A bunch of things about this I've not seen discussed in detail, and they are important.

What we know:

1) The company changed the compensation model for patents, and now have lost contribution from one of their most prolific users of that model.

2) The manager is concerned that the employee is going to leave. And then the IP will be effectively lost to the employer.

3) Based upon #2, they have engaged a significant hunt for information, looking through his data storage, his laptop, etc. At likely fairly significant expenditure of time/effort/personnel who should be engaged in other tasks.

That is, the company is paying real money for the opportunity cost associated with their screwing up their policy. They are paying time and materials, resources, consultants, etc. to try to find something that is not likely findable.

They are apparently ok with this use of capital.

They are apparently less ok with paying what their engineer considered a fair market compensation for their effort. At some point, possibly already, they will have spent more money on the search and recovery effort than they would have paid the engineer.

4) Somehow the manager is of the opinion that the employee does not want to "admit" that they are "lying".

What we don't know:

1) The value of the previously patented work. You can get a glimmer of the thought processes by noting that the manager focused on the volume and not the quality of the work, by counting. You can get a sense of disbelief in high quality from the comments here.

So we don't know if this senior engineer was putting out good product, figured out a way to game a broken system and no longer wishes to play.

I am going to assume the senior engineer put out a good product and patent set. Such that the company was willing to prosecute patent filings, and saw value in them. So much so, that when they broke their standing rate on compensation for voluntary work, they decided to spend real capital pursuing this voluntary work.

2) whether or not this engineer is really looking for a new job. Well, put another way, whether or not they were looking for a new job ... yet.

Likely they'll catch on from StackExchange, see their manager post, realize that they need to git while the gitting is good.

3) whether or not this manager has communicated this to senior management, whether or not this person has decision or negotiation authority to solve this. Chances are, they do within specific boundaries.

So ...

A few obvious thoughts:

1) the company policy change is idiotic. Their pursuit of IP across the systems suggests that they realize that they messed up something fierce.

2) By the managers own admission, they badly broke trust with the employee, not only by reducing potential compensation, but then further by rooting through the employee's systems.

Yes, they have a right to do this. They are likely not breaking any laws.

But they broke trust in (at least 2) major ways.

3) If the IP is potentially really valuable to the company, as in material to their bottom line as a whole, or in a competitive stance, chances are the employee is very well aware of this. And they know that the old compensation model, the one they were using, wouldn't be of sufficient value to themselves for the value it would bring the company.

Which means that this is still a negotiation, and no one has seemingly asked the basic question of "what would it take for you to recall and rediscover this work?"

Given the breach of trust, this negotiation tactic may not work. But given that the employee appears to be a fairly smart cookie, they will likely play this to maximize their benefit.

4) The manager seems unable or unwilling to come to terms with changes they need to make in order to get this guy the comp he wants. This is a solvable problem with the right management, and the right managerial attitude. If you can't promote him because your rules don't allow this, and you think he is a valuable team member, and a promotion would help shake up his memory ... hey, this is solvable. It is left as an exercise for the student, but hint, if the rules are problematic ...

It seems to me that their are a number of potential solutions to this, none of which require people to admit to lying, or allowing them to be accused of lying.

The company simply has to decide how important this IP is to them, to decide what changes they should make. At minimum, this manager sounds like they are not a keeper.