The Royal Children's Hospital [2011] APO 94 - a lighter shade of Gray?

Posted by Sarah Doyle

Following the much debated Federal Court decision in University of Western Australia v Gray (No 20) [2008] FCA 498, the ownership of inventions in the context of the employer-employee relationship was considered again earlier this month. This time the Australian Patent Office considered an application filed by the Royal Children's Hospital (RCH) for a direction under section 32 of the Patent Act 1900 (Cth) concerning two patent applications filed by one of its employees, Dr Alexander.

Dr Alexander was Head of Virology at RCH when he developed two inventions the subject of the patent applications. The first invention related to improvements in the medium used to inoculate and grow viruses in culture. The second invention related to improvements in the design of a microtitre tray (a standard tool used in clinical diagnostic testing).

RCH accepted that Dr Alexander was not employed in a sufficiently senior management position to attract a fiduciary duty to forward the interests of RCH, which might otherwise have enabled RCH to argue that, in applying for the patent applications in his own name, Dr Alexander was forwarding his own interests ahead of RCH's interests in breach of that fiduciary duty.

RCH therefore relied on the common law principle that inventions developed by employees 'in the course of their employment' belong to their employer as an implied term of their employment contract, to assert rightful ownership of any patents granted in respect of Dr Alexander's inventions.

UWA v Gray confirmed that, in employment categories where the implied term applies, whether an invention is developed in the course of an employee's employment depends on whether the employee has a 'duty to invent', in the sense that it is part of the employee's engagement to 'utilise his or her inventive faculty in an agreed way or for an agreed purpose, and for the benefit of, or to further the purposes of, the employer'. Put another way, the invention would need to be 'the product of work which the employee was paid to perform'.

As Head of Virology at RCH, Dr Alexander was responsible for the quality and efficiency of the viral diagnostic work performed at RCH. He did not have any express duty to invent under his employment contract and his day to day duties did not involve any pure research. However, Dr Alexander's duty statement specifically highlighted a job requirement of 'identifying potential areas for improvement in the diagnostic service', and he accepted that he had a role in improving the clinical testing procedures at RCH.

The APO considered that this prima facie provided both a duty to invent and an agreed purpose as required by Gray.

The APO then went on to consider whether, as the Federal Court decided in relation to Dr Gray in UWA v Gray, there were sufficient negating factors which were inconsistent with, and went against, the implication of employer ownership of employee inventions that were developed in the course of, and as a product of, what the employee was actually employed to do.

One of the negating factors emphasised by the Federal Court in UWA v Gray was that Dr Gray was not bound by confidentiality obligations preventing him from freely publishing the results of his experiments, even though this would have had the potential to destroy patentability.

Dr Alexander sought to rely on the fact that RCH had similarly failed to impose on him a duty of confidentiality which would ordinarily be required in an industrial setting. However, the APO did not consider this to be determinative in a public hospital environment. This was because hospitals do not need to commercialise an invention to benefit from it. Conversely, hospitals have a large public interest role which is served by disclosing and sharing new methods and techniques including, in the present case, to ensure the proper diagnosis of viral pathogens for the treatment and management of diseases.

The APO also pointed out that in UWA v Gray, Dr Gray's lack of confidentiality obligations was merely one of a number of negating factors. Also critical to the decision in that case were that:

(i) Dr Gray was free to select what lines of research he would undertake and in what fields, without regard to furthering any commercial interest or other benefit of UWA; and

(ii) Dr Gray was expected to solicit funding for his research from sources outside of UWA.

In contrast, the APO found that while Dr Alexander had limited discretion with his lines of research, his research as a whole was confined to, and focused on, improving the viral diagnostic techniques used at the hospital. Such research was directly related to the purposes of, and directly benefited, RCH. Dr Alexander was also not expected to (and did not) obtain any external funding for his research.

Therefore, the APO held there were insufficient factors to negate Dr Alexander's prima facie duty to invent. However, the APO found that the agreed purposes of this duty were limited both by Dr Alexander's specific job requirement to identify 'potential areas of improvement' and by the limited support provided by RCH for Dr Alexander's research (including RCH's refusal of funding requests for laboratory equipment where benefits were untested). This meant that Dr Alexander only had a duty to invent in circumstances where there was a clear motivation arising in the course of his employment, which were found to be broadly limited to situations:

(i) where there was a recognised problem which he would have been reasonably expected to resolve; and

(ii) where he was otherwise motivated to pursue a particular avenue of research in the reasonable expectation of identifying potential improvements (and not just where an invention might possibly result).

Turning to whether the two inventions the subject of the patent applications challenged by RCH were developed within the ambit of this limited duty, the APO held that:

(i) the first invention relating to improvements in the medium used to inoculate and grow viruses was an avenue of research which Dr Alexander would be expected to investigate further in the reasonable expectation of identifying potential improvements in the course of his role as Head Virologist;

but that

(ii) the second invention relating to improvements to an existing device which was already effective in design and not in need of any trouble-shooting was outside the scope of research avenues that Dr Alexander would reasonably be expected to pursue in the reasonable expectation of identifying improvements.

This is a victory of sorts for both RCH and Dr Alexander and demonstrates that while the legal principles may be clear, the application of those principles may lead to very different conclusions depending on the particular facts of the case.

For employers, this reinforces the need to include clear IP assignment provisions in all employment contracts which are more prescriptive than a restatement of the common law principle – 'that the employer will own all IP developed by an employee in the course of his or her employment' - which are still common place in employment contracts.

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