£2M COMPENSATION AWARDED TO AN INVENTOR IN THE “OUTSTANDING BENEFIT” CASE BROUGHT AGAINST HIS EMPLOYER

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On 23 October 2019, the Supreme Court handed down the highly anticipated judgment in Shanks v Unilever [2019] UKSC 45. The decision centred on the issue of employee’s right to be compensated in respect of his invention which was created in performance of his duties as an employee and provided an outstanding benefit to his employer. The legal battle had been rumbling between Professor Ian Shanks and Unilever, a parent company of his former employer, for 13 years.

Background

In 1982, Professor Ian Shanks, now retired, developed what was then new technology to measure the concentration of glucose in blood and other liquids whilst in the employment of one of Unilever’s subsidiary companies, CRL.

Professor Shanks’ inspiration for the new technology stemmed from a visit to Cranfield University where he learned of the work the researchers were carrying out into the use of biosensors for monitoring diabetes.

Using plastic film and glass slides from his daughter’s toy microscope kit and bulldog clips to hold the item together, he built the first prototype of what is now known as the electrochemical capillary fill device (“ECFD”). Shanks’ ECFD technology has subsequently appeared in most glucose testing products, which are used by diabetics to monitor their condition

Even though he developed the technology, legally, the rights to the invention belonged to Unilever as Shank’s employer, pursuant to s. 39(1) of the Patents Act 1977 (the “Patents Act”), in accordance with which, any invention made in the course of employee’s normal duties belongs to their employer:

Unilever patented the invention and, through mass-licencing of the patent rights, went on to generate a financial benefit of over £24m from it.

However, under s. 40(1)(b) of the Patents Act, the employee is entitled to compensation 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”. The term “outstanding benefit” is not defined in the Patents Act and historically, it has been challenging for employees to successfully enforce s. 40 Patents Act.

THE PROCEEDINGS

Shanks initiated legal proceedings in 2006 to claim compensation (i.e. a fair share of Unilever’s benefit from the invention/patent) under s. 40 of the Patents Act.

Shanks’ application was first heard by the Comptroller General for Patents who, having considered the size and nature of Unilever’s business, found in favour of Unilever. It was held that Shank’s invention had no outstanding benefit to the undertaking of Unilever as a whole (including its huge deodorant and ice cream business).

Shanks appealed the Comptroller’s decision to the High Court, however his appeal was dismissed. A further appeal by him to the Court of Appeal was also unsuccessful as no error has been found in the previous decisions.

Finally, Shanks brought his appeal to the Supreme Court.

In its judgment, the Supreme Court found that outstanding benefit means ‘exceptional or such as to stand out’ in relation to the benefit received by the employer from the patent. In measuring whether Professor Shanks’ patent reached this threshold, the Supreme Court looked at two key issues:

1. What constituted the “relevant undertaking” of the employer, taking into account all the facts of the case; and

2. How to assess the fair share of that benefit owed to Shanks.

In respect of the first issue, Unilever argued that the “relevant undertaking” was Unilever as a whole and that contributions of the patent in question to the group’s overall profit was insignificant and that the £24m profit was not a crucial stream of income for the group. The Supreme Court, whilst acknowledging that regard should be had to the size and nature of the business, held that comparing the revenue generated from the patent to the profit generated by the entire Unilever group was not the correct test. Instead, the Court compared the income generated by the patent to the income generated by other inventions patented by the group originating from CRL. It held that the “relevant undertaking” was the expected contribution of CRL to Unilever, rather than Unilever as a whole, including its deodorant, spreads and ice cream business. In adopting this approach, the Supreme Court held that in terms of the benefit which Unilever patents developed by CRL had generated, the Shanks patent stood out. Of further importance was the fact that the benefit enjoyed did not derive from the nature and size of the wider Unilever business, or the flexing of its financial muscle, and that all but one of the patent licensees approached Unilever for a licence. Once the “relevant undertaking” was viewed as CRL’s expected contribution to the Unilever business, the “outstanding benefit” test was met. In respect of the second issue, the Supreme Court held a fair share would be 5% of the profits earned by Unilever and that an uplift to reflect the impact of time on the value of money would be applicable. As a result, the Supreme Court awarded Shanks with a £2,000,000 compensation.

Geldards’ Comment

After a long and arduous battle, the decision of the Supreme Court was a sigh of relief for Shanks. As outlined in his press statements since the judgment, the legal process has put him under great stress, and he was relieved to finally be awarded the compensation his hard work and innovation deserved.

The decision is potentially important from the’ point of view of inventors working in large organisations. The judgment in Shanks v Unilever is a precedent setting out the approach to be taken in claims for compensation in respect of an outstanding benefit under s. 40 of the Patents Act, arguably making the path to claiming such compensation more accessible to claimants who are employed in large organisations.

It also serves as an encouragement to innovative minds within corporations and organisations of all sizes to continue their work in the knowledge that they will be remunerated accordingly if it leads to an outstanding benefit to their employer.

On the other hand, however, employers, particularly larger companies with a group structure in place that are involved in multitude of activities, must be aware that potential compensation payments will need to be made to any employee whose patented invention is outstandingly beneficial to the business.

For further information, please do not hesitate to contact a member of the Geldards Life Sciences Team.

RELATED: LIFE SCIENCES - EXPERTISE INTELLECTUAL PROPERTY LITIGATION - EXPERTISE EMPLOYMENT - EXPERTISE

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