Shades of Gray as Dispute Over Invention Ownership Goes Viral

The Royal Children’s Hospital v Robert Alexander [2011] APO 94 (10 November 2011)

Entitlement – employer/employee relationship – whether employee had a ‘duty to invent’ – whether inventions made ‘in the course of employment’ – whether patent applications should proceed in the name of the employer or employee

In a tale of two pending patent applications filed by the sole named inventor Dr Robert Alexander, one has been found rightfully to belong to his employer, The Royal Children’s Hospital (RCH), while he will be allowed to keep the other for himself, according to a Hearing Officer (Delegate Karen Ayres) in the Australian Patent Office.

As in the leading decision of the Full Federal Court in University of Western Australia v Gray [2009] FCAFC 116, ownership was resolved by considering whether Dr Alexander had a ‘duty to invent’ the subject matter of each application under any express or implied terms of his employment contract with RCH.

At the relevant times, Dr Alexander was Head of Virology at RCH where his primary role was to maintain the Virology/Tissue Culture and Molecular Diagnostics service, which conducts viral diagnostic work on upwards of 10,000 clinical samples at the hospital each year.  The Delegate found that in this role it was one of his duties to improve the viral diagnostic techniques used at the hospital, so as to enable the hospital to better diagnose viral diseases.  However, he was not required, or expected, to conduct extensive (and, perhaps, expensive) research into possible modifications to equipment used in diagnosis, particularly where there had been no substantial issues identified with the effectiveness of the existing equipment.

As a result, the Delegate has directed that Dr Alexander’s patent application for an invention related to improvements in diagnostic techniques should proceed in the name of RCH, while a second application covering modifications to a microtitre assembly tray used in the testing process should remain in Dr Alexander’s name.

THE DISPUTE

During his time working for RCH (and its predecessor, the Women’s & Children’s Health Network), Dr Alexander filed two patent applications.

Australian patent application no. 2006206051  ('051) relates to improvements in a medium used to inoculate and grow viruses.  It specifies two key ingredients (an enzyme and a hormone) which unexpectedly improve growth of viruses in culture.

Australian patent application no. 2006222481 ('481) relates to an improvement in the well design in a microtitre tray.  The improved well includes a sub-chamber extending below the main chamber base of the well, which is said to allow a liquid sample to be placed in the sub-chamber without forming a meniscus up the side walls, thereby providing a flatter distribution of cells and a more even distribution of media and, theoretically, a more precise analysis of samples.  However, it did not appear that this theoretical improvement had been tested in practice.

RCH contended that the inventions disclosed in both applications had been made in the course of Dr Alexander’s employment, and therefore rightly belonged to the employer.  Dr Alexander claimed that his position was similar to that of Dr Gray in the University of Western Australia (‘UWA’) case, in that he had no ‘duty to invent’ in the normal course of his employment, and therefore – as in Dr Gray’s case – the inventions and application were rightfully his own.

RCH sought a direction under section 32 of the Patents Act 1990 that the applications should proceed in its name, as well as a declaration under section 36 that RCH, and not Dr Alexander, is the sole entitled party to the grant of a patent in each case.

THE ‘DUTY TO INVENT’

The idea that an employee might require an express or implied ‘duty to invent’ in order for their inventions to pass automatically to the employer has caused some concern since it rose to prominence in the UWA case.  Some employers have been troubled by the practicalities of imposing an express ‘duty to invent’, while some employees fear that agreeing to such terms might expose them to accusations of ‘underperformance’ if they fail to invent anything.

However, the Full Court in UWA was pretty clear (at [152]) that the term ‘duty to invent’ was merely a form of shorthand for the inquiry as to ‘whether, if at all, it was part of an employee’s engagement with his or her employer to utilise his or her “inventive faculty” … in an agreed way or for an agreed purpose for the benefit of, or to further the purposes of, the employer.’  Put this way, it is fairly clear that the ‘duty’ is not so much about an obligation to make inventions, but rather about whether, if something should happen to be invented, it would fall within the ‘normal course of employment’ so as to be the property of the employer.

As the Delegate summarised the circumstances in the UWA case (at [43]):

…Dr Gray obtained and used external funds to conduct his research inventions [sic] and his inventions were unrelated to the primary purpose of the university (to generate and disseminate knowledge). Dr Gray also had the academic freedom to select the research he would undertake independent from the interests of the University and was not required to advance a commercial purpose of UWA.

