02/06/2014
Shanks vs Unilever Plc and others (2014) EWHC 1647 (Pat) is a rare recent decision in the matter of employee compensation for inventions.
Under section 39 of the Patents Act 1977 if an invention is made in the course of employment then the rights to the invention belong to the employer rather than the employee. That is to say, if you are paid to invent in a particular area of technology and you make inventions then rights to those inventions automatically pass to your employer without any further action.
The act also provides in section 40 that where a patent has been granted for an invention made in the course of employment and the invention is of outstanding benefit to the employer, having regard amongst other things to the size and nature of the employers undertaking, then the employee may be awarded compensation.
In this case Professor Shanks was employed by a subsidiary of Unilever and made an invention which was patented and which was included in testing kits for diabetes. The case was originally brought in the UK IPO and the hearing officer held that Unilever had obtained a benefit to the value of £24.5 million from Professor Shanks’ patent, but that this benefit was not outstanding. Accordingly, Professor Shanks was not entitled to compensation. The UK IPO also found that Professor Shanks would have been entitled to 5% of the sum if the benefit to Unilever had been found to be outstanding. Professor Shanks appealed to the High Court, with Unilever filing a counter claim in relation to the benefit being determined at £24.5 million, and to the amount of the benefit to which Professor Shanks would have notionally been entitled.
As regards to the benefit to the patentee, Unilever argued to reduce the monetary amount of the benefit ascribed to the invention. Judge Arnold J upheld some of this argument agreeing that the sum should be determined net of corporation tax and the costs associated with filing, prosecuting, maintaining and licensing the patent. However, research and development costs should not be deducted from the sum, as there was no evidence that Unilever would not have conducted research in this area without the guarantee of exclusivity from the patented invention.
As far as the question of outstanding benefit, Professor Shanks challenged the UK IPO hearing officer’s decision on several grounds. Arnold J considered that at least some of these overlapped. The main points advanced by Professor Shanks were as follows:
- The UKIPO judgement essentially stated that Unilever is too big to pay employer compensation. The large profits made by Unilever in the course of its business would essentially rule out compensation for all but the most successful inventions.
- The disparity between what Professor Shanks received by way of his salary and what Unilever received from the product in which his patent was used had not been factored into the calculation.
- The means by which the benefit was obtained had also not been factored into the calculation. In this case, Unilever obtained benefit from the Shanks Patents primarily by licensing them, and to a lesser extent by selling them. As Unilever is focussed on products, should revenue generated from licensing count as outstanding in this case?
- The commercial risk concerned with the exploitation of a patent was very low, while the rate of return was high. This was observed to be true of all income from patent licensing however.
A number of other attacks on the calculation of the benefit to Unilever were made based on:
- The context of the Unilever group as a whole in relation to the patent.
- The value of Unilever’s other patents for the product;
- The value of Professor Shanks’ patent compared to patents in general to Unilever; and
- The importance of Professor Shanks’ patent to the product.
Arnold J came to the conclusion that the hearing officer had suitably addressed all of the these points in their calculation of the benefit and had not therefore made any error of principle in concluding that the Shanks’ patent was not of outstanding benefit to Unilever. The Court dismissed the appeal.
This case contrasts with the decision in Kelly v GE Healthcare Ltd [2009] EWHC 181 (Pat), [2009] RPC 12, in which the claimants Dr Kelly and Dr Chui had successfully argued that their contribution of a patented radioactive imaging agent was of outstanding benefit, and had been awarded a total of 3% of the £50milion benefit.
It shows that although there is the possibility of obtaining compensation from an employer for an invention which is commercially successful the barrier remains high, particularly if your employer is a large organisation with many patents.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.
