£2m Compensation Awarded to Inventor

Under section 39 of the UK Patents Act, inventions made by an employee are considered to belong to an employer if an employee is employed to invent, or has a “special obligation” to further the interests of the employer’s undertaking.

Section 40 of the UK Patents Act states that if an invention or the patent for it is considered to be of “outstanding benefit” to the employer “having regard among other things to the size and nature of the employer’s undertaking”, a court or the UK Intellectual Property Office (UKIPO) may make an award of compensation to the employee.

Professor Shanks was employed by a Unilever subsidiary company in the 1980’s and given the task of developing biosensors for use in process control and process engineering. In July 1982 Professor Shanks visited Professor Anthony Turner and Professor John Higgins at Cranfield University and there he learned of the work they were carrying out into the use of biosensors for monitoring diabetes. Professor Shanks subsequently became interested in the possibility of using re-usable or disposable devices incorporating biosensors for diagnostic applications, in particular for monitoring glucose, insulin or immunoglobulin levels in diabetics.

In October 1982, Professor Shanks built a prototype of his invention using Mylar film and slides from his daughter’s toy microscope kit, using bulldog clips to hold the assembly together. Patent applications were filed for his invention in 1984 and 1985 in the UK, Europe, Australia, Canada, Japan and the USA.

Revenues from the licensing and the subsequent sale of the patents totalled £24.55 million. The total costs of prosecuting, maintaining and licensing the patents for 20 years across all of the jurisdictions was estimated to be around £250,000, making the net benefit to Unilever £24.3 million.

An initial application for compensation under section 40 of the UK Patents Act was made on 9^th June 2006 to the UKIPO. A decision was issued on 21^st June 2013 (BL O/259/13) by the UKIPO in which the hearing officer decided that the benefit provided by the Shanks patents fell short of “outstanding”.

Professor Shanks appealed the UKIPO’s decision to High Court. On 23^rd May 2014, Arnold J dismissed the appeal, holding that the hearing officer made no error of principle in finding that the Shanks patents were not of outstanding benefit to Unilever.

One of the key factors in the dispute was the relevance of the size and nature of the employer’s undertaking. Unilever’s central argument on the issue of outstanding benefit was that £24.3m, though not inconsiderable, was dwarfed by the turnover and profits of Unilever as a whole. Professor Shank’s counsel characterised this submission before the court as “too big to pay”. It was argued that, were Unilever’s argument to be accepted, it would be all but impossible for an employee to establish that the benefit from a patent to a business such as that of Unilever was outstanding and this would be manifestly unjust to employee inventors.

In the Supreme Court judgment, Lord Kitchin sided with Professor Shanks on this point, remarking “I find it very hard to see how a failure materially to affect the aggregated sales value or overall profitability of the business could, in and of itself, justify a finding that the benefit of a patent has not been outstanding”. A highly material consideration was thought to be “the extent of the benefit of the Shanks patents to the Unilever group and how that compares with the benefits the group derived from other patents resulting from the work carried out by other Unilever researchers employed by the same Unilever subsidiary as Professor Shanks.

In assessing whether the Shanks patents were of “outstanding benefit”, the Supreme Court acknowledged that Unilever generated a vast income and commensurate profits from the manufacture and sale of products such as ice cream, spreads and deodorants which had the benefit of patent protection, and that this income and these profits were an order of magnitude greater than the benefits Unilever derived from the Shanks patents. As mentioned above, Professor Shanks was, however, employed by a research subsidiary of Unilever and the court considered that it was the size and nature of this (much smaller) undertaking that should be considered. Furthermore, the court pointed out that the success of the (ice cream, spreads and deodorant) products could no doubt be attributed to a range of factors including quality, branding and pricing. Even though it is also true that they were protected at least to some degree by patent families, only a proportion of the sale price of any product could be attributed to patent protection. It was considered that in terms of the benefit which Unilever’s patents had generated, the Shanks patents stood out and were therefore of “outstanding benefit”.

The court decided that “a fair share” of the outstanding benefit provided by Shanks patents was 5% of the approximate £24 million net benefit to Unilever - £1.2 million. The court also said that the time value of money should also be accounted for. In accordance with a request from Professor Shanks to take 1999 as the median year in which Unilever received the benefit and to take into account the effect of inflation using the Bank of England calculator, the court uplifted the £1.2 million determination to £2 million in today’s money.

The decision is unlikely to lead to a flood of claims for compensation from employees due to the high bar that is set in the requirement that “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)” must be of “outstanding benefit” to the employer by section 40 of the Patents Act. Nevertheless, it serves as an illustration that in some limited circumstances compensation will be awarded, and that that compensation can be very significant indeed.

If you have any questions with regards to this article or how Swindell & Pearson can help you and your business with intellectual property, please don’t hesitate to get in touch with the author Scott Harrison or call +44 1332 367 051.