Inventor remuneration with production-related mark-up factor

The inventor remuneration is based on the turnover generated by the invention. Particularly in the case of complex products, the inventive turnover must be estimated by means of a production-related mark-up factor, which can also be determined notionally.

The Arbitration Board of the German Patent and Trade Mark Office (DPMA) has dealt with such a case in Arb.Erf. 04/22: Was the employee's remuneration appropriately determined with a production-related mark-up factor?
The facts
The subject matter of the arbitration proceedings are the six employee inventions in which the Claimant was co-inventor under his employment contract with the Respondent, which was to run until 2021. The parties had entered into detailed compensation agreements for each of the employee's inventions, including details of the co-inventor's share, share factor, invention value and scale. In addition, the parties agreed to compensate the inventor for maintaining the invention as a reserve patent, depending on the inventor's share of the employee invention.

Specifically, the plaintiff received amounts ranging from €180 to €660 and an additional €300 each for waiving his rights under § 14 of the German Patent Act (filing a patent application abroad) and § 16 of the German Patent Act (abandoning the patent application or the patent).

The plaintiff alleged that the employer had only reported an inventive step for one of the employee's six inventions (patent "A"); the other five, according to the employer, were merely held as reserve patents without an inventive step. According to the employer, by the end of 2021, 70,000 modules based on the invention that led to patent "A" had been manufactured in various finished products at a total manufacturing cost of €10,000,000.

And had the sales of the invention been calculated correctly? The employee inventor claimed remuneration based on new and significantly increased remuneration factors.

Notional share of the invention in external sales

In the 2012 remuneration agreement, the parties had agreed the following with regard to the reference value "35% of the net turnover (notional share, if any) of the (...) modules produced according to the invention".

In the view of the Arbitration Council, this is appropriately based on the fact that experience has shown that two alternative approaches are common in the practice of licence agreements:
(i) the parties to the licence agreement may agree on a direct share of the net final price -> the resulting share of turnover is agreed as the reference figure
ii) If the circumstances are complex, the manufacturing costs of the monopoly-protected parts, components or processes and a mark-up factor must be used -> the share of external sales based on the invention is notionally determined.

Notional determination of the mark-up factor over manufacturing costs

Where modules of the invention are used in products of varying complexity and for other purposes, the turnover of the invention must be notionally estimated using a mark-up factor. The mark-up factor to be applied to the manufacturing costs depends on the company's business calculations. If the Arbitration Board has no concrete information on this, it usually applies a flat rate mark-up factor for the fictitious reproduction in the range of approximately 1.3 to 1.6, also depending on whether the purchase prices of purchased parts or the costs of in-house production or a mixture of both are to be applied.

The Arbitration Council found that the employer was right to use a fictitious, production-related reference value and that the information provided by the employer and the calculation of the remuneration were reasonable.
Please read the second part of the Arbitration Council's settlement proposal in our blog post Inventor remuneration and information provided by the employer.

"If modules based on the employee's invention are used in products of varying complexity and for other purposes, it is appropriate to estimate the turnover based on the invention by applying a mark-up factor to the manufacturing costs, since under such circumstances actual parties to a licence agreement regularly negotiate a licence agreement in this way in order not to overburden it with difficulties of practical feasibility".
(Unofficial leading principle of the Arbitration Board).

Mark-up factor and inventor's remuneration

The applicant's expectation to obtain a higher inventor's remuneration was not fulfilled. In the opinion of the Arbitration Board, the submission of the employee-inventor, represented by a lawyer, did not provide a logical, legally sound and therefore sustainable justification.

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