A Pat(ent) on the Back

Use cash to reward employees whose works lead to patents.

By Betty Sosnin Mar 1, 2000
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HR Magazine, March 2000
"Innovation is the lifeblood of our business,” says Gary Hoshizaki. His employer, Motorola, puts its money where his mouth is. When employee innovation leads to a patent for the company, the employee’s bank account swells.

Paying bonuses for work that wins patents is how Moto rola and smaller firms encourage em ployees to share their expertise and endure the sometimes lengthy and burdensome patent approval process.

And establishing some kind of recognition or bonus program for patented work is smart business, says Hoshizaki, Motorola’s director of intellectual property strategyin Scottsdale, Ariz. Encouraging patent filings helps increase the employer’s bottom line.

“From a business perspective, intellectual property is a relatively new concept, but it’s as real and valuable as tangible assets,” Hoshizaki says. “In effect, the government is granting you a monopoly on the invention for 20 years.”

“Patent incentive programs prove useful in raising the awareness of technology staff members to intellectual property,” says William McGinnis, IBM Corp.’s patent portfolio manager for network computing and intellectual property law and licensing.

Who Owns the Patent?

Setting up a program for patent incentives requires some in-house knowledge of how the patent process works, plus a commitment to realizing the bottom-line value of intellectual property, according to companies with such programs.

A patent incentives program also needs a clear understanding between the employer and the employee up front about who owns patent rights. Before you can reward employees for their hard work, you have to be sure they recognize that the fruits of that labor belong to the employer. Companies can generate income from licensing the patent; like other forms of property, patents also can be sold, rented, mortgaged or even taxed.

Because patents are issued in the name of the inventor, it’s important to have your employees sign agreements stating that they will assign to the company all rights to inventions or discoveries made during their employment, says Tom Hodge, a patent attorney with the intellectual property practice of Kennedy, Davis and Hodge LLP in Atlanta. “Some of these agreements will say ‘all inventions’; others will say ‘all inventions related to [the] company’s business,’” he says.

Hodge advises HR offices, even at the smallest companies, to put this agreement in writing and make sure it includes a confidentiality clause requiring employees to keep quiet about the invention. Not having patent assignment arrangements made in advance can lead to litigation with employees downstream, Hodge warns.

A patent grants its owner a legally enforceable right to exclude others from producing a particular invention or practicing a particular process for a specified length of time from the date the patent is granted. “A patent is a kind of negative right,” Hodge says. “It doesn’t give you the right to practice the invention, it gives you the right to exclude others from making, using or selling it.”

Those rights can last for decades. The U.S. Patent and Trademark Office (PTO) issues 20-year utility patents for new and useful processes or improvements to processes, machines, articles of manufacture and compositions of matter. PTO also may issue 20-year patents to those who invent or discover and asexually reproduce any new variety of plant. The limit is 14 years on rights to design patents, issued for new, original and ornamental designs for articles of manufacture. Most of the patents PTO approves are utility patents.

In 1998, PTO issued 154,579 patents of all types and received 256,656 patent applications.

All Employees as Inventors

Once the protections of a patent rights agreement are in place, think about how to reward patent filings. While companies may use incentives such as plaques, recognition in corporate publications and annual award dinners, larger companies often offer rewards that reflect the potential dollar value of patented work.

Motorola’s program gives a cash bonus to inventors when the application for a patent is filed and another bonus when a patent is issued, Hoshizaki says. The company also presents engineers with a sizeable check when they receive their 10th patent.

If a patent generates revenue for the company, Motorola may give the inventor a lump sum ranging from $10,000 to $40,000, depending on the estimated commercial value of the patent.

Motorola makes it easy for employees to submit their ideas through an electronic “innovation disclosure” form. A technical committee reviews the form and decides whether to proceed with a patent application.

Motorola highlights the fact that its profit stream relies on developing new technologies, Hoshizaki says. The company considers every employee a potential inventor. Motorola consistently numbers among the top 10 companies awarded U.S. patents each year, and in 1998, Motorola was awarded 1,406 patents, making it the U.S. firm with the fourth largest number of patents granted that year.

One Patent, Two Bonuses

Large companies like Motorola aren’t the only ones rewarding innovation. As technology expands and the importance of intellectual property increases, smaller companies—especially in the high-tech field—are also recognizing their inventors.

