This one is a bit complicated, but I'll try to simplify it the best I can.
Say a guy, we'll call him Bob, comes up with an idea for a new invention and kicks it around a bit. He asks around, makes some notes, and just generally looks into the feasibility of his idea for several months. Bob's technical level is equivalent to that of a good helpdesk person, but he doesn't have the technical knowledge to design and build his idea himself.
Then Bob gets hired by a small company as an engineer and works for a few months. His idea is related to his employers line of work, so he approaches the owners to see if they would be interested in developing something.
The owners agree that it's a good idea and start developing a product with Bob on the design team. They also give Bob the task of working with a patent attorney to draw up the patent documentation. The utility patent includes Bob's name as an inventor as well as the names of the owners of the company.
Bob finds a small local company that specializes in electronic device prototyping and recommends them for the job. The design team meets with the prototyping company to sign an NDA and lay out the specifications for the device. A couple of months later, and the first prototype is ready for testing.
Everything has been funded by the company so far, the patent attorney fees, the prototyping company, and Bob's salary while he worked on the project. The other part of the company's business has taken a major shift and they are forced to downsize. Nearly everyone is let go, including Bob. The company still plans to continue with the product and offers Bob a percentage of the profits if it is successful.
The patent has not yet been assigned to the company and Bob thinks he deserves a larger cut than what the company is offering (since it was his idea before he was hired by the company). He refuses to assign the patent to the company. The company feels they have been more than generous with their offer and can't afford to meet Bob's demands.
There is no assignment agreement in place and the company has no employee handbook nor any other doctrine that covers intellectual property. It's a very small company of less than 10 people so they did not feel they needed it.
What should Bob's and the company's next move be?