Source: https://www.jipitec.eu/issues/jipitec-5-1-2014/3904
Timestamp: 2019-04-25 20:10:24+00:00

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The phenomenon of Open Innovation has been gaining prominence over the last decade. Idea competitions have been used in a variety of industrial sectors. Nevertheless, the legal issues raised by this topic have not been broadly addressed, yet. These arise from the adverse interests of the actors. The company which organizes an idea competition would usually like to have the opportunity to comprehensively use the solutions, ideas or products submitted by the competition entrants. For the company it is important to obtain all intellectual property rights in the idea, in the product created as a result and, thus, in the rights to be exploited in the future, in particular, patents, utility models, trademarks, copyrights and registered designs as well as other industrial property rights. The participant would like to participate to the greatest extent possible in the success of the submitted solution. This affects, firstly, the question of fair remuneration or further participation in any profits earned as well as, secondly, any personal rights such as being named as inventor or author. The article aims to show the contractual difficulties which have to be addressed tailoring theterms of an idea competition under German law.
A typical example of an outside-in model is the idea competition (or “idea contest”, “innovation competition” or “innovation challenge”) under discussion in this paper. In such a competition, a company, non-profit organisation or public body sets the public – either directly or through an intermediary specialised in organising idea competitions – one or more tasks to be solved in the scope of the competition. The best responses or solutions are awarded prizes.
Idea competitions have developed into a popular instrument of open innovation and are used in the most diverse industries, such as the automobile industry, chemical-pharmaceutical industry or in the general consumer goods sector. Audi, Bayer, BMW, Henkel, Lufthansa, VW and Wella are just a few of the companies that have organised idea competitions in the last few years or are currently running them.7 Examples of intermediaries specialising in organising idea competitions are the Internet portals Innovationskraftwerk and Hyve; the company which is probably best known internationally in this area is InnoCentive.
The spectrum of idea competitions is broad and encompasses continuously available, open platforms and concentrated actions aimed at solving specific problems.8 The aim of any idea competition is to integrate customers or users into the various phases of the innovation process and thus obtain input from people who were previously unknown to the company concerned.9 The constituent characteristics of idea competitions are the closed time period for the solution of the task set as well as the awarding of prizes to the entries which are adjudged to be the best by the respective jury or assessment panel.10 The rewards on offer to the participants of an idea competition can be material prizes but are, in the main, monetary awards which sometimes, in the case of major idea competitions, even exceed €100,000.
Whilst idea competitions have received quite a measure of attention in business literature,11 there have so far only been a few, isolated publications in legal literature which have addressed open innovation generally and idea competitions specifically.12 This is quite astounding, especially when one considers that the topic raises numerous legal issues. The legal construction of idea competitions is subject to, in particular, intellectual property and contractual law issues, and it is these which will be examined in the following.
Probably the most pressing questions regarding the organisation of idea competitions relate to the granting of (exploitation) rights in the solutions created by the participants, the related issues surrounding the possibility of registration of intellectual property rights by the company running the competition and questions on the duty to remunerate the respective participants.
The relative interests of the parties involved illustrates the situation: the “idea seeker”, namely the company which organises the competition, would usually like to have the opportunity to comprehensively use the solutions, ideas or products submitted by the competition entrants, the “idea providers”. For the idea seeker, it is important to obtain all intellectual property rights in the idea, in the product created as a result and thus in the rights to be exploited in the future, in particular, patents, utility models, trade marks, copyrights and registered designs as well as other industrial property rights.
In order to be able to utilise fully the competition solutions of the idea providers, the idea seeker will also be keen to obtain the aforementioned rights in exclusive and transferable form. The idea seeker also wants to be entitled – if possible without any involvement of the idea provider and at its own discretion – to apply for protection rights such as trade marks, patents or utility models on the relevant ideas/products and to exploit these without restriction. Finally, it would usually be in the interests of the idea seeker where possible not to have to name the idea provider or pay them remuneration beyond the initial prize money when further exploiting the idea/product in the future.
