UK: A Measure Of Outstanding — Employee Inventor Compensation — Shanks v Unilever

Last Updated: 14 July 2014
Article by Susan Kirsch

In a decision dated 23rd May 2014, Mr Justice Arnold in the UK High Court dismissed Professor Shanks' appeal and upheld the UKIPO decision not to award Professor Shanks any employee inventor compensation. In coming to this judgement, Arnold J had to consider whether the patent was of "outstanding benefit" to the employer. This case illustrates that for an employee to succeed in any such claim, the patented invention must be transformative.

Background

Whilst employed by Unilever, Professor Shanks invented an electrochemical device which had particular application for testing levels of glucose in blood samples and was therefore useful in the treatment of diabetes. Unilever obtained patent protection for the invention in a number of countries. Unilever did not directly exploit the technology itself but concluded substantial licensing deals under the patents before selling the patents as part of the sale of Unipath to Inverness Medical Innovations in December 2001.

The Law

Section 40(1) of the UK Patents Act 1977 provides for employee inventors to be paid additional compensation for an invention on which a patent has been granted when the patent/invention is of "outstanding benefit" to their employer. In assessing whether or not the benefit is "outstanding", regard should be had of the size and nature of the employer's undertaking. Whether it is the patent or the invention that has to be assessed is a matter of the law applicable at the time. In the present case it was the patent which had to be taken into account.

Was the patent of "outstanding benefit"?

As noted by Arnold J, this was an unusual case. The fact that the patents were licensed by Unilever to third parties, made it relatively easy to identify the monetary benefit obtained by the patentee from the patents, as opposed to the invention.

It was estimated by the UKIPO that the total gross profit obtained by Unilever from the patents was £24.5 million, with a net benefit of £24.3 million after costs incurred by Unilever in prosecuting, maintaining and licensing the patents were taken into account.

The hearing officer concluded that, while this was a significant sum, he found that when considered in the light of Unilever's commercial activities taken as a whole, including the nature and size of the business, it was not "outstanding".

Both sides challenged the UKIPO hearing officer's conclusion that the benefit derived from the patents was £24.5 million.

Professor Shanks' argument centred on the fact that the case had taken a long time to reach a conclusion and during that time Unilever had the use of that money which was in itself an economic benefit to Unilever. Whilst Arnold J expressed concern that a claim of this nature should take so long to reach a first instance determination, Arnold J dismissed the arguments put forward on a number of grounds including that even if the time value of the money is a benefit, it is not a benefit derived from the patent.

Unilever argued that the UKIPO hearing officer ought to have reduced the benefit to reflect a number of factors including the R&D costs and tax. Arnold J agreed with the hearing officer that the benefit derived from the patent should not be reduced by the R&D costs of Unilever, because as a point of fact the R&D would have been undertaken in any event.

However, with respect to the tax element, Arnold J agreed with Unilever that the benefit derived by Unilever from the patents is the benefit net of tax. Thus this case makes it clear that the "benefit to the employer" may be after the deduction of corporation tax.

The total net benefit derived by Unilever from the patents was therefore estimated to be £17 million. This represents an average of a little over £2 million per annum over the eight year period in which Unilever received licence fees in respect of the patents.

Was this of "outstanding benefit" to the employer, having regard among other things to the size and nature of the employer's undertaking?

The first consideration is what is the relevant undertaking in the circumstances of this case? The UKIPO hearing officer considered that the reality of the situation was that researchers were doing work that was going to be exploited by the Unilever group as a whole and thus it was necessary to consider whether the benefit from the patents was outstanding in the context of the Unilever groups as a whole. Arnold J considered this reasoning to be impeachable. Thus Arnold J has clarified that the meaning of "employer's undertaking" is not necessarily limited to the specific company which entered into the employment contract with the relevant employee but may very well include a wider group.

With respect to whether the benefit was outstanding, Arnold J considered that the hearing officer's decision was a valued judgement involving a multi-factorial assessment. The assessment did not simply look at overall turnover, or profits and thus because of the size of Unilever make it impossible for any individual inventor's contribution to be outstanding. However, it was acknowledged that different undertakings will have different leverage to be able to make more or less benefit out of their activities. Ultimately, there is no simple test — it is a matter of looking at the benefit in the overall context and determining whether in view of all the facts the benefit to the employer was outstanding.

Thus, Arnold J dismissed Professor Shanks' appeal.

Conclusion

This case illustrates that for an employee to succeed in any such claim, the patented invention must be of really exceptional value to the employer.

The case represents good news for employers with R&D based in the UK and may encourage other employers to base their innovation here. However, the outcome may provide little incentive for inventors to work in the UK. The overall effect on innovation in the UK is therefore not a straightforward equation.

Need advice?

Carpmaels & Ransford LLP is a leading firm of European patent and trade mark attorneys based in London. For more information about our firm and our practice, please visit our website at www.carpmaels.com.

This Briefing Note was first published in the IAM IP Newsletter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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