The ArbEG applies to all inventions, irrespective of where, when, in which technological area and why the invention has been made by the employee during the course of his or her employment. It is irrelevant, for example, whether the invention was made during working hours, at home in the evening or during holidays.
There is, however a distinction between two main categories of inventions under the ArbEG: ”service inventions” and “free inventions”.
"Service inventions" generally result from the employee’s duties under the employment contract or the company’s know-how or research and development, i.e., information, knowledge, practices, etc.
"Duties under the employment contract" refers to the concrete set of duties and obligations assigned to the employee. A main characteristic of service inventions is that they are essentially based on the employer’s initiative and the employer’s resources.
"Free inventions" are those inventions made by the employee that result neither from duties under the employment contract nor are they based on the company’s know-how or resources.
In making the distinction between service inventions and free inventions, it does not matter when, for which reason and where the inventor developed and completed the invention. It is also irrelevant that third parties contributed to the invention.
The employee has a duty to report all service inventions, including creative improvements to a previously completed invention, as soon as they are created. The aim of the report is to inform the employer about the invention so he can make a decision on whether to claim ownership or release the invention.
If the employee believes the invention is free, he or she nevertheless has to inform the employer about it to give the employer the opportunity to object to the inventor’s characterisation of the invention as free.
The employee must also offer the employer a non-exclusive license under reasonable terms if the invention falls within the range of the employer’s actual or planned activities.
The rights to a service invention originate with the inventive activity and thus first belong to the employee. The employer has the right, however, to acquire any service inventions. Once the employer receives the report, it has four months in which to decide if it would like to claim ownership of the invention. This period may be extended in certain circumstances, such as if the report is incomplete. As long as the employer does not assign the rights to the employee, at the end of the four month period the invention belongs to the employer by default.
The default ownership of the invention by the employer at the end of the four month period was introduced into law in October 2009. Up until this point, the employer had to explicitly claim the invention. Employers often failed to properly claim the invention, sometimes because of lack of knowledge of the law or simply because they were disorganised. In many cases, failures to transfer the ownership went undetected for years and it is widely believed that many failures have yet to be discovered. These oversights have caused and will continue to cause problems for companies trying to enforce or assign patents which suffer from improper compliance with the prior ArbEG.
If the employer acquires the service invention, he continues to have certain obligations vis-à-vis the employee. He is obliged to file a national patent application as early as possible after the acquisition. This could be a German patent application; or a European patent application designating Germany; or an application under the Patent Cooperation Treaty, designating Germany; or, if more appropriate, a German Utility Model “domestic application”. If the employer fails to file the application on time, the employee may start the application or registration proceedings on his or her own initiative in the name of the employer. The employer must also inform the employee which countries it does not intend to file a foreign application for, and must inform the employee in good time so that terms under international treaties can be respected.
If the employer intends to abandon a patent application or granted patent in certain countries, the employee may take over the application or the patent, but will then have to handle the prosecution in his or her name.
To keep the invention as a trade secret, the employer must acknowledge that it would not question the patentability of the subject matter of the invention. This results in compensation having to be paid to the employee as if it were a patented invention.
If the employer intends to keep the service invention secret, but believes that the employee’s asserted invention is not patentable, it may ask for an opinion from the Arbitration Board of the German Patent Office. If the Arbitration Boards concludes that the invention is not patentable, and the employee does not object, the employer is entitled to keep the invention as a company secret with possibly very little, or even no compensation for the employee.