Patent Ownership Clauses in Employment Agreements After Nippon Steel

Introduction : Activities performed in research and development by the employees are significant parts of the patents of the companies operating in sectors like technology, pharmaceutical, manufacturing and other companies that are innovative. However, while it could be presumed that the employee will be the inventor and therefore will own the patent, the employer might wish to file the patent application for the invention, making him the owner of the patent. The most important question that arises in this context is, what is the ownership position of the invention made by the employee as per the Indian patent law?

The decision of the Delhi High Court regarding Nippon Steel Corporation v. Controller of Patents, dated 24 December 2025, is of great importance with respect to this matter. According to the decision, a carefully drafted employment contract along with the IP policy of the company and other documents could be considered as evidence of the right made under Section 7(2) of the Patents Act 1970. The decision of the Delhi High Court regarding Nippon Steel Corporation v. Controller of Patents dated 24 December 2025 is of immense importance in this context. It shows that the employment contract along with the IP policy of the company and other relevant documentation could be considered as evidence of the right made under Section 7(2) of the Patents Act 1970

This is especially pertinent for Indian employers and multinationals in cases involving foreign inventors, employees quitting their companies, and joint ventures between researchers. It is evident from the above that the legitimacy of an employer’s right over a patent may not only depend upon the issue of inventorship of the invention but also on how it can be substantiated by written contracts.

Legal Provisions

This is clearly seen in Section 6 of the Patents Act of 1970 in which those individuals who are entitled to make an application for the grant of the patent are listed. It is mentioned in this section that the application for the grant of the patent may be made either by the true and genuine inventor of the invention, by the assignees of the individual who claims to be the true and genuine inventor of the invention, or by the legal representatives of the individual who has died and would have applied for the patent.

In the Nippon Steel dispute, Section 7(2) plays a critical role. The evidence to show the right of making the application will be provided in case where an application for patent has been made in accordance with the assignment of right to make an application for a patent. It is vital to note that Section 7(2) requires proof of applicant’s title as a filing requirement rather than as an internal company issue.

According to Section 68, the assignment of a patent, a share in a patent, or another interest in a patent is not valid unless it is in writing, includes all the necessary terms, and is duly executed. The present statutory provision is also related to registration of assignments and transmissions under Section 69.

The importance of distinguishing between Sections 7(2) and 68 becomes very apparent in the context of Nippon Steel. According to the Delhi High Court, the case is based on the right to apply for a patent prior to the grant, while Section 68 is concerned with the assignment of a patent or interest in a patent. In view of this, the Court dismissed the arguments put forward by the Controller on the basis of Section 68.

Section 39 also has relevance to the cases where an invention is made by the Indian resident and foreign patent application is proposed. In such cases, it is vital to consider the provisions of foreign filing apart from the matter of ownership.

Legal Analysis

Significance of Nippon Steel can be understood through knowing what may be regarded as acceptable proof of an employer’s right to file a patent application. The Nippon Steel Corporation had filed a patent application in India wherein four employees were named as the inventors. One of the inventors had passed away. He was unable to sign on the necessary documentation for patent application; hence, Nippon Steel Company had presented an Employment Agreement, Employer-Employee Agreement, internal Basic Regulations concerning Intellectual Property and other evidence.

The Patents Office had refused to accept the application. It stated that an employment agreement was insufficient to prove an assignment and an assignment deed was needed. However, the Delhi High Court did not agree with such an argument and said that an agreement between employer and inventor, which is signed by the inventor, can fulfill the condition of proving the right of the employer as per Section 7(2).

It should be noted, however, that the Nippon Steel case cannot be seen as the basis for stating that all employment agreements entail automatic transfer of patents. In the aforementioned case, the Court relied on the factual evidence provided to it in documents. The agreement was appropriately signed by the inventor, along with the company's rules and declarations, indicating the intended transfer of the rights. Therefore, this case should be viewed as establishing the right that an employment agreement can serve as evidence that entitles the employer to certain rights.

Moreover, the aforementioned rule is very significant since Indian patent law does not provide a statutory rule, according to which all inventions created by an employee automatically belong to the employer. This aspect is illustrated in the case of the Bombay High Court Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd. There, it was established whether the inventions created by the Managing Director could be considered inventions of the company automatically just because of having substantial research facilities. The Court noticed that the employee was not employed for the purpose of research and development and that there were no statutory rules providing automatic transfer of the patent rights to the employer.

