The ArbEG is based on the concept that inventions made by employees belong to them. Mandatory proceedings have to be followed for the invention to become the property of the employer. The employer and employee cannot agree to an automatic transfer of rights over inventions or technical improvements made by the employee during his or her employment. Such an agreement would be invalid under Section 22 ArbEG, which states “the provisions of the Act cannot be modified by contract to the detriment of the employee.”
The ArbEG covers technical inventions and makes a distinction between these and mere “technical improvements”. Technical inventions can be subject to a patent or a utility model, whereas technical improvements are not eligible for protection under an industrial property right. The Act does not cover other types of employee invention, such as rights to artistic creations and designs, which the employer and employee are usually free to agree in advance.
The ArbEG defines “employee” as a person employed by the employer according to the German Labour Act. An employee (who can also be an executive or junior manager) undertakes contractually-obligated tasks or provides contractually-obligated services within an organisation. An employee is under the direction of the employer with respect to content, way, time and location of implementing the tasks or providing the services.
The Act does not apply to the employer or to people holding positions in the company that are similar to the position of an employer. This is the case for legal representatives of the company such as the executive director of a private limited company. Commercial agents and independent freelancers are also not covered by the Act. Agreements concluded with such people can (and should), therefore, include provisions whereby inventions made in the course of the contractual relationship are automatically assigned to the employer. Without such an agreement in place, a separate assignment of rights over inventions would be necessary and additional compensation would be owed to the executive employee, agent or freelancer.
If the employment relationship falls under German law, the ArbEG is applicable. The employment contract is usually governed by the law of the country in which the employee habitually carries out his or her work in the performance of his or her contract. Temporary re-assignment of, e.g., a US-based employee of a US company to work with a German subsidiary does not trigger the ArbEG. Temporary re-assignment of a Germany-based employee of a German entity sent to work in a US subsidiary does, however, trigger the ArbEG. The ArbEG would apply to inventions in this case even the invention was not made in Germany.