"Doesn't the technology developed by an employee naturally belong to the company?" Many CEOs and managers believe the answer is "Yes." However, under Korean law, if you are not legally prepared, this assumption can lead to ownership disputes or compensation lawsuits when an employee resigns or when an invention becomes a commercial success.
The Employee Invention System is not merely a scheme to give employees bonuses. It is a "Win-Win" solution that allows the company to secure stable Intellectual Property (IP) rights while providing employees with fair compensation and tax benefits.Today, Pine IP Firm outlines the legal framework, implementation roadmap, and key points that every practitioner must know to navigate this system effectively.
1. The Legal Framework: The "Must-Haves"
The Employee Invention System is based on the Invention Promotion Act. While it may seem complex, the core lies in "Procedure." Failure to follow these procedures may result in the company failing to acquire rights or the compensation being deemed legally invalid.
- Duty to Notify (Employee $\rightarrow$ Company): When an employee completes a job-related invention, they must notify the company in writing (including electronic documents) without delay.
- Notice of Succession (Company $\rightarrow$ Employee): The company must decide whether to succeed (take ownership of) the rights. If the company does not wish to succeed, it must notify the employee within 4 months of receiving the invention notice.
Note: If this period is missed, ownership may be deemed succeeded in some cases, but an explicit expression of intent is the safest legal route.
- Confidentiality: The employee is obligated to maintain secrecy regarding the invention until the company files the patent application.
- Compensation (Crucial): If the company succeeds to the rights, it must provide "fair compensation" to the employee.
Important: If the compensation regulations are created or changed through a "consultation" process with employees (or consent, if the changes are disadvantageous), the resulting compensation is legally presumed to be fair.
2. Implementation Roadmap: 3 Steps to Success
Creating a single document is not enough. You need a functioning system.
Step A. Designing Regulations
You need a unified "Employee Invention Compensation Regulation" that includes:
- Definitions: Scope of application (e.g., executives included?) and rights (Patents, Designs, Software, etc.).
- Succession Process: Reporting procedures and the 4-month notification rule.
- Compensation Structure: Standards for filing, registration, and implementation (profits).
- Secrecy & External Release: Pre-approval procedures for academic papers or open-source releases (to prevent loss of novelty).
Step B. Preparing Operational Forms
Regulations cannot run without forms. Prepare at least these six:
- Invention Disclosure Form
- Notice of Succession/Non-Succession (Must track the 4-month deadline)
- Notice of Filing/Reservation/Abandonment
- Compensation Deliberation & Calculation Sheet (Key evidence for disputes)
- Compensation Receipt
- Joint Inventor Contribution Agreement
Step C. Consultation and Notice
This is the most critical step. "Consultation with employees" is a statutory requirement.
- Do not just notify. You must document the process: (1) Share Draft $\rightarrow$ (2) Collect Opinions $\rightarrow$ (3) Announce Results.
- These records are your strongest defense in future compensation litigation.
3. Designing Compensation: How Should You Pay?
The structure that minimizes disputes and maximizes motivation is a mixed model: "Fixed Amount + Profit-Linked."
3. Compensation Strategy: How to Pay?
The model that minimizes disputes while maximizing motivation is a "Fixed Sum + Profit-Linked" hybrid model.
| Type |
Description |
Purpose |
Fixed Sum
(Invention/Filing/Reg)
|
Fixed amounts paid at the time of Invention Report, Filing, or Registration.
(e.g., 100k - 500k KRW)
|
To encourage research activity and boost morale.
|
Profit-Linked
(Implementation/Disposal)
|
Paid based on actual company profits (Sales, License Fees, Cost Reduction) derived from the invention.
*Major rewards usually stem from here.
|
To align the company's growth with the employee's reward.
|
✅ Check Point
-
Documentation: Always document the Calculation Basis (Scorecard) showing how the 'Company Profit' and 'Employee Contribution Ratio' were determined.
-
Reservation/Abandonment: Clearly define compensation rules for cases where the company reserves or abandons the application to avoid future disputes.
Check Points:
- Always leave a record (Calculation Sheet) showing that "Company Profit" and "Employee Contribution" were considered.
- Clearly define rules for cases where the company abandons or reserves the filing of an application.
4. Benefits and Common Pitfalls
Why Adopt It?
- Tax Benefits: Employee invention compensation is non-taxable up to 7 million KRW per year for the employee. Companies can treat it as an expense and receive R&D tax credits.
- Incentives: Obtaining the "Excellent Employee Invention Compensation Enterprise" certification grants benefits like priority examination for patents and bonus points in government support programs.
Watch Out For These Mistakes
- Missing the 4-Month Deadline: Losing rights because the notification period expired.
- Lack of Consultation Records: Having regulations but no proof of discussion with staff.
- Regulatory Gaps: No clear rules for abandoned patents or "reserved" applications.
- Confusing Terms: Paying "Performance Bonuses" instead of "Compensation," causing employees to lose tax benefits and the company to lose legal recognition of the payment.
- Loss of Novelty: Rejection of patents because an employee published a paper before approval.
Conclusion
The Employee Invention System can be a cure-all if used correctly, but a poison if it is merely a formality. The essence lies in "Adherence to Procedure" and "Preservation of Records."
If you need a regulation design tailored to your company's size and situation, please do not hesitate to knock on the door of Pine IP Firm. We are ready to be your steadfast Intellectual Property partner.
