Best Practices for Patent Royalty Compensation Plans

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Innovative employees are the backbone of corporate progress and success because they come up with inventions that push the business forward. Unless you want your top inventor to be poached by a competitor, you have to show such employees gratitude. You can reward the worker with a bonus, a plaque within the office premises, or hold a patent celebration for them. Although the patent to an employee’s invention generally belongs to the firm, you have to create a compensation plan that’ll make sure that the inventor gets what he or she deserves.

Why You Need Patent Royalty Compensation Plans

Your employees know the value of their invention, and if they suspect that you are making a lot of money from it without giving them their deserved share, they might sue out of frustration. Even when the angry employee knows that they may not win the lawsuit, they might go for it. Of course, it won’t cost the company much in terms of legal fees, but it will damage your reputation. Thus, you need to take care of your inventors.

Best Practices for Patent Royalty Compensation Plans

  1. Let your employees know that once they come up with an invention, they are obliged to sign their ownership rights over to the company. They can do this by signing an invention assignment form. That way, the management can market and use the invention as they see fit without going back and forth with the inventor over its usage.
  2. Let your employees know that you are there to support and protect them if they come up with a great idea or invention. When your workers know that you’ll be there for them, they’ll be encouraged to innovate and invent. Offer to pay for their patent application fees and let your attorney explain to the worker about the different patent options and the one most suitable for their invention.
  3. An employee should also reveal details of his or her creation in the invention disclosure form. Make sure that you make this document as short as possible so that workers are encouraged to complete it. Some of the important details are an illustration of the technology, its functionality, its edge against similar products in the market, design process, date of creation, whether the technology was up for sale before signing the disclosure form, and other questions that the management may find necessary. This document is used as proof that the employee signed over the ownership rights of their invention.
  4. If you want your employees to know that you take innovation seriously, you need to set up a patent committee of not more than 5 people to go through submitted inventions and either approve, reject, or return them for modifications. This committee can review the inventions once per month or after every 3 months. Additionally, the committee needs to be made up of employees with a high sense of secrecy so that competitors are not aware of your plans. They should also come from different departments to avoid biased decisions.
  5. Since patent application tends to be expensive, set a specific number of patents that you would like to file every year. This way, you can set aside money for patent application when preparing your budget. This strategy also determines the amount of money to be allocated to the Research and Development (R&D) department since they are the ones responsible for most of the inventions. The money is used in research and the creation of prototypes.
  6. Once your firm’s patent licensing becomes successful, hold a ceremony to award the team that took the time and effort to make the idea a reality. If it was one person’s effort, congratulate them and let their colleagues know that the name on the patent is the employee’s. Innovation incentives like this one encourage employees to be more open to sharing their ideas with the company since they know that you will acknowledge their efforts openly.
  7. If your firm deals with artists or musicians or writers, you have to agree on the royalty rates before you even publish or produce their work. Sit down with the client and do the royalty fee calculation. Make sure that you agree on a royalty payment before your attorneys or agents to avoid future legal troubles.

Compensating inventors for their efforts should be a priority for your firm. The current business environment is very competitive and technology-driven; therefore, innovative employees are your most prized asset.

If you have any questions, contact to learn more.

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