctity of Mind: Who owns an idea when an employee invents—and who should?

In one of the most high-profile intellectual property disputes in recent memory, toymaker Mattel sued MGA Entertainment in what has come to be known as the “Bratz-vs-Barbies” battle. Mattel alleged that Bratz dolls “were conceived by a designer while he was employed by Mattel,” according to a 2015 Telegraph article. The legal war raged for eight years.

Mattel is not alone in prosecuting former employees. Or their new employers. In fact, according to a New York Times report—”My Ideas, My Boss’s Property,” by Orly Lobel—”increasingly it is corporations, not people, who own inventions.” And, if the inventions prove valuable, the former employer is more ready to litigate than ever before.

The full force of the law

In intellectual property disputes between employer and (former or current) employee, the employer enjoys the clear legal advantage. “This disparity is about to become even more pronounced,” says Lobel, who teaches law at UC San Diego. The 2013 America Invents Act changed the U.S. patent system “from a first-to-invent to a first-to-file rule” that disproportionately handicapped “individual inventors, who usually lack the funding to speed up filing.”

In addition to having the first-to-file advantage, corporations deploy a variety of legal safeguards. “Companies typically require employees to sign an agreement upon hiring (often referred to as a Proprietary Information and Invention Assignment Agreement, or PIIA),” says Dan Stevenson. As general counsel for software company Domo, Inc., Stevenson deals with his share of intellectual property issues.

Whose IP? Considering the factors

In addition to the PIIA, Stevenson lists other factors that determine whether the invention was an “employment invention” as defined by Utah Code §34-39-3.

      Was the invention related to the employee’s duties or to the function of the company for which she worked?

–      Did the employee invent during time for which he was being paid?

–      Did he use any of his employer’s facilities, tools or equipment?

–      Relating to the previous points: Does the invention fall into the same industrial category or business usage as the employing company?

–      Is the invention “related to the current or demonstrably anticipated business, research or development of the employer?”

Obviously, such stipulations cast a fairly fine net through which few innovations are likely to pass. Can a company persuade a judge that a given invention relates to “demonstrably anticipated business”? With enough of a litigation budget and a strong legal team, probably. Especially if the inventor, like most of us, is a regular Joe or Jane Shmoe without the nerves of steel required to fight an arduous (and probably doomed) years-long battle and without an extra quarter mil on hand for legal expenses.

The ramping-up of corporate IP advantage is taking its toll. “A couple of decades ago, individuals owned about 25 percent of all patents,” per Lobel, who adds that the number is now 10 percent. And falling.

The ownership-incentive link

Interested in the correlation between ownership and incentive, Lobel, in partnership with fellow UC San Diego professor On Amir, a specialist in marketing psychology, carried out a large-scale experiment reported in the Harvard Business Review. Amir and Lobel “recruited 1,028 participants to complete an online task for pay.” Half the participants received instructions “that mimicked a non-compete agreement.” The other half, naturally, served as the control group.

The simulated non-compete was designed to recreate the psychological effects that an employee might experience if she knew she had little to no ownership over her own creative and intellectual efforts. To affect this, Amir and Lobel told participants that they would later be offered other tasks for pay, but that they would be barred from accepting a task of the same sort as their current one.

The result? “Sixty-one percent of the subjects in the non-compete group gave up on their task (thus forgoing payment), compared with only 41 percent in the control group,” even though giving up meant forfeiture of compensation. And, in a “purely effort-based task” (poring through a number matrix for specific combinations), “people with non-compete conditions were twice as likely to make mistakes as people in the control group.” They skipped more items and otherwise indicated low motivation.

Ownership and its socioeconomic impacts

When we own something, we make it important. The owned thing enters a mental/emotional sanctum—things that are mine—while the rest of the world remains outside. For purposes of this discussion, it matters little whether I own the thing literally or metaphorically (if such distinctions can reasonably be drawn at all—is my car mine in a metaphorical or literal sense, and does my taking out an auto loan change its status?). Most pertinent is my perception; the item, relationship or position becomes an extension of my identity in a way that other things are not.

OK, so perceived ownership is just an egocentric psychological phenomenon then, right? Sure, but one with enormous economic ramifications. Across the entire U.S. economy a 20 percent difference in perseverance can amount to billions of dollars of revenue differential. Hundreds of billions or even trillions across the globe. Double the mistakes can translate to a failed company.

Or lots of them.

So dramatic are the effects of ownership or the lack thereof that Lobel and Amir believe that many companies, in their attempt to preserve profits, wind up hurting more than helping themselves when the full cost of employee disincentivization is tallied. “The drop in motivation,” they conclude, “may be more damaging to companies than the actual loss of the employees.”

But what’s an employer to do?

It’s easy to understand why an employer would want to keep control of intellectual property generated by its employees. After all, a company doesn’t want to pay people to make money for themselves. Or for another company. If the employee is on the company’s time, the company’s dime or using the company’s equipment/facilities/resources, the company wants to reap any dividends that its salary investment pays out.

Most corporate executives probably recognize the net loss to society of employee creative disincentives. Even then, zero-sum market competition compels a protectionist approach to intellectual property. In the Darwinian ecosystem that is the global economy, corporations often cannot afford to be generous. At least, they fear that any IP leniency will cost them market share.

Lobel disagrees. “A corporation might indeed think it needs to use these draconian contracts because everyone is,” she told me in a private correspondence. “But, the best leaders understand the advantages of drawing the most talent people by offering a more balanced arrangement.”

How can we foster motivation?

Salt Lake City attorney Marcus Simon points to a potential solution to the conundrum of ownership. “Some companies incentivize employee inventiveness by giving the employee inventor a monetary award when an invention disclosure is submitted or when a patent application is filed,” says Simon, a partner at Dorsey & Whitney. The question becomes whether a monetary incentive produces that all-important ownership psychology in the inventive employee.

Given the massive impact to a company’s revenue by unmotivated employees, more employers would do well to figure out how to help their people feel a sense of ownership. Even if, on paper, the company holds the upper hand. If ownership is largely perception anyway, a resourceful employer should be able to find the middle ground between alienation and giving away the company. At the very least, this issue deserves far more brainpower pointed at it than it has gotten heretofore.

Final thoughts

“The range of research supports our conclusions,” Lobel wrote to me.  “Over-controlling the movement of employees, and stripping them from their human capital—propertizing all their innovation—can backfire and reduces productivity and motivation.” She said as much in her visit to the White House in 2016 when she presented her book, Talent Wants to Be Free.

Given that, what practical solutions might we look to? Lobel states that “the U.S. is anomalous in not requiring employers to offer any rewards for pre-invention assignment agreements.” Perhaps the wide-scale implementation of such agreements would be a start. On a scale from Karl Marx to Upton Sinclair’s The Jungle, maybe we can find some middle ground where motivated employees and profitable companies coexist.

Jacob Andra is a writer and content marketing consultant in Salt Lake City, Utah. You can find him on LinkedIn and Twitter.

Jacob Andra is a writer, award-winning digital marketer, and technologist living in Salt Lake City. Specialties include account-based marketing, growth hacking for startups, blockchain, fintech, and international issues. He enjoys history, the outdoors, podcasts, and a good book.