The idea provider for his or her part would like to participate to the greatest extent possible in the success of the submitted solution. This affects, firstly, the question of fair remuneration or further participation in any profits earned as well as, secondly, any personal rights such as being named as inventor or author.
In the following, the legal scope for discretion within the respective regulations will be examined as well as their boundaries – in particular in light of the specific legal provisions governing general terms and conditions of business.
As the respective competition terms and conditions are contractual conditions pre-formulated for a variety of contracts and thus constitute general terms and conditions of business (T&Cs), it is first crucial that the competition terms are effectively included in the contractual relationship between idea provider and idea seeker. T&Cs are fundamentally only a constituent element of a contractual agreement if the user expressly refers the other contracting party to them at the point of conclusion of the agreement and provides the other party with the opportunity to acknowledge their content in a reasonable way and thus to signal their consent to their applying (Sec. 305 (2) German Civil Code, BGB).
In the same way, the reference to the T&Cs in relation to innovation competitions must be displayed prior to the conclusion of the registration process. It must also be ensured that each participant acknowledges the terms before submitting their binding application.
In light of the relative interests laid out above, the idea seeker crucially requires the possibility of acquiring comprehensive rights in all of the work results and input of the idea provider. For the idea seeker, this often means obtaining all rights in any patentable inventions (and/or those which are eligible for a utility model) produced by the idea provider, as well as rights in any development results which qualify for intellectual property rights including in copyrighted works (as well as neighbouring rights). In respect of the required rights acquisition clauses, a distinction must be drawn between industrial protection rights (and know-how) on the one side and copyright exploitation rights (and neighbouring rights) on the other.
As far as the technical protection rights of patents and utility models are concerned, one must take into account that it is possible to license a right in an invention which does not yet exist. For this to occur, the invention must be sufficiently definable at the time the respective agreement is concluded.18 It is certainly conceivable that an idea provider could submit material which is already protected by technical protection rights – held either by the idea provider itself or a third party. These various constellations must be accommodated when constructing the competition terms. If the idea provider includes material for which it holds protection rights itself, it should be stipulated that the idea provider must inform the idea seeker of this. Where such rights already exist, an exclusive license should be granted to the idea seeker in the scope of the rights acquisition clause.
However, care should be taken if the idea provider has already granted third parties licenses in the existing protection rights prior to participation in the competition. The competition terms should thus also include a provision requiring the idea provider to disclose the existence of such licenses as well as the possibility of excluding the idea provider from further participation in the competition in the case of such third-party licenses. The aim is to prevent any conflict with third-party licensees during the future exploitation of the idea in question.
Furthermore, even a technical teaching for which protection has not yet been sought can be made the object of an exploitation agreement between idea seeker and idea provider.19 In cases where an idea provider has not yet filed a patent application for the respective invention, the competition terms should provide for the express entitlement of the idea seeker to file such an application in its own name. In this context, the idea provider should also be obligated to provide all necessary assistance during the application and registration procedure.
When designing this type of comprehensive rights-granting clause in the terms and conditions, numerous factors – some of which are the subject of much debate in related case law and literature – must be taken into account.
Thus, the following applies when designing clauses governing the granting of exploitation rights in T&Cs for idea competitions: provided the individual types of use are specified in the rights-granting clause, the clause cannot be deemed invalid as a result of a test of reasonableness of the content of T&Cs. If the idea provider grants the idea seeker more rights than are required according to the purpose of the agreement, this is permitted under personal autonomy (on the question of fair remuneration, see section 4 below).
It is important to consider, however, that the interpretation provision in Sec. 31 (5) German Copyright Act (UrhG) does apply if the types of use are not individually designated. If the terms and conditions of an idea competition only generally grant exploitation rights, without being more specific, this means that the grant of exploitation rights would be limited to the extent required to fulfil the purpose of the agreement. Whether or not this type of granting of exploitation rights ultimately suffices will depend on the individual case and the interpretation of the competition terms as a whole.
