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The Patent “Shop Right”.

Posted in Practice Commentary by Mike Dockins on February 20, 2007

A “shop right” is a common law right of an employer to use an invention patented by one or more of its employees without liability for infringement.

Surprisingly, the “shop right” has yet to be codified and remains open to interpretation by the courts, though it is a topic to be addressed. The immense body of case law suggests that not all courts agree on the doctrinal basis for “shop rights”, and therefore not all courts agree on the particular set of circumstances necessary to create a “shop right”.

The courts are equally split regarding the doctrinal basis. Half of the courts find that “shop rights” are based in the principles of fairness and equity, that is fairness entitles an employer to a royalty-free license to use a patented invention without liability for infringement because the employer’s time, facilities, etc. were used. The other half of the courts find that “shop rights” are based in the theory of equitable estoppel, that is, the consent or acquiescence of an employee to the use of a patented invention by the employer generates a royalty-free license.

Though the difference in the doctrinal basis is significant, the outcome generally is not. In most instances either doctrinal basis yields the same result. Tantamount in the determination of finding a “shop right” are the typical factors the courts use. Such factors include (but are not limited to):

–Contractual nature of the relationship between the employer and employee;
–Whether the employee consented to the employer’s use of the invention;
–Whether the the employed induced, acquiesced in, or assisted the employer in use of the invention;
–Whether the employer financed an invention by providing wages, materials, tools, and a work place; and
–Employee’s consent, acquiescence, inducement, or assistance to the employer in using the patented invention without demanding compensation or other notices of restriction.

In short, the doctrinal basis a particular court uses in its “shop right” analysis is less important than the facts of the case that yield the factors the court will consider; “shop right” cases are very fact-driven and dependent.

Below are a list of sources for additional reading on “shop rights”, including some significant cases:

Gill v. U.S., 160 U.S. 426 (1896).
U.S. v. Dubilier Condenser Corp., 289 U.S. 178 (1933).
Lariscey v. U.S., 949 F.2d 1137 (Fed.Cir. 1991).
McElmurry v. Arkansas Power & Light Co., 995 F.2d 1576 (Fed.Cir. 1993).
P. Rosenberg, Patent Law Fundamentals, sec. 11.04, 11-20. –C.T. Dreschler, Annotation, Application and Effect of “Shop Right Rule” or License Giving Employer Limited Rights in Employee’s Inventions and Discoveries, 61 ALR2d 356 (1958).

2 Responses

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  1. Gary Myles said, on July 9, 2009 at 3:10 pm

    Keep in mind, too, that, regardless of whether an employer obtains freedom-to-operate under an inventor’s patent, absent an assignment or obligation of assignment, ownership of patent rights vest with an inventor, not with an employer. That is, if the inventor does not and doesn’t have to assign patent rights to his/her employer, they may be able to assign/license to any other third party — even a competitor of the employer. Thus, the employer’s opportunity to assert employee’s patent against a third party or to generate revenue by licensing to the third party may be lost. In which case, freedom-to-operate would be the least of the employer’s concerns.

  2. Ron W said, on March 17, 2010 at 11:07 am

    In the event an employer gets “Shop Rights” to a product. Does this mean they have the rights to manufacture and sell the product openly without any royalty compensation to the inventor? I am confused about the term “USE” as it is found in all of these conversations. If it is not a technique for say, instead it is a retail product, what does use mean?

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