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Large companies not “too big to pay” inventor compensation

5 November 2019

The UK Supreme Court has handed down their judgement in Shanks v Unilever [2019] UKSC 45 (found here)  in which they considered the issue of employee compensation, and under what circumstances would an employee be entitled to further compensation for an invention they had invented as part of their normal duties. The decision of the Supreme Court has lowered the threshold for which an employee of a large multinational company may be eligible for compensation.

The law

Under Section 39 of the UK Patents Act, inventions which are invented by an employee as part of their normal course of duty during their employment are, unless an agreement is made to the contrary, owned by the employer.  Whilst the employee would be paid to work and possibly innovate and invent, Section 40 of the UK Patents Act allows for the inventor to be entitled to further compensation where the invention, and the patent, are of “outstanding” benefit to the employer.

The hurdle of “outstanding” benefit is a high one, with factors such as “size and nature of the employer’s undertaking” being taken into account. On the face of it, for an SME, an invention which generated tens of millions in revenue would potentially qualify as an “outstanding” benefit to the company. In contrast, an invention owned by a large multinational with a turnover in the hundreds of millions, or billions, which generated tens of millions in revenue, due to the size of the company, may not be seen as “outstanding”. This led to the possibility that for employees of a large corporation that the employer would be “too big to pay” as an invention would unlikely be seen as “outstanding” in view of the activities of the entire corporation.

Background

Professor Shanks was employed by Unilever UK Central Resources Ltd (“CRL”) who were part of the research arm of the Unilever group of companies (“Unilever”). Professor Shanks invented a number of sensors used for monitoring glucose, insulin or immunoglobulin levels in diabetics. Such sensors also found use in other sectors such as pregnancy and fertility testing.

Under Section 39 of UK Patents Act, the rights to the invention were owned by CRL, who subsequently assigned the rights to Unilever. The subsequent sale and licensing of the invention resulted in a net benefit of over £24 million for Unilever. Whilst a significant sum of money, for a company such as Unilever whose turnover and profit from their wide portfolio of products, from sensors to foodstuffs, is measured in the billions, such a figure may not be considered as “outstanding”.

Professor Shanks applied to the United Kingdom Intellectual Property Office (UKIPO) for compensation under Section 40 on the basis that his invention was of “outstanding benefit” to CRL. This was refused by the Hearing Officer who found that, giving due regard to the size and nature of Unilever, the benefit derived from the invention was not outstanding. Professor Shanks subsequently appealed to the High Court, and Court of Appeal who upheld the decision. The case was appealed to the Supreme Court.

Judgement

The Supreme Court overturned the Hearing Officer’s decision and awarded Professor Shanks compensation totalling £2 million.

In doing so, the Supreme Court identified a number of errors in the original decision. In particular, whilst Professor Shanks was employed by CRL, the Hearing Officer considered the question of outstanding benefit from perspective of the entirety of the Unilever group. Rather, the question should have been considered from the perspective of the undertakings of CRL. Furthermore, the benefit of the invention should be determined in relation to the rewards enjoyed by the company when compared to the investment made, risk undertaken and amount of effort undertaken by the company to monetise, as opposed to a mere comparison of the reward from the invention to the overall turnover of the employer. When viewed in the context of the overall reward enjoyed by Unilever and the high rate of return the contribution of Professor Shanks’ invention was seen as outstanding.

In making their ruling, the Supreme Court confirmed a context driven approach that would ensure that a company would not be considered “too big to pay” merely by virtue of their turnover.

Whilst the judgement is in favour of the employee it is unlikely to affect the majority of employers, and employees, as the hurdle of outstanding benefit remains high. The judgement does highlight the importance of having an integrated IP strategy in business, which fosters and encourages innovation as well as compensating employees for their inventions. Such employee compensation schemes are commonplace in other countries, such as Germany, where the amount of compensation an employee is entitled to is defined. At Withers & Rogers through our German office we have experience in advising and implementing such schemes for UK and German clients.

By promoting such practices the need for supplementary compensation under Section 40 could well be avoided. Furthermore, if an invention is identified as being potentially of outstanding benefit to a company existing agreements and pre-emptive discussions with the inventor could avoid the need for such actions.

 

Diego Black
Electronics, Computing & Physics

If you require further information on anything covered in this briefing, please contact Diego Black (dblack@withersrogers.com; +44 1926 310700) or your usual contact at the firm. This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Withers & Rogers LLP November 2019