Shanks v Unilever: benefit of employee-made inventions

In short, Professor Shanks sought to claim compensation under Section 40(1) of the UK Patents Act 1977 (PA '77). This legislation specifically relates to employee-made inventions from which an "outstanding benefit" can be derived for the employer.

Background

This appeal arose from a judgement by Justice Arnold in the England and Wales High Court, to which Professor Shanks initially appealed the decision of the UKIPO.

The Shanks patents related to biosensors for inter alia glucose and insulin, and this technology would later be used as part of blood testing kits for diabetics. Unilever, uninterested in pursuing the technology themselves, profited largely through licencing and also through the eventual selling of a subsidiary company (Unipath).

Professor Shanks himself was employed by Unilever to develop biosensors for process engineering. Given his capacity at the company, it is common ground that the rights to his invention belonged to Unilever, and Professor Shanks ultimately only received nominal consideration as part of the assignment process. It was also relatively uncontested that the absolute net value of the Shanks patents (from licencing and selling of Unipath) was around £24m.

Both the Hearing Officer at the UKIPO and Arnold J essentially concluded that there was no "outstanding benefit" to Unilever from the Shanks patents.

Relevant Law

PA '77, Section 40(1) states:