She found (at [44]) that Dr Alexander’s position was not analogous to that of Dr Gray, because he

…was not expected to (and did not) obtain external funding for his research and he was not pursuing individual research interests independent of those of his employer. While Dr Alexander had some discretion with his line of research, his research was still focused on improving the viral diagnostic techniques used at the hospital. Since this would enable the hospital to better diagnose viral diseases, Dr Alexander’s research was related to the primary purpose of the hospital and his work therefore directly benefitted his employer and advanced their interests.

Dr Alexander argued that, in common with Dr Gray, he was under no obligation of confidentiality, which was one of the indicators that the Full Court in UWA identified to distinguish the role of the academic inventor from that of an employee in a commercial/industrial setting.  However, the Delegate took the view that ‘this has to be considered with all other relevant factors. In this regard, the fact that there is one contra-indication does not necessarily mean that there is no “duty to invent” if sufficient other factors suggest otherwise’ (at [45]).  On the contrary, she found (at [47]) that:

…a hospital has a large public interest role in ensuring the proper diagnosis of viral pathogens so that diseases can be successfully managed and treated. This public interest is served by disclosing and sharing new methods and techniques with other pathology laboratories so that the best techniques are widely available to the public. In this context, the hospital does not need to commercialise the invention to benefit from it and the absence of a “duty of confidentiality” in the current circumstances does not necessarily mean that there is no “duty to invent”.

OWNERSHIP OF INVENTIONS

With regard to the ‘growth medium’ invention of the ‘051 application, the Delegate found that ‘the invention … was the product of research which a skilled worker would undertake when trying to optimise the techniques used at the hospital’, and was therefore the property of the employer, RCH (at [64]).

However, the ‘well design’ invention of the ‘481 application was found by the Delegate not to have been made in the normal course of Dr Alexander’s duties, and therefore not to be the property of RCH, her reasoning being (at [66]-[67]):

There was no evidence that the existing device was in need of routine trouble-shooting. Rather the evidence suggests that the existing design was effective and a substantial improvement was neither likely nor needed. There was therefore no clear motivation for Dr Alexander to pursue this avenue of research in the reasonable expectation of identifying improvements.

I also note, as an aside, there is no evidence that the well device has actually been made or its theoretical benefits tested. This would involve a significant capital expenditure which seems to be the type of research which RCH appeared to have actively discouraged.

COMMENT

The decision is subject to appeal to the Federal Court.  While this is an expensive option, if the RCH’s example of over 10,000 clinical samples per year is typical, there is potential for the invention of the ‘051 application to be quite valuable, and so an appeal by Dr Alexander may not be out of the question.

We consider, however, that the outcome in this case is correct.  As the Delegate pointed out, this is not directly comparable with the UWA situation in which, while the University certainly wished to make money from the commercialisation of Dr Gray’s invention, it did not have any use for the invention itself in the course of its normal activities.  However, a loss of rights to Dr Alexander by RCH in this case could certainly be problematic for the hospital, precisely because the invention was made by Dr Alexander for use in the normal day-to-day activities of the Virology/Tissue Culture and Molecular Diagnostics service.

As for Dr Alexander’s ‘lack of confidentiality’ argument, the freedom to share or ‘give away’ an invention, which is all that the lack of any duty of confidence implies in and of itself, clearly does not equate to a right to acquire proprietary rights in the invention for oneself.  Where the invention was developed by the employee in the normal course of conducting core activities of the employer – and indeed is now in daily use by the employer – it would be absurd if the employee could subsequently obtain proprietary rights and thereafter demand payment of royalties, or even prevent the employer (or former employer) from continuing to use the invention.

We note that the ‘051 application is currently under examination, and that one of the objections that has been raised in a first examination report is that all claims lack an inventive step.  The reasoning given by the Delegate, in paragraphs [61]-[64], for finding the invention to be the property of RCH is also strongly suggestive of obviousness in view of certain earlier publications by Dr Alexander, particularly under the current Patent Office application of an ‘obvious to try’ test (see Australian Patent Office Embraces "Obvious to Try").  It may therefore make little difference who owns the application, and if RCH does not have the resources or inclination to dispute the objections, it may simply let the application lapse.

And, while Dr Alexander has retained ownership of the ‘481 application, this is also probably of little consequence.  It appears that RCH has no need of this invention which is, in any event, untested and, it seems, quite likely to offer little practical benefit.

A good outcome, all round, for the Royal Children’s Hospital.

Tags: Australia, Entitlement, Inventorship