Shop Rights: 6 Essential Rules on Employee Inventions

An engineer builds something clever on your time, with your materials, on your factory floor. She patents it in her own name. Two years later she leaves, and her new employer demands you stop using it. Who wins? The uncomfortable answer: you probably keep using the invention — and she probably still owns the patent. That halfway outcome is the shop rights doctrine, one of the most misunderstood corners of U.S. patent law, and the thing you fall back on when you forgot to get an assignment. Here is how it really works, and why relying on it is a bad plan.

What Shop Rights Actually Give an Employer

A shop right is an implied license. When an employee invents something using the employer’s time, materials, or facilities, the law may give the employer the right to keep using that invention without paying for it — even though the employer never owned it and never signed anything.

The license has a specific shape, and each attribute matters:

• Non-exclusive. The inventor can still license the patent to anyone else, including your competitors.
• Royalty-free. The employer pays nothing.
• Not ownership. The patent stays with the inventor. You cannot sue infringers, you cannot grant an exclusive license, and you have nothing to put on a balance sheet.
• Limited to your own business. It lets you practice the invention in your operations. It is not a right to go into the licensing business.
• Implied, never written. It arises by operation of law, which means nobody knows it exists until there is a fight.

Notice what is missing from that list. You get use. You do not get the thing that makes a patent valuable — the right to exclude. An employer with only a shop right cannot stop the inventor from handing the same technology to the competitor across the street.

Dubilier: Three Different Answers to Who Owns It

The foundation is United States v. Dubilier Condenser Corp., 289 U.S. 178 (1933), and it is worth being precise about, because it sets out three different outcomes that people constantly blur together. You can read it at Cornell’s Legal Information Institute.

1. Employed to invent — the employer gets ownership. As the Court put it, one employed to make an invention, who succeeds during his term of service in accomplishing that task, is bound to assign to his employer any patent obtained. Hired to solve the problem, solved the problem, hand over the patent.
2. General employment — the employer gets nothing by implication. Even where the job covers the field of work in which the invention arose, the Court refused to construe the contract to require an assignment. Employing someone in a technical field does not buy their inventions.
3. Employer’s time and materials — the employer gets a shop right. Where a servant, during hours of employment and working with the master’s materials and appliances, conceives and perfects an invention, he must accord the master a nonexclusive right to practice it. In equity the employer may use what embodies its own property, and duplicate it as often as occasion requires.

One detail people miss: the government lost in Dubilier. It wanted ownership of its employees’ inventions and did not get it. The case is usually cited as an employer-friendly authority, and on the shop-right point it is. On the ownership point it is the opposite — a warning that the law will not imply an assignment just because someone was on payroll.

Which category you land in is not a matter of job title. It turns on what the person was actually engaged to do. That is why a written invention assignment agreement exists: it takes the question away from a judge reading tea leaves about your hiring intentions.

How a Shop Right Arises: The Totality Test

For decades courts argued about the theory. Was a shop right an implied license? An equitable estoppel? The Federal Circuit largely ended the debate in McElmurry v. Arkansas Power & Light Co., 995 F.2d 1576 (Fed. Cir. 1993), by declining to pick a single rigid theory and asking a practical question instead.

The court described the proper methodology as looking at the totality of the circumstances on a case-by-case basis, to determine whether the facts demand — under principles of equity and fairness — a finding that a shop right exists. It defined the right itself as one created at common law, when the circumstances demand it, entitling an employer to use an employee’s patented invention without charge and without liability for infringement.

Two clusters of facts drive the analysis. The first is what happened during development: whose time, whose materials, whose lab, whose money. The second is what the inventor did after the invention existed — and this is the one that decides cases. An inventor who watched the company build the invention into its production line, said nothing for years, and accepted the benefits of that silence is in a poor position to demand royalties later. Equity does not reward the ambush.

This is also why shop-right disputes are expensive. There is no clean rule to apply — only a factual record about who paid for what and who said what to whom, assembled years later from memories and incomplete files.

The Question Nobody Answers: Does a Shop Right Survive an Acquisition?

