Yesterday, the Supreme Court handed down its much anticipated judgment in a long-running legal saga between Unilever and a now former employee called Professor Shanks. The case concerned Prof. Shanks’ claim for compensation for an invention created by him whilst employed by Unilever.

The case turned on the meaning of “outstanding benefit” under Section 40 of the Patents Act 1977.  In its judgment, which addressed the issue of employee-inventor compensation, the Supreme Court held that the inventor was entitled to £2 million as a fair share of the benefit which his former employer derived from his invention – even though that benefit was relatively small in comparison with his employer’s wider business.

“Outstanding Benefit”

Unless there is an express agreement to the contrary, inventions which are made in the course of an employee’s normal duties belong to an employer. Where an invention is successful, and generates significant income, an employer will benefit as they own the intellectual property in that invention and can exploit it.

Sometimes, an invention will be so valuable that an employer will derive an unusually large profit from its use.  In these cases, an employee can claim some form of recognition or compensation from their employer over and above what they already receive. Under the 1977 Act, an employee can apply for compensation from an employer where “having regard among other things to the size and nature of the employer’s undertaking, the invention or patent for it (or the combination of both) is of outstanding benefit to the employer.” This compensation takes the form of an award equivalent to a “fair share” of the benefit which the employer has derived from the employee’s invention. But quite what “outstanding benefit” means in the context of a company the size of Unilever is unclear.

In practice, “outstanding benefit” has been particularly difficult to establish for claimants.  This is because the concept has been tied to the size of the employer’s undertaking.  It may be the case that a single invention is capable of generating profits in the millions.  However, if the employer is a large multinational company such as Unilever, millions is likely to be a drop in the ocean against that employer’s turnover.  Taken to the extreme, even the most valuable inventions might never generate the profits necessary to be considered of “outstanding benefit” to such global corporations.

Shanks v Unilever

It was this issue that formed the basis of the present appeal to the UK Supreme Court. Professor Shanks, who had during the course of his employment invented a device designed to measure glucose concentrations in blood, serum or urine. It was clear that the rights to the invention belonged to Unilever. Over the next few years, Unilever licensed patents for Professor Shanks’ invention to companies operating in the blood glucose testing field.  As these companies had never produced such a device themselves, the invention proved to be highly lucrative.  Professor Shanks brought a claim for compensation against Unilever under the 1977 Act. A hearing officer for the Comptroller General of Patents concluded that the financial benefit to Unilever from licensing the patent rights was £24.5m, but that this was not an “outstanding” benefit when compared with the Unilever Group’s total revenues.  This conclusion was upheld on appeal to the High Court.

Court of Appeal

When the case came before the Court of Appeal, Unilever maintained that any income generated by Professor Shanks’ invention was dwarfed by the total takings of the Unilever Group.  Professor Shanks, on the other hand, argued that this reasoning would effectively render some companies “too big to pay”, which would defeat the purpose of the compensation provisions under the 1977 Act.

The Court of Appeal agreed that “outstanding benefit” should be a relative concept, and could not be decided on the basis of a single comparison between the income generated by the invention and the profits of the wider group.  However, the Court found that the hearing officer took into account all the facts of the case when making its assessment, though the size of Unilever appeared to have been the most important factor.  It was therefore held that although the amount of money generated by the invention was significant, it was not so significant as to be “outstanding” when considering the wider undertaking.

Supreme Court

By the time the case reached the Supreme Court, it had been almost 13 years since Professor Shanks first applied for compensation. However, in a unanimous judgment, the Supreme Court reversed all previous decisions and found for Professor Shanks.

Dealing with the question of what makes a benefit “outstanding”, the Supreme Court adopted a more nuanced approach, finding that that the hearing officer had simply “weighed the sums Unilever generated from the Shanks patents against the size of its turnover and overall profitability in products such as Viennetta ice cream, spreads and deodorants.”

The Unilever portfolio is vast and diverse, encompassing a wide range of products from food to pharmaceuticals.  In that sense, comparing the profits Unilever derived from a medical device to its income from soaps, hair products and laundry detergents would be far too blunt a measurement – and one which would unfairly leave Mr Shanks without reward. This reasoning clearly struck a chord with the Supreme Court, who found that the “rewards [Unilever] enjoyed 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.” So rather than look at the Unilever business as a whole the comparison was looking at the value of Professor Shanks’ invention against the value of Unilever’s patented research based activities.

The Supreme Court’s ruling will no doubt come as a relief not only to Professor Shanks, but to all inventors whose potentially valuable contributions would otherwise be dwarfed by the size of their employer’s turnover. For companies who invest in research and development it is important that consideration is given to ensure that appropriate compensation provisions are in place for inventor employees. Until now, the chances of inventor compensation under Section 40 has been considered pretty remote especially for larger entities. Closer consideration should now be given to this potential liability and steps taken to ensure that employees are adequately rewarded for the fruits of their innovative labours.

Graeme Di Rollo

Solicitor

Burness Paull