UK: Employee Inventor Compensation - Are Some Companies "Too Big To Pay"?

Last Updated: 13 November 2017
Article by Chris Hall and Andrew Flaxman

Most readers will be familiar with the principle that an invention made by an employee will belong to his or her employer. This is also true in the UK, for the most part*. However, UK law also has a few quirks which may be less well known. For example, section 40 of the UK Patents Act sets out circumstances whereby an employee can claim compensation from his or her employer. Earlier this year, this provision was explored by the Court of Appeal in Shanks v Unilever Plc & Others, where an employee, Professor Shanks, attempted to claim significant compensation from his employer, Unilever. Although he was ultimately unsuccessful, employers should be aware of the potential for significant compensation to be awarded to inventors employed in the UK, and take steps to mitigate this risk where possible.

What does the law say?

Section 40 of the Patents Act sets out different tests to be applied in two different situations, both of which apply only to inventors mainly employed in the UK, or to inventors who are not "mainly employed" anywhere but whose employers have a place of business in the UK to which the inventor is attached. The first test relates to the situation in which the employer owns the invention by right (see the footnote below). The second test relates to the situation in which an employee owns the invention, but assigns or exclusively licenses that invention to his employer. We are concerned solely with the first test here, as it was common ground that Professor Shanks was employed to invent by Unilever (or rather one of its subsidiaries) and therefore the invention belonged to Unilever.

The test is relatively simple, and states that compensation may be awarded to an inventor if, "having regard among other things to the size and nature of the employer's undertaking, the invention or the patent for it (or the combination of both) is of outstanding benefit to the employer, and by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer". The amount of compensation is prescribed by section 41, as "a fair share (having regard to all the circumstances) of the benefit which the employer has derived".

What were the facts of the case?

Professor Shanks was employed by a subsidiary of Unilever primarily to develop biosensors for use in process control and process engineering. However, in 1982 he became interested in the possibilities of developing re-usable devices incorporating biosensors for diagnostic applications, such as monitoring glucose levels. He developed a device that drew sample liquid into a cavity by capillary action, and which comprised an electrode structure inside the cavity for taking measurements of the same liquid. In due course, patents covering the invention were filed and granted in Europe, Australia, Canada, Japan and the US.

Unilever were not interested in moving into the field of blood glucose testing, and little was done to develop the technology after the end of 1984. However, the glucose testing market expanded considerably in the late 1990s and 2000s, and biosensors played a key role. Unilever concluded seven licensing deals with medical device manufacturers (the majority of whom approached Unilever) before selling the patent portfolio in 2001. The total gross benefit to Unilever from the licensing and sale of the patents was assessed at £24.5 million. As the benefit was derived solely from licensing and selling the patents, this profit was made at a very high rate of return. However, a UKIPO Hearing Officer found that this was not "outstanding" and thus dismissed the action.

Outstanding benefit?

In its review of the Hearing Officer's decision, the Court of Appeal dealt primarily with the issue of whether Unilever was "too big to pay"; that is, by virtue of its size, no patent could ever generate the profits necessary to be considered of "outstanding" benefit to a company such as Unilever. The Court agreed that, had the Hearing Officer's approach been based solely on a comparison of the benefit to the profits of the company, he would have fallen into error. However, the Court instead found that the Hearing Officer took into account all the facts of the case (albeit that the size of Unilever would appear to have been the most-important factor). In agreeing with the Hearing Officer's decision, the Court found that the benefit was not outstanding to Unilever because the profit was an order of magnitude lower than profits made on other inventions (even though those other profits were made at a much lower rate of return). The amount of money concerned, although significant and at a level which Unilever would be concerned about, was not outstanding to the company.

Take-home points

Although the employee claimant was unsuccessful, this case should serve as a warning to those companies employing inventors in the UK. When an invention has produced significant benefit to the company, some thought should be given as to whether the benefit is outstanding in all the circumstances of the case. If there is a risk that the benefit is outstanding, care should be taken to ensure the inventor is remunerated adequately, and does not harbour a grievance which could result in costly litigation.

* UK patent law dictates that an invention will belong to an employer if the invention "was made in the course of the normal duties of the employee or in the course of duties ... specifically assigned to him, and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties", or if the employee had, at the time of making the invention, "a special obligation to further the interests of the employer's undertaking". The latter provision is often applied to employee inventors who are directors of an employing company.

Permission to appeal to the Supreme Court has been granted in this case. Watch this space for further developments.

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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