Employee Inventor Compensation: Justice at last for Professor Shanks

After 13 years, the UK Supreme Court (‘UKSC’) in Shanks v Unilever plc and others [2019] UKSC 45, has finally decided this long running saga in favour of Prof. Shanks. In analysing all of the cases relating to employee inventions, the UKSC overturned the decisions of the courts below and awarded Prof. Shanks £2 million as his reward for the £24.55 million his employer earned from his invention.

Invented here [not]

Under Section 39(1) of the 1977 Patents Act, the rights to an invention made “in the course of the normal duties of the employee” automatically belongs to the employer. However, by reason of Section 40(1) of the 1977 Patents Act, the employee inventor may be awarded compensation if a patent granted for their invention is of “outstanding benefit” to the employer, and it is just they should be so rewarded. This outstanding benefit is assessed “having regard among other things to the size and nature of the employer's undertaking”.

From the earliest cases of GEC Avionics Ltd’s Patent [1992] RPC 107, British Steel’s Patent [1992] RPC 117 and Memco-Med Ltd’s Patent [1992] RPC 403 what constituted an “outstanding benefit” was regarded as having to be something special and so a very high threshold was set. As a result, there were very few attempts to obtain compensation by employees.

However, the decision in Kelly and Chui v GE Healthcare Limited [2009] EWHC 181 (Pat) changed all of that, it being the first successful case brought by an employee under Section 40. The employees, Dr Kelly and Dr Chui, were eventually awarded £1 million and £0.5 million respectively on the basis the benefit derived by the employer was £50 million. It was also the first case in which the patent was considered to be of “outstanding benefit” because it helped transform the finances of the struggling employer.

Employ….errrr…..?

Prof. Shanks invented a device for measuring the glucose concentration in blood, serum or urine, now used extensively by diabetics. One of the issues was the nature of who Prof Shanks was employed by. This was CRL, a wholly owned subsidiary of Unilever, and CRL assigned the rights to Unilever. During Prof. Shanks’ time at CRL, Unilever achieved a number of granted patents based on Prof. Shanks’ invention (the “Shanks patents”), which had a priority date of 13 June 1984. These patents were licenced and subsequently sold to an overall benefit of around £24.55 million. It was never in dispute that Unilever was entitled to Prof. Shanks’ invention.

It was not until 9 June 2006, some 22 years after the priority filing that Prof. Shanks applied for compensation.  

Prof. Shanks’ began his claim for compensation before the Comptroller General of Patents at the UKIPO. He failed because the hearing officer concluded that, having regard to the size and nature of Unilever’s business, the benefit provided by the Shanks patents fell short of being “outstanding". Subsequent appeals by Prof. Shanks to the High Court and then the Court of Appeal were also unsuccessful.

Type 2 be or not Type 2 be….

In considering the issue of outstanding benefit, Unilever argued the undertaking to be considered was the Unilever group as a whole, and while the benefit derived from the Shanks patents was not inconsiderable, it was dwarfed by the turnover and profits of the Unilever group. Prof. Shanks’ view was that just CRL was to be considered, and it achieved an outstanding benefit. Up to the UKSC Unilever’s view prevailed. The UKSC took a different view. The UKSC considered that where there was a research facility (such as CRL) whose work benefitted the whole group (such as Unilever), that group benefit was to be compared with other group benefits derived from other CRL inventions, and what benefit CRL achieved in respect of those inventions.

The UKSC considered that by focussing on Unilever group’s overall turnover and profits, the hearing officer (and so all the other courts) had therefore erred. Accordingly, the UKSC concluded that the rewards achieved by CRL, and so Unilever, were “substantial and significant, were generated at no significant risk, reflected a very high rate of return, and stood out in comparison with the benefit Unilever derived from other patents”. Unilever had sought to argue that because of its size, and the skills of its licensing team, a greater benefit was achieved than might otherwise be the case. In this regard, the UKSC considered the rewards “could not be attributed to the deployment or application of Unilever’s wider business assets or infrastructure; nor were they found to be the consequence of any leverage Unilever could exert because of its size”.

Fair’s fair

In deciding what compensation to award, the approach is found in Section 41(1) of the 1977 Patents Act and is “such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived, or may reasonably be expected to derive, from the patent”.

Acting as the Comptroller, the hearing officer had considered that 5% of the benefit derived would have represented a fair share. As indicated above, that benefit was considered to be £24.55 million. Before Arnold J. in the High Court, the fair share figure was reduced to 3%, and he held that the time value of money should not be taken into account (i.e. a change in value of money over time allowing for inflation) and Unilever was entitled to take corporation tax into account. In the Court of Appeal, the latter two points were overturned. This was also upheld by the UKSC.

Therefore, taking the time value into account, the UKSC considered the compensatory sum to be derived was £2 million.

“Infamy, infamy, everyone’s got it infamy!”

Over the 13 years Prof. Shanks has been arguing his case, he must have wondered whether the system was always going to be against him. It takes guts, an unshakeable belief in your own case, and that justice will be done, to go as far as Prof. Shanks has. He is to be admired for this. But is what he has achieved likely to help others in a similar position?

The usual legal response is “yes and no”. To some extent, the UKSC has potentially narrowed who is to be regarded as the employer where there is a group structure, whilst widening the net to include all who have benefitted. It has also buried the notion that every profit from every activity in the group is to be taken into account when considering the invention and whether that constitutes an ‘outstanding benefit. This is the “yes”. The “no” is perhaps because the facts of this decision relate to the relatively uncommon situation of finding a specific research facility that is itself a separate legal entity, residing within an overall group structure, which will do anything for anyone within that group.

How, if at all, the decision in Shanks v Unilever will benefit other inventors remains to be seen. The difficulty in transposing this decision to fit other situations means that the floodgates of employee inventor compensation claims are unlikely to be opened for now. However, once this decision has been successfully applied to a case that reflects the more normal employee inventor contexts, then the dam may well burst.