As one can see, there is a great difference between the two cases described above. In the first case, the employee was hired for conducting research and development and the employment agreement stipulated the assignment of inventions made in the course of the employment. Thus, the situation when the employment was conducted informally can lead to difficulties in proving that the invention was related to the obligations of the employee and he or she transferred relevant rights.

The decision of the Delhi District Court in Premas Biotech Pvt. Ltd. v. Sonia Madan is another example of the importance of proper wording of employment terms. In particular, the employment agreement required the employee to disclose and transfer inventions and discoveries that she had developed during her employment and declared that all inventions belonged to the company.

In addition, it should be noted that there is an essential difference between protecting inventions developed during employment and preventing post-employment competition and inventive activity of the employee. Section 27 of the Indian Contract Act, 1872 provides a good ground for this matter. The employers should protect inventions created during employment but not try to take everything that employees can invent after resignation.

Relevant Case Laws

Nippon Steel Corporation v. Controller of Patents

This is the primary authority. In Delhi High Court, a properly drafted employment agreement would be treated as satisfying proof of right under Section 7(2). This was especially the case in light of internal Intellectual Property policies. Thus, the Court set aside the Patent Office decision rejecting such rights because of the alleged inadequacy of the employment agreement.

Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd.

The Bombay High Court shows the flip side of the coin. That an individual held the position of Managing Director, and company resources were available for carrying out research does not automatically mean that the patents generated by him belonged to the company. The question was if an invention was generated in the course of employment and the existence of contractual or some other grounds allowing company ownership.

Premas Biotech Pvt. Ltd. v. Sonia Madan

This case highlights the importance of an express employment clause which is beneficial to an employer. It was provided in the terms of employment that the inventions have to be disclosed and assigned to the employer. At the same time, this decision illustrates limitations to restrictions imposed after employment under Section 27 of the Contract Act.

Thus, in summary, the safest route to go is not to rely on the assumed ownership of inventions by the employer but to have all necessary contractual arrangements in place at the very outset.

Practical Implications

In terms of implications of Nippon Steel, it is very relevant for the companies that have research activities. First of all, an employment agreement must include an explicit invention-assignment clause but not a clause which states that all IP of the company belongs to its employer.

Secondly, the company should have a special IP policy and explicitly mention it in the employment agreement as Nippon Steel proves the advantage of considering the employment agreement and internal IP policy together.

Third, employees should be obliged to disclose the inventions and sign applications, assignments, declarations and other documents related to the application for patents in India and other countries. It will become crucial where the employee resigns, disappears or dies.

Fourth, the foreign employment agreement must include a chain of titles of inventions. In Nippon Steel the original employment agreement was written in Japanese and English translation was submitted to the court.

Finally, research agreements must be made formally and not orally. Where employees, consultants, subsidiaries, parents and third-party research institutions are involved in research activities, then the parties must agree on the background IP, foreground IP, inventorship, ownership and patent-filing rights.

Conclusion

Nippon Steel thus offers an important point of reference to employers who wish to prove their rights in respect of employees' inventions in India. The main benefit offered by this case is not the imposition of an automatic presumption of ownership of inventions by the employer but rather the admission that the presence of a validly drafted employment agreement will provide prima facie evidence of the employer's right to make a patent application under Section 7(2).

For employers then, the lesson to be learnt from Nippon Steel concerns documentation. The patent application may well be a good one but if there are problems with proving how the applicant came into possession of its right to make a patent application, it is likely to face difficulties. Well-drafted clauses for assignment of inventions, IP policies within organizations, disclosure procedures, and requirements of continued cooperation may assist in bridging this gap. This is particularly important in cases where the inventor is a foreigner, former employee, dead, or a participant in an informal research agreement.

Author :- Twinkle Singh, in case of any query, contact us at Global Patent Filing or write back us via email at support@globalpatentfiling.com.

Endnotes / References

1. The Patents Act 1970, s 6.
2. Nippon Steel Corporation v Controller of Patents, C.A.(COMM.IPD-PAT) 10/2025, decided 24 December 2025 (Delhi HC).
3. The Patents Act 1970, s 7(2).
4. The Patents Act 1970, s 68.
5. The Patents Act 1970, s 69.
6. The Patents Act 1970, s 39.
7. Jer Rutton Kavasmaneck v Gharda Chemicals Ltd, Notice of Motion No 3567 of 2011 in Suit No 2932 of 2011, decided 20 March 2012 (Bom HC).
8. Premas Biotech Pvt Ltd v Sonia Madan, RCA No 14/2021, decided 9 March 2022 (Additional Senior Civil Judge, New Delhi).
9. Indian Contract Act 1872, s 27