There are also numerous special factors which have to be observed in respect of the remuneration agreement regulated in the competition terms. It is evident from the practice of idea competitions that in general cash or material prizes are offered in return for the work submitted by the idea provider. In some cases this can amount to considerable five- or six-figure sums; usually, however, the amount involved is quite modest and can possibly be considered unfair in relation to the revenues later earned by the idea seeker. This possible imbalance between work and reward raises the question of whether the idea provider’s work can be “fobbed off” – as is often the case – with an extremely low level of compensation or a small material prize.
In many cases, individuals who are in employment will participate in idea competitions.40 If a person who is an employee submits inventions which qualify for patent and/or utility patent protection, conflicts of interest could arise involving the employer concerned. In such cases, the provisions in the German Act on Employee Inventions (ArbnErfG) become relevant.41 As far as service inventions (“tied inventions”) as defined in Sec. 4 (2) ArbnErfG are concerned, the rule is that the employer can claim these inventions as stipulated in Sec. 6 of the Act. In the case of a so-called unlimited claim by the employer, all rights in the service invention are transferred to the employer (Sec. 7 (1) ArbnErfG). However, free inventions of an employee as per Sec. 4 (3) of the Act are also restricted in that they are subject to the duty of notification and the duty to offer towards the employer (Sec. 18, Sec. 19 ArbnErfG).
In the terms and conditions of an idea competition, a provision should thus be included which forbids idea providers who are employees from submitting inventions which the employer has a right to as per the provisions of the aforementioned Act or of which the employer must be notified. Furthermore, it is advisable to include a release clause which releases the idea seeker from claims which could be asserted on the basis of legal action instituted by the employer against the idea seeker under Sec. 7 (1) ArbnErfG.
VI. Are semi-closed innovation competitions prejudicial to novelty?
Numerous idea competitions are designed such that the registered participants are able to comment on, evaluate and discuss each others’ submitted ideas.43 If, however, patentable inventions are exchanged amongst competition participants, the question arises as to whether this could hinder a later patent application due to a lack of novelty. A further issue is whether an invention has been made available to the public as per the legal definition in Sec. 3 (1) sentence 2 German Patent Act (PatG), and thus forms part of the prior art.
Consequently, it must be ascertained whether the participants of an idea competition constitute an unrestricted or a narrowly limited group of persons and thus not the “public” as per Sec. 3 (1) PatG.
Idea competitions which are organised through the Internet are generally directed at the public. Anyone who wants to attempt a solution to the task set can and – from the perspective of the idea seeker – should participate in the idea competition. An idea competition is thus generally aimed at an unrestricted, large and open group of people. Instinctively, therefore, one would assume that this meets the definition of disclosure to the public. In fact, however, it is the participants who actually register for the respective idea competition – the competition community – who actually make up the relevant group. Only the registered participants have the possibility of obtaining sufficient knowledge of facts prejudicial to novelty. Where certain idea competitions allow discussions between competition participants on the respective proposals or ideas, provided these discussions are for the purposes of debating the advantages and disadvantages of individual solutions, it is likely, according to the case law mentioned above, that this would constitute a common purpose which restricts the extent of public involvement. Thus, it can certainly be argued that the registered competition community constitutes a closed and restricted group of people which does not fall within the definition of the “public” as mentioned in Sec. 3 PatG.
Nevertheless, given that one cannot completely rule out competitions inherently carrying a risk of prejudice to novelty, the question arises whether steps can be taken to eliminate or minimise this risk. According to the case law of the German Federal Court of Justice (BGH), a situation will generally not constitute public disclosure if a non-disclosure obligation has been expressly or implicitly agreed or if such an obligation otherwise arises on a good faith basis from the circumstances of the specific case.50 In such cases, one would normally be able to expect that whoever were to obtain knowledge of the invention would act in accordance with any contractual agreement and not disclose that knowledge to third parties.51 All participants in an idea competition should thus be expressly obligated, through a respective clause in the competition terms, to maintain confidentiality in respect of all information which they obtain in the course of the idea competition.
