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21 December 2017
Earlier this year the Court of Appeal dismissed an appeal by Professor Ian Alexander Shanks (Shanks) against an earlier dismissal of his appeal against the decision of Hearing Officer, Mr Julyan Elbro, dismissing his claim for employee compensation in favour of the defendants Unilever PLC, Unilever NV and Unilever UK Central Resources Limited (Unilever).
The relevant point of law in this case was section 40 of the Patents Act 1977 which, for those unfamiliar, contains a provision for compensation to be awarded to an employee inventor who has made an invention belonging to their employer for which a patent has been granted, if “…the patent is (having regard among other things to the size and nature of the employer’s undertaking) of outstanding benefit to the employer and that by reason of those facts it is just that the employee should be awarded compensation ……”.
As a brief background to this long-running case, Shanks was an inventor employed by Unilever. During the course of his employment, Shanks worked on developing a range of biosensors for which a patent was ultimately granted. Unilever went on to license out the use of the patented technology bringing in an estimated £24.5m. The Hearing Officer decided that this did not amount to an “outstanding benefit” and dismissed Shanks’ claim. This decision was later affirmed by Arnold J during the first appeal at the High Court.
The focus of the second appeal at the Court of Appeal (see here) was the assessment of outstanding benefit and how it should be calculated. In reaching his decision, Patten LJ accepted Shanks’ argument that “‘outstanding benefit’ cannot be determined simply by comparing the income generated by the patent with the overall turnover and profitability of the employer’s undertaking” and that doing so would constitute an error of law. However, interestingly, Patten LJ went on to state that “a straightforward comparison of profitability may be sufficient, in the case of a much smaller company, to satisfy the test of outstanding benefit“.
Shanks argued that in finding no outstanding benefit, the Hearing Officer had failed to consider other factors and had simply relied upon the fact that the income generated by the patent, £24.5m, was not ‘outstanding’ when compared to the annual turnover of Unilever, which generated in excess of £1bn. In other words, Unilever was “too big to pay“.
However, Patten LJ at the Court of Appeal did not find this to be persuasive. In finding that Shanks’ invention did not provide Unilever with an outstanding benefit, the Judge found that, in addition to the comparison between the revenue of the patent and Unilever’s group profits as a whole, the Hearing Officer had also considered:
Although the Hearing Officer did take these factors into account, he ultimately decided that these factors were not sufficient to show an outstanding benefit in this case, stating that “Unilever makes profits at an order of magnitude greater on other inventions – albeit primarily by manufacture and at a much lower rate of return than was provided by the Shanks patents. Further, this is not such a case as Kelly, where Floyd J held that without the patents in that case, Amersham would have faced a crisis. There was no suggestion from either party that the Shanks patents were crucial to Unilever’s success“.
This led the Court of Appeal to find that the Hearing Officer had indeed given weight to various factors and had not erred in his finding of no outstanding benefit. Therefore the appeal was dismissed with Patten LJ commenting “…if the correct reading of the decision is that the Hearing Officer did carry out an analysis of the other factors which were pressed on him as relevant but concluded that on balance they did not make the benefits outstanding then it would not be right in my view for this Court to interfere. The weight to be given to those factors was a matter of judgment for the Hearing Officer.”
An important point to take away from this decision is that whilst, in theory, a company is never “too big to pay”, the relative size of the employer in question nevertheless plays a significant role in determining whether an employee is entitled to compensation. This decision is good news for employers, who will argue that inventors are adequately compensated for their work in the salaries they receive, but does little to incentivise inventors to go above and beyond the call of duty.
Permission to appeal to the Supreme Court has been granted (UKSC 2017/0032). We await the outcome with interest.
Advanced Engineering group
If you require further information on anything covered in this briefing, please contact Alex Harvey (firstname.lastname@example.org; 44 20 7940 3600) 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, December 2017