According to Gary B. Omura, president of Omura Consulting Group of Santa Clara, Calif., a human resource consulting firm specializing in technology companies, most Silicon Valley companies reward employees who generate patents with cash bonuses, public recognition and framed plaques.

Like Motorola, many smaller firms pay one bonus when the firm files a patent application and a second bonus when the patent is approved. “The amounts are typically nominal, ranging from $500 to $2,000, with many around the $1,000 level,” Omura says.

HNC Software Inc. of San Diego, Calif., recently designed a patent-incentive program for its 900 employees who develop predictive software for the financial, retail, insurance, Internet commerce and telecommunications industries.

HNC assembled an informal team, including its HR manager, patent attorney, vice president and others to put the program together, says Kathleen Logan, who administers the patent incentive program. “We wanted to reward our inventors and to get them to be more diligent in presenting their ideas,” Logan says.

Diligence is needed because the patent application process can be daunting for the inventor. PTO spokesman Richard Maulsby in Arlington, Va., says the average time between the filing of an application and the final decision by PTO currently is 22 months.

Because inventors must file for patents, and the inventors best understand the work, they must complete extensive paperwork, Logan noted. PTO may approach the inventor repeatedly to request additional information. “This can be very time-consuming,” Logan says. “Incentives can help keep the ball rolling.”

To keep the inventor engaged throughout the process, HNC follows the two-bonus formula, with the second bonus dependent on getting the patent. The HNC bonuses are paid at flat rates; amounts depend on whether there is a single inventor or co-inventors who must share the bonuses. Like some other companies interviewed, HNC would not disclose the amounts of its patent bonuses.

HNC also developed a disclosure form, which inventors now complete and present to Logan. She contacts the attorney and acts as intermediary throughout the application process.

“We also wanted to standardize the procedure,” Logan says. “Our inventors were often dealing directly with the company’s patent attorney, and we thought it would be better to have a central contact within the organization to act as liaison between the inventors and the patent attorney,” Logan says.

Creating a patent administrator position helps facilitate the application process, Logan says. Employees can get sidetracked working on other projects and neglect to shepherd an application to completion without the help of an administrator.

Setting Up a Program

Patent incentive programs will vary depending on the company and the industry, but employers who already use these programs offer some tips to get started:

  • Consult your employees and researchers early in the process to find out what motivates them. HNC didn’t, and later altered its program’s compensation structure when employees suggested changes. á Sometimes inventors have insight into issues that might not be so obvious to HR people,” Logan says, declining to give details of the compensation changes.
  • Make procedures standard, as Motorola and HNC did, with in-house forms employees use to alert the company to potentially paten table work.
  • Designate a point person for patent applications, so employees and the PTO have a single point of contact who can keep the process on track.
  • Try to gain an understanding of your industry’s intellectual property landscape so that you know what similar companies are doing and won’t be working in a vacuum when you decide whether to apply for a patent.
  • Promote the idea that innovation can come from any employee, not just designated research and development specialists. For example, an instrumentation technician who works outside the officially designated research and development area could discover a new and valuable way to improve a manufacturing plant’s process.
  • Integrate your research department and patent incentive program into the company, rather than having them operate separately, Hoshizaki says.
  • Remember to balance monetary rewards with other kinds of recognition, especially if you cannot afford large bonuses. Even companies with deep pockets do more than give cash.

Bell Laboratories, which garnered 1,020 patents in 1998, presents inventors with a framed copy of their first patent, mentions the invention in an in-house publication, displays recent patents at each major location and hosts an annual patents recognition dinner.

Bell Laboratories, the Murray Hill, N.J.-based research and development arm of Lucent Technologies, also pays inventors a flat monetary incentive for patents. If co-inventors are listed on the patent, each receives a bonus, but it is less than that awarded to a single inventor.

IBM of Armonk, N.Y., sponsors a fellows program, its most prestigious technical honor, to which employees such as patent-holders can aspire. Divisional vice presidents nominate employees in their areas for these fellowships. If selected, researchers can pursue an area of research of their choice for up to five years. Since the program’s debut in 1962, 500 employees have been nominated and 155 selected, including five Nobel laureates. While the fellows program is not aimed solely at employees whose work gets patented, those employees often find themselves nominated for the program.

IBM also rewards its inventors generously. In 1999 the company presented 21 corporate awards, totaling more than $2.6 million, to 70 scientists, engineers and programmers. These awards recognized inventors who had made significant contributions to IBM’s patent portfolio.

Betty Sosnin is a freelance writer based in Augusta, Ga.

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