Type (lump sum or instalments) and amount of compensation are determined by an agreement between the employer and employee. The calculation of a suitable compensation is a very complex process under German law. As a general rule, the compensation is calculated from the product of (a) the invention value, (b) the share of the employee’s own contribution to the invention and (c) the co-inventor share:
Compensation = invention value x rate of share x co-inventor share
The invention value is often determined by the product of the net sales achieved with the specific invention and a notional royalty rate for the invention:
Invention value = net turnover x notional royalty rate
The rate of share takes into account that service inventions include not only contributions from the salaried inventor but also from the employer. The degree of employee contribution is determined by three aspects:
In practice, the rate of share is calculated using a table that is included in the compensation guidelines and contains default values for different situations. The rate is usually between 15% and 20%.
The co-inventor share divides the compensation between all employed inventors, who participated in the invention, according to their individual contribution. In practice, the inventors should mutually agree on their shares before notifying the employer.
An employer has achieved a net turnover of 2 million EUR per year with an invention. On the open market, the licensing rate for the invention would be 1.5%. The value of the invention would therefore amount to 30,000 EUR per year. With an average rate of share of 15%, the compensation for this invention would be annual instalments of 4,500 EUR. If there were four co-inventors with the same contribution, each inventor would be entitled to a compensation of 1,125 EUR per year in addition to their regular salary.
This information is simplified and must not be taken as a definitive statement of the law or practice.