As far as confidentiality clauses within the general terms and conditions of an orderer of goods are concerned, the BGH has clarified that it is valid for this type of non-disclosure obligation to be agreed within general terms and conditions.52 The BGH stated in this context that this type of clause accommodates the fact that technical know-how which needs to be kept secret will also be kept secret by the contracting partner. The question as to whether non-disclosure clauses can be included within general terms and conditions of idea competitions in which numerous people can participate has not yet – as far as we are aware – been the subject of court rulings. The assessment of the BGH in the aforementioned decision can, in our opinion, also be applied to idea competitions. The idea seeker, who in some cases has to invest considerable sums in the organisation of the competition, has a legitimate interest in securing the patentability of the solutions submitted by idea providers. The non-disclosure obligation imposed upon the competition participants surely does not constitute an unreasonable disadvantage for the idea providers as it ultimately serves the patent-protected exploitation of the invention from which – depending on the design of the remuneration rules – the idea provider could also benefit. In any case, there is no apparent reason to suggest that a loss of patentability could be in the interests of competition participants.
As is clear from the above, it is indeed quite possible to regulate open innovation idea competitions whilst taking into account the particular issues regarding the protection of rights and contract law. In order that the idea seeker is able comprehensively to use and exploit the submitted ideas, particular attention must be paid, especially in light of legal issues peculiar to general terms and conditions, to the form of the respective rights-granting clauses. In respect of copyright-protected works, it is important for organisers of idea competitions to be aware that not all claims of authors – in particular if the idea can be especially lucratively exploited at a later point – can be settled with a flat-rate compensation agreement. The principle of equitable remuneration which dominates copyright law cannot be negated through provisions within general terms and conditions. There also exist certain patent law issues in relation to employee inventions and questions of detriment to novelty in the case of semi-closed competition models. However, it should be possible to reduce the existing risks to a manageable level through the use of suitable release clauses and non-disclosure obligations.
Nordemann, J.B., AGB-Kontrolle von Nutzungsrechtseinräumungen durch den Urheber, NJW 2012, 3121.
 See Chesbrough, The Era of Open Innovation, MIT Sloan Management Review, Vol. 44, No. 3, 2000.
 In contrast to the closed innovation model, on the open innovation model, see Reichwald/Piller, Interaktive Wertschöpfungen, 2nd edition, Wiesbaden 2009, pp. 146 et seq.
 See Reichwald/Piller, Interaktive Wertschöpfung, loc. cit., p. 148.
 See Enkel/Gassmann, Neue Ideenquellen erschließen – Die Chancen von Open Innovation, Marketing Review St. Gallen, 2-2009, pp. 6 et seq. with further refs.
 See Reichwald/Piller, Interaktive Wertschöpfung loc. cit., p. 147.
 See, on the various “core processes” of open innovation, Enkel/Gassmann, Neue Ideenquellen erschließen – Die Chancen von Open Innovation, loc. cit., pp. 6, 8 et seq.; Gassmann/Enkel, Towards a Theory of Open Innovation; Three Core Process Archetypes, Proceedings of the R&D Management Conference (RADMA) 2004, p. 6 et seq.; Söbbing, Open Innovation and Crowd Sourcing, ITRB 2011, 206 et seq.