Here is where the published guidance thins out to a sentence, usually a confident one, and the confident sentences contradict each other. So be clear-eyed: this is unsettled, and the answer depends on how the deal is structured.

The general principle is that a shop right is personal to the employer. It is not a freely tradable license you can carve off and sell to a stranger. Courts going back roughly a century have allowed the right to pass where a business was transferred as a whole — the entire operation and its goodwill continuing under a new owner. Where a buyer has picked up assets rather than the going concern, courts have been considerably less willing, and at least one court has refused to let a shop right pass in that posture.

Translate that into deal terms and the exposure is obvious. A stock purchase, where the same corporate entity simply has new shareholders, is the safest case — the employer never changed. An asset purchase, or a purchase out of a bankruptcy estate, is the dangerous one: the buyer may be a different entity that never had the equitable relationship with the inventor that created the right in the first place.

The consequence for diligence is unpleasant. A company can operate profitably for fifteen years on an invention it never owned, believing the shop right is settled — then discover mid-transaction that the right may not travel with the deal, the patent belongs to a former employee, and that former employee now has enormous leverage. If a core product depends on a patent your company does not own, surface it before the term sheet, not during confirmatory diligence. It belongs in the same review as joint ownership problems, which fail in a similar way.

A Shop Right Is a Defense, Not a Plan

The most useful reframing: a shop right is not an asset you hold. It is an argument you make after you have been sued.

Nobody hands you a shop right. You assert it as a defense, and you have to prove it — with evidence about conception, whose resources were used, and what the inventor knew and tolerated. That proof lives in twenty-year-old lab notebooks and the memories of people who left the company. Even when you win, you have paid for litigation to obtain a bare, non-exclusive license you could have had for free with a one-page agreement on the inventor’s first day.

And a win is a consolation prize: you still cannot stop competitors, still cannot license it out, still do not own it. Ownership is only half the problem, too. The same sloppy record-keeping that leaves you arguing about shop rights tends to leave your confidential information exposed — see our guide to protecting trade secrets held by employees.

6 Rules for Handling Shop Rights in Practice

What we tell clients, in order of how much money it saves:

1. Get a present assignment, not a promise. Language matters enormously here. An agreement to assign in the future can leave the inventor holding title; a present assignment transfers it. This is the single highest-leverage paragraph in your employment paperwork.
2. Cover contractors and consultants too. The doctrine grew up around employees, but modern development happens through contractors, and their relationship with you is governed by whatever the contract says. If it says nothing about inventions, you may be arguing equity years later.
3. Do not assume a job title decides ownership. Dubilier turns on what someone was engaged to do, not what their business card said. “Employed to invent” is a factual finding, and you will not enjoy litigating it.
4. Treat shop rights as a diligence red flag. If a product depends on a patent the company does not own, that is a real issue, and the acquisition question above means it can get worse at the worst moment.
5. Watch for state-law limits on assignment clauses. Several states restrict how far an employer can reach into inventions made on an employee’s own time with their own resources. A clause that overreaches can be narrowed or unenforceable.
6. Keep records that would prove the right if you need it. If you are already in the fallback posture, the evidence that wins is contemporaneous: purchase orders for materials, project time, and any acknowledgment from the inventor that the company was free to use the invention.

One last myth to kill. You will still find articles saying a shop right lasts until the patent expires “at the end of its 17-year term.” That is decades out of date. For applications filed on or after June 8, 1995, a U.S. utility patent generally runs 20 years from the earliest non-provisional filing date, not 17 from grant. If a page still says 17 years, it has not been reviewed since the Clinton administration — which tells you something about the rest of its advice.

How PerspireIP Can Help

Most shop-right fights are the delayed bill for paperwork nobody did years earlier. PerspireIP helps companies find that exposure before a buyer does — mapping which patents actually sit in the company’s name, where assignments are missing or defective, and which products depend on rights the company only thinks it has. If you are preparing for diligence, or you have just discovered that a key invention is in a former employee’s name, talk to our team.

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