Italy: the exercise of the employer's statutory right of first refusal on the inventions of the employee

Author: Michele Giannino (Desogus Law Office, Italy)

PE v Snamprogetti Spa, Court of Cassation, First Chamber, No 19009, 10 September 2014

Journal of Intellectual Property Law & Practice (2015) doi: 10.1093/jiplp/jpu236, first published online: January 24, 2015

The Italian Supreme Court held that an employer can exercise the right of first refusal that Article 64(3) of the Code of Intellectual Property confers on her with regard to employee inventions by way of a declaration, ruling out that the exercise of such right might be established only when the employer uses the invention.

Legal context

The Italian Code of Intellectual Property (CIP) divides inventions made by an employee during the term of employment into three categories, each being subject to a different regime depending on the allocation of the economic rights arising from the invention. Article 64(1) CIP refers to inventions made by an employee when the inventive activity constitutes the subject matter of the employment contract. Article 64(2) CIP deals with the inventions made by an employee in the performance or fulfilment of the employment contract when the inventive activity does not constitute the subject matter of the contract and the contract does not provide for any payment in favour of the employee for the invention. Articles 64(1) and 64(2) CIP award the employer the ownership of the inventions of the employee. The latter enjoys only the right to be recognized as the author of the invention. In addition, the employee is entitled to a fair compensation for inventions falling within Article 64(2) CIP.

Article 64(3) CIP applies to employee inventions which are outside the scope of Articles 64(1) and 64(2) CIP. This provision confers on the employer, against the payment of a price or a fee, the right to enter into an exclusive or non-exclusive licence agreement for the use of that invention or the right to have the patent granted to the employee assigned to her. In addition, the employer also has the right to buy the patents granted abroad for the employee's invention.

In PE v Snamprogetti the Court of Cassation was asked to clarify under which circumstances the employer can be found to have exercised these rights and, accordingly, the right of the employee to receive a price or fee arise. In other words, the question before the court was whether the employer must exercise these rights by way of an express declaration or whether their exercise might be inferred from the conduct of the employer in commencing use of the patented invention.

Facts

The plaintiff, PE, was an employee of the defendant, Snamprogetti (now Saipem) from 1959 until 1992. Under the terms of his employment contract PE was not obliged to carry out inventive activities. In 1992, PE was appointed director of the defendant's plant in Bratislava. While there, PE developed an idea that enhanced the reliability of the plant. PE applied for a patent for it, which was granted by the Italian Patent Office. When PE learned that Snamprogetti ordered from a third party a number of tools that apparently incorporated his patented invention, he sued Snamprogetti before the Court of First Instance of Milan. PE pleaded that, through its conduct, Snamprogetti exercised the right that Article 24 of Royal Decree No 1127/1939 (now incorporated with slight amendments into Article 64(3) CIP) conferred on employers with regard to employees' inventions. Accordingly, PE claimed that he had the right to receive payment of a price or a fee from his former employee. Snamprogetti, however, argued that PE's patent should be revoked for lack of novelty and that the invention was made by a team of its employees.

The Court of First Instance, and then the Court of Appeal of Milan, dismissed all PE's claims. In particular, the appellate court made it clear that the inventor employer is entitled to a price or fee only when the employer exercises the rights conferred by Article 24 of Royal Decree No 1127/1939. This was not the case with Snamprogetti, which had never expressed its intention to use or buy PE's patented invention. On the contrary, it manifested its lack of interest in it, as when it contested the validity of that patent on the ground of lack of novelty. PE then challenged the judgment of the Court of Appeal of Milan before the Court of Cassation.

Analysis

PE pleaded that Article 24 of Royal Decree No 1127/1939 and Article 64(3) CIP must be read as not requiring any particular form for the employer to exercise the rights conferred by them. As a result, so ran PE's argument, the right of the employee to a price or fee also arises when the employer tacitly exercises her rights by simply making use of employee's invention.

The court rejected PE's arguments, opting for a more restrictive construction of Article 64(3) CIP. Before dealing with the question how employers can exercise the rights in Article 64(3) CIP, the court focused on the legal nature and subject matter of such rights. It did not qualify them as a pre-emption right, but rather as a right of first refusal that empowers the employer, upon the condition that the employee decides to patent the invention, to buy the patent or take a licence to use that invention, regardless of the consent of the employee.

The court then looked at the provisions governing the exercise of the employer's right of first refusal. Under Article 64(4), the employer must exercise the right within a three-month deadline, starting from the receipt of the notice of filing of the patent application, and by way of a declaration addressed to the employee. The declaration must indicate the patent the employer intends to use or buy and the price or fees offered by the employer to the inventor. The employee must then agree on the proposed price or fees for the assignment or the licence. If no agreement is reached, the price or fee must be determined by arbitrators on the basis of Articles 64(4) and 64(5) CIP.

Considering the wording of Article 64(3)–(5), the court concluded that the employer may not tacitly exercise the right of first refusal on the inventions of employees; instead, a declaration from the employer to that effect is required. In PE v Snamprogetti, on the contrary, no such declaration made by the employer could be found. Indeed, the court held that Saipem expressed an intention not to buy or use the patent, as evidenced, among other things, by the fact that the employer contested the validity of the patent granted to PE before the lower courts. Finally, the Court of Cassation ruled that the Court of Appeal of Milan had correctly applied Article 64(3) CIP and rejected PE's appeal.

Practical significance

The most important ruling in this case is that, in order for the employer to exercise the rights in Article 64(3) CIP, an express declaration addressed to the employee is necessary. Accordingly, the right of the employee to be paid a price or a fee does not arise unless the employer makes a requisite declaration, even if the employer had effectively used the invention of the employee. Importantly, as hinted by the court, the employer's use of the invention might trigger tort liability. It follows therefore that the employee can sue the employer and seek compensation for the damages suffered due to the unlawful use of the invention. Incidentally, the action in tort filed by PE against the employer was rejected by the lower courts because the plaintiff brought the action after the expiry of the deadline set out in the statute of limitations for initiating litigation.