A law suit filed in Munich last week should be of interest to any international business with technical employees in German subsidiaries. The ex-CEO of Bentley and Bugatti, Wolfgang Schreiber, sued his former employer, allegedly claiming he is entitled to more than a hundred million dollars in compensation for his contributions to VW's Direct-Shift Gear box.

Schreiber is reported to have been employed since 1984 and oversaw the development and integration of VW's widely deployed Direct Shift Gearbox in the period through to 2011, eventually transferring to Bentley. Unlike many in senior management roles, he is technically qualified and progressed through the ranks from an engineer, turning out to be a named inventor on a number of patents.

Despite adjustments in the Patent Law Modernisation Act of 2009, the German Act on Employee Inventions (GAEI) hasn't been materially changed for decades and yet many international businesses operating in Germany are blissfully unaware of its intricacies. According to the Act, inventions which have been made during the term of employment and which have been developed either as part of the activities incumbent on the employee in the company, or which are based to a significant extent on the company's experience or work, and are so-called "service inventions".

The act puts obligations on employees to formally report the making of such inventions and it also puts obligations on the employer to acknowledge this in writing. Where the employer claims ownership of the service invention, it is obliged to apply for registered protection (patent or utility model) and employees are entitled to "reasonable compensation". The employer must keep the employee abreast of the progress of the applications. If the employer doesn't take up invention rights in Germany, or in other countries, the employee has the right to do so. While little can be done with regard to employment agreements to compromise employee entitlements beforehand for example, a suitable policy and post-event process for inventor reward and individual contractual agreements is prudent practice for employers.

One size does not fit all, and a typical US-style inventor reward scheme isn't going to take account of everything necessary. Hence, US and other businesses who superimpose their wider invention reward schemes on German subsidiaries are likely to come unstuck. This law can even have implications in cross-border scenarios, for example whenever an employment contract is subject to German law under the rules of private international law. It's not possible to remove risk altogether but businesses with technical teams in Europe, particularly in Germany, need to be cognisant of these types of risks and should take the time to put in place suitable policy and processes to minimise exposure. Whilst other European jurisdictions have variants of this law, for the most part these tend to be less onerous and such considerations may figure into decisions on where to locate technical teams within Europe.

Anecdotally, Schreiber has already turned down a significant offer and only time will tell if his claim gets settled privately or plays out in litigation. If it gets to working out the amount of "reasonable compensation", the process will face the tricky task of establishing a value of the invention as well as a share factor based on Schreiber's actual contribution. This is high stakes and relatively complex litigation for an individual to be involved with, and doubtless VW will find plenty to argue while attempting to diminish the invention value and depress the share factor to be applied. 

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Olswang LLP is an international law firm and a European and Asian leader in technology, media, telecommunications. The firm comprises of almost 700 people including 100 partners, across seven international offices. Disclaimer: Nothing in this article should be relied upon as any type of legal advice and readers are recommended to seek appropriate advice specific to their circumstances and the facts in question.