Receiving compensation for their inventions may be more straightforward for research employees following the Supreme Court's much anticipated decision in Shanks v Unilever, which saw the award of £2m to Professor Shanks after a 13 year Court battle. However, whilst the decision provides important guidance on employee compensation for inventions and confirms that businesses will not necessarily be "too big to pay", it is likely that such cases will continue to be rare. Demonstrating that an invention is 'outstanding' to justify compensation will remain a high hurdle. Much will also depend on the particular context of the size and nature of the employer's business.
For four years from 1982, Professor Shanks was employed by Unilever Central Resources Ltd ("CRL"), a research facility wholly-owned by Unilever plc, to develop biosensors. Shortly after joining Unilever, Professor Shanks invented an Electrochemical Capillary Fill Device for monitoring blood glucose levels, building the first prototype with Mylar film and slides from his daughter's microscope kit with bulldog clips to hold it together. It was undisputed that the rights in Professor Shanks' invention belonged to CRL, which assigned the rights to Unilever for £100. However, despite filing for patent protection in 1984 and the subsequent expansion of the glucose testing market, Unilever did not regard it as a key technology. It did not exploit or commercialise the patents, save for licensing them to third parties (licensing of patent rights was also not a key part of the Unilever business). Nonetheless, the net financial benefit to Unilever through licensing the patents was £24 million.
On the basis that the patents were "of outstanding benefit to his employer", Professor Shanks applied for compensation under section 40(1) of the Patents Act 1977 ("PA 1977") (the relevant section was amended by the Patents Act 2004 to refer to compensation being payable when an invention, and not just a patent, has been of outstanding benefit). The UKIPO, High Court and Court of Appeal all rejected his application, and so he made a final appeal to the Supreme Court.
The Supreme Court decision: What is an outstanding benefit?
Under the PA 1977, an award of compensation should be made where (1) having regard to among other things the size and nature of the employer's undertaking, the patent (or the invention under the new provision) is of outstanding benefit to the employer and (2) it is just that the inventor is awarded compensation. Overturning the decisions of the lower courts, the Supreme Court ruled that the patents were of outstanding benefit to Professor Shanks' employer, and that he was entitled to a fair share of the benefit. The Supreme Court assessed this at 5% of £24m, resulting in £2m (taking into account inflation reflecting the impact of time on the value of the money).
The Court's assessment of "outstanding benefit" is of particular significance. Lord Kitchin noted that 'outstanding' was an ordinary English word meaning exceptional or standing out in terms of money or money's worth, but that it was also a relative and qualitative term which had to be assessed as against the size and nature of the employer's undertaking. The difficulty was that CRL was part of a larger group of companies and the real benefits had been received by other Unilever group companies. Adopting a practical and commercial approach, Lord Kitchin said that the correct approach was to look at the commercial reality of the situation from the employer's perspective. Where a group company has a dedicated research company for the benefit of the whole group and patents are assigned to other group members for their benefit, the benefit of a patent to the group must be assessed by the extent of the benefit of that patent to the group, and how that compares with the benefit of the other inventions by the research company.
Unilever's central argument had been that the benefit of £24m was dwarfed by its turnover and profits as a whole, its wide range of products such as ice cream, spreads and deodorants generating billions in sales and millions in profits over the life of the relevant patents. The Supreme Court therefore had to consider the fundamental question of the assessment of the size and nature of an undertaking in the assessment of an outstanding benefit; in effect could an employer ever be 'too big to pay'?
The Supreme Court said there was no single answer to the question of the relevance of the size and nature of the employer's undertaking; much will depend upon the context, and the relevant aspects of the employer's business. In some cases, it may be possible to see that a patent has been of outstanding benefit when looking at the size and profitability of the whole business (such as for example in relation to a smaller company). Further, a large undertaking may be able to exert greater leverage when negotiating licence fees, and harness its goodwill and sales force more effectively. However, the Supreme Court concluded that a court should be "very cautious" in accepting that a patent has not been of outstanding benefit simply because it has had no significant impact on an undertaking's overall profitability or the value of all its sales, as there could be a number of different factors at work.
In this case, the Hearing Officer at the UKIPO had approached the case from the wrong starting point, with a particular focus on the overall turnover and profits generated by Unilever. Even though the patents did not form part of Unilever's primary business, they still yielded a high rate of return and stood out in comparison with other Unilever patents, with minimal effort or risk. The rewards obtained could not be attributed to Unilever's wider business assets or infrastructure, nor to any leverage Unilever could exert because of its size.
Having assessed the patents as being of outstanding benefit to Unilever and CRL, the Court however rejected Professor Shanks' claim to a share of 10-20%, settling on 5% as assessed by the UKIPO Hearing Officer (but including also an uplift for inflation). Whilst the patents generated a new income stream, it was brought to fruition due to Unilever's negotiation of the licences in which Professor Shanks played no part.