A minority shareholder sued because patents built on the company’s R&D were filed in the managing director’s name — not the company’s. The Bombay High Court dismissed the suit, but the case is a sharp reminder: fix IP ownership in your employment agreements from day one.
The dispute
A minority shareholder brought a derivative action (a suit by a shareholder on the company’s behalf) against the company, its managing director and three other directors, because patents developed using the company’s R&D were filed and granted in the MD’s name, not the company’s. The shareholder had already lost two cases before the Company Law Board on oppression/mismanagement.
The aim: stop the MD assigning, licensing or transferring the patents to a Section 25 company (a non-profit) founded by him and his wife.
The issues
- Was the derivative suit maintainable?
- Did the patents belong to the company or were they rightly the MD’s?
The arguments
Plaintiff: only needed to show a prima facie case for an injunction, with the final order after trial. (The court disagreed — granting the injunction would itself be the final relief sought.)
Defendants:
- the plaintiff’s repeated suits showed the action was frivolous;
- of the earlier cases, one was withdrawn amid allegations he tried to sell shares to a competitor, and the other failed for concealment of facts; his SLP was admitted but unstayed;
- a Board resolution on the MD’s re-appointment stated the patents were the MD’s, unobjected to at the time;
- the MD had granted the company a royalty-free licence to all his patents, so the company benefits anyway;
- the plaintiff hadn’t exhausted Patent Act remedies (pre-grant/post-grant opposition, revocation); and
- the plaintiff had engaged a competitor to make a rival product — unclean hands.
The ruling
- Not maintainable. A derivative suit must be representative; here the plaintiff held 12%, and other minority shareholders (13%) opposed the suit. The action had an ulterior motive.
- Bona fide / company interest. Revoking the patent would strip the company of its royalty-free licence — no benefit to the company.
- Ownership. Even accepting the MD used the company’s resources, since the suit itself wasn’t maintainable, no relief could be granted.
The real lesson
The plaintiff was partly at fault for serial litigation. But strip that away, and the general principle matters: where an employee or director devises a patent using the company’s resources, it should ordinarily be in the company’s name — unless the employment agreement says otherwise. That ensures the company still benefits after the person leaves, since the invention wouldn’t have existed without its resources.
The takeaways
- Fix IP ownership in employment/director agreements — don’t leave it to litigation.
- Company-resourced inventions should vest in the company by default, absent a contrary agreement.
- Derivative suits must be genuinely representative — and free of ulterior motive/unclean hands.
- A royalty-free licence back to the company can blunt an ownership challenge — but clean assignment is better.
Frequently asked questions
Who owns a patent invented by a company’s employee or director? Ordinarily the company, where the invention used the company’s resources — unless the employment agreement provides otherwise. Fixing this contractually avoids disputes.
Why did the derivative suit fail? It wasn’t genuinely representative (other minority shareholders opposed it), the court found an ulterior motive and unclean hands, and revoking the patent wouldn’t benefit the company.
How can a company secure ownership of employee inventions? By an express assignment/ownership clause in employment and director agreements, so the company retains the patent even after the person leaves.
Does a royalty-free licence to the company solve the ownership problem? It helps the company benefit, but a clean assignment of ownership is the safer arrangement.
Legislation referred to
- The Patents Act, 1970