 E.g. Audi: “Automobilproduktion der Zukunft - Audi Production Award 2013” [Automobile production of the future], see www.audi.de/de/brand/de/unternehmen/wissenschaft/initiativen/audi_production_award.html; Bayer Material Science: “Wie verhindern wir die Ausbreitung von Wüsten?” [How can we avoid desertification?], see www.innovationskraftwerk.de/Wettbewerb/Bayer/Help-to-avoid-desertification; BMW Group: “Tomorrow’s Urban Mobility Services”, see www.bmwgroup-ideacontest.com/jury-prizes-contest/contest/; Henkel: “Innovation Challenge”, see www.henkel.de/presse/dossier-henkel-innovation-challenge2-17778.htm; Lufthansa Cargo: “Air Cargo Innovation Challenge”, see https://innovation.lufthansa-cargo.com/start.php; VW: “App my ride”, see www.app-my-ride.com/jury-prizes-contest/contest/; Wella: “Wie sehen Friseursalons der Zukunft aus?” [What will hair salons of the future look like?], see www.innovationskraftwerk.de/Wettbewerb/wella/Friseursalons-der-Zukunft.
 See Reichwald/Piller, Interaktive Wertschöpfung, loc. cit., p. 199 with futher refs.
 See Reichwald/Piller, loc. cit., p. 198.
 Reichwald/Piller apparently critical in the sense that both assessment panels and benchmarks are often unsystematic and arbitrary, Interaktive Wertschöpfung, loc. cit., pp. 204 et seq.
 See Walcher, Der Ideenwettbewerb als Methode der aktiven Kundenintegration, Wiesbaden 2007; Reichwald/Piller, Interaktive Wertschöpfung, loc. cit., pp. 197 et seq.. with further refs.
 For example, Söbbing ITRB 2011, 206; Wurzer, MittdtschPatAnw 2010, 520, 521.
 See District Court Essen NJW-RR 2003, 1207.
 See Court of Appeal Hamburg ZUM 2002, 833.
 Ulmer/Brandner/Hensen/Ulmer/Habersack, AGB-Recht, 11th edition 2011, § 305 BGB, marg. no. 149a.
 See Ulmer/Brandner/Hensen/Ulmer/Habersack, AGB-Recht, 11th edition 2011, § 305 BGB, marg. no. 149a.
 Ulmer/Brandner/Hensen/Ulmer/Habersack, AGB-Recht, 11th edition 2011, § 305 BGB, marg. no. 155, 156.
 See Mes, Patentgesetz Gebrauchsmustergesetz, 3rd edition 2011, Munich 2005, § 15 PatG, marg. no. 29.
 See Bartenbach, Patentlizenz und Know-how-Vertrag, 7th edition, Cologne 2013, marg. no. 193 et seq. with further refs. and references to the competition law limitations of such licensing constructions.
 See Fromm/Nordemann/J.B. Nordemann, Urheberrecht, 10th edition, § 34 marg. no. 15.
 See BGH-GRUR 2002, 248, 251 - Spiegel-CD-ROM.
 See Fromm/Nordemann/J. B. Nordemann, Urheberrecht, 10th edition, § 31 marg. no. 109 with further refs.
 See Dreier/Schulze/Schulze, Urheberrechtsgesetz, 3rd edition, § 32 marg. no. 54.
 § 307 (2); this paper will not address the specific prohibited clauses in Sec. 308, 309 German Civil Code as one can assume that the author will usually be a business person as per Sec. 14 German Civil Code so that the test of reasonableness of T&Cs as per Sec. 310 (1) German Civil Code only applies in a limited extent; see Fromm/Nordemann/J. B. Nordemann, loc. cit, before Sec. 31 et seq. UrhG, marg. no. 202.
 BGH GRUR 1984, 45, 49 – Honorarbedingungen.
 See comprehensive explanation in Fromm/Nordemann/J. B. Nordemann, loc. cit, § 31 par. 180 et seq.
 See Grounds RegE UrVG - BT-Drucksache 14/6433, p. 11.
 See Court of Appeal Hamburg, AFP 2011, 385; based on that ruling: District Court Braunschweig ZUM 2012, 66, 72, see also Gialeli/von Ohlenhusen ZUM 2012, 389.
