UK: Who Wants To Be A Millionaire?

Last Updated: 16 February 2009
Article by Jacqueline Needle

Dr Duncan Kelly has just been awarded £1 million in compensation in a landmark judgement from Mr Justice Floyd in the English high court. This is the first time an employed inventor, whose invention clearly belonged to his employer, has been given a financial reward by the court, even though the right to compensation was first introduced in Section 40(1) of the Patents Act 1977.

In Kelly and Chiu v GE Healthcare, [2009] EWHC 181 (Pat), dated 11th February 2009 Floyd J determined that two families of patents had been of outstanding benefit to the employer, Amersham International, subsequently GE Healthcare. The judge decided that the benefit of the patents was of the order of £50 million, and awarded £1 million to Dr. Kelly and £500,000 to another named inventor Dr. Ray Chiu.

Under Section 40(1) an applicant for compensation has to establish:

  1. that he has made an invention belonging to his employer for which a patent has been granted;
  2. that the patent is of outstanding benefit; and
  3. that an award of compensation is just.

In 2005 Section 40 was amended to refer to the outstanding benefit obtained from both the invention and the patent. However, the patents in this case were applied for before the change of law, so that the inventors had to prove it was the patents alone which conferred the outstanding benefit. Section 43(4) allows the inventors to rely upon the benefits from all patents "or other protection" whether in the United Kingdom or abroad. Floyd J confirmed that this enabled foreign patents to also be taken into account. However, he also determined that the "other protection" does not include regulatory data exclusivity (RDE) regimes as they do not give monopoly rights.

A suggestion from the employer that the "compensation" which was to be awarded should be restricted to that necessary to ensure that the employees' remuneration packet was at an acceptable level was rejected.

The patents in this case related to a radioactive imaging agent sold under the trade mark Myoview. There were five named inventors, two of whom were external academics and therefore unable to claim under Section 40 as their employers did not obtain the patents. The fifth inventor, Dr. Latham, was not a party to the action. In 1998 Amersham was awarded a Queen's Award for Technological Achievement for Myoview. It was established that the total R & D costs for Myoview's development were £2,414,000 whilst the first year's sales were £4,473,000. It was established that the patent protection for Myoview was considered by Amersham to be very important.

To isolate the benefit of the patents to Amersham, Floyd J suggested that it was necessary to assume that Myoview had gone ahead, but unprotected by patents, and to compare an estimate of how it would have performed with the actual profits. Floyd J determined "that the patents were of outstanding benefit to Amersham having regard to all the circumstances, including the size and nature of its undertaking. The benefits went far beyond anything which one could normally expect to arise from the sort of work the employees were doing."

Floyd J rejected an argument that it was invidious to single out individual inventors for an award in the context of a truly corporate research effort. Floyd J noted that "It is inherent in sections 40 and 41 that employees who have contributed to the invention and its development but who are not joint inventors will not receive an award."

The Act provides that those who have just contributed to the invention will not be rewarded under this section, which only relates to the inventor who is defined in Section 7(3) as the "actual deviser".

In all of the circumstances, Floyd J determined it was just to make an award. In valuing the benefit of the patents the judge stated "where actual benefits have been achieved from the patent, the proper approach must be to take those benefits into account. A royalty negotiated for the bare invention does not take these benefits into account. A royalty negotiated in the knowledge that the invention has led to a successful product would be likely to be an order of magnitude higher than... 1%." Floyd J was given evidence from each side as to the value of the patents and as to the amount to award to the inventor claimants. He took a very conservative value of £50 million as the value of the patent and considered that 3% of the value of the benefit represented a just and fair award to the employee claimants. He thought that Dr. Kelly should receive more than Dr. Chiu and awarded Dr. Kelly 2% and Dr. Chiu 1% of the £50 million figure he had put as the value of the patents.

In his judgement Floyd J summarised the law in this field as follows:

  1. "Section 40 is available to an inventor in the sense of the "actual deviser" of the invention, but not to those who merely contribute to the invention without being joint inventors;
  2. Section 40 is available to an employee who makes an invention (which is subsequently patented by the employer) in the ordinary course of his employment or in the course of duties specifically assigned to him;
  3. Under the section prior to its amendment, it is the patent (as opposed to the invention) which must be of outstanding benefit to the employer, having regard to the size and nature of the employer's undertaking;
  4. "Outstanding" means "something special" or "out of the ordinary" and more than "substantial", "significant" or "good". The benefit must be something more than one would normally expect to arise from the duties for which the employee is paid;
  5. On the other hand it is not necessary to show that the benefit from the patent could not have been exceeded;
  6. Section 40 is not concerned with whether the invention is outstanding, although the nature of the employee's contribution may fall to be considered at the section 41 stage, if it is reached;
  7. It will normally be useful to consider what would have been the position of the company if a patent had not been granted, and compare this with the company's position with the benefit of the patent;
  8. The patent must have been a cause of the benefit, although it does not have to be the only cause. The existence of multiple causes for a benefit does not exclude the benefit from consideration, although the benefit may have to be apportioned to isolate the benefit derived from the patent;
  9. "Patent" in section 40 does not include regulatory data exclusivity. Thus the scenario without patent protection is one where RDE nevertheless exists;
  10. It must be "just" to make an award: the consideration of what is just is not limited to the facts set out in section 40;
  11. It is not a requirement of obtaining compensation that the employee can prove a loss (for example by reference to inadequate remuneration for his employment) or by the expenditure of effort and skill beyond the call of duty. These are nevertheless factors to take into account under section 41;
  12. The valuation of any benefit is to be performed ex-post and in the light of all the available evidence as to benefit derived from the patent: not "ex-ante";
  13. Where the employee shows that the invention has been of outstanding benefit, the amount of compensation is to be determined in the light of all the available evidence in accordance with section 41 so as to secure a just and fair reward to the employee, neither limiting him to compensation for loss or damage, nor placing him in as strong a position as an external patentee or licensor."

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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