 See KG ZUM 2010, 799, Court of Appeal Munich GRUR-RR 2011, 401, 403.
 BGH, judgement of 31 May 2012, I ZR 73/10 - Honorarbedingungen Freie Journalisten.
 Now also referred to by the BGH as the “purpose-oriented transfer principle” (“Übertragungszwecklehre” instead of “Zweckübertragungslehre”); see BGH loc. cit, part. no. 15 - Honorarbedingungen Freie Journalisten.
 See German Federal Court of Justice, loc. cit, part. no. 17 – Honorarbedingungen Freie Journalisten; for in-depth analysis on this decision, J.B. Nordemann NJW 2012, 3121.
 See Fromm/Nordemann/J. B. Nordemann, loc. cit., § 31a marg. no. 53, with further refs.
 Through the reform of copyright contract law in 2002, the legislator added a second sentence to the provision of Sec. 11, according to which the copyright “shall also serve to ensure equitable remuneration for the exploitation of the work”. This principle has been reflected in numerous regulations (in particular Sec. 32, Sec. 32a German Copyright Act).
 See Dreier/Schulze/Schulze, Urheberrechtsgesetz, § 32a, marg. no. 37 with further refs.
 German Federal Court of Justice, loc. cit., part. no. 29 - Honorarbedingungen Freie Journalisten.
 German Federal Court of Justice, loc. cit., part. no. 31 - Honorarbedingungen Freie Journalisten.
 A provision should also be included in the T&Cs which stipulates that only natural persons of full age may participate; it is also advisable to exclude employees or other staff of the idea seeker from participating.
 German Act on Employee Inventions (ArbnErfG) of 25 July 1957, last amended by Art. 7 G of 31 July 2009.
 See, for example, the idea competition of Evonik Industries “Wie sehen die Werkstoffe der Zukunft aus und welche neuen Anwendungswelten eröffnen sie?” (“What will the composites of the future look like and what new worlds of applications will they open?”), www.innovationskraftwerk.de.
 See BPatG GRUR 1994, 107 - Tauchcomputer II; Mes, PatG, loc. cit., § 3 PatG marg. no. 17 with further refs.
 See Münch in Fitzner/Lutz/Bodewig, Patentrechtskommentar, 4th edition, § 3 PatG marg. no. 35.
 See BGH GRUR 1970, 214 - customer prints.
 See only BGH GRUR 1993, 466, 468 - Preprint-Versendung; see only Münch in Fitzner/Lutz/Bodewig, loc. cit., § 3 PatG marg. no. 38.
 See BGH GRUR 1993, 466, 469 - Preprint-Versendung.
 See Münch in Fitzner/Lutz/Bodewig, loc. cit., § 3 PatG marg. no. 38 with the comment that the risk of an explicitly or implicitly defined purpose not being adhered to increases, the larger the group of people is.
 BGH GRUR 1996, 747, 752 - Lichtbogen-Plasma-Beschichtungssystem.
 BGH GRUR 2002, 609, 612 – Drahtinjektionseinrichtung; see only Court of Appeal Düsseldorf, judgement of 25 January 2008, file ref.: I-2 U 137/99, marg. no.: 20 et seq., cited from juris.
 See Mes, PatG, loc. cit., § 3 marg. no. 18.
 See BGH GRUR 1996, 747, 752 - Lichtbogen-Plasma-Beschichtungssystem.
This article was first published in German language in "DGRI-Jahrbuch 2012", Verlag Dr. Otto Schmidt, Köln, 2013, p.189.
Christian Czychowski, Julian Waiblinger, Open Innovation: Legal Hurdles in the Creation of Contractual Arrangements Governing Idea Competitions?, 5 (2014) JIPITEC 23 para 1.

References: § 305
 § 305
 § 305
 § 15
 § 34
 § 31
 § 32
 § 307
 § 31
 § 31
 § 32
 Art. 7
 § 3
 § 3
 § 3
 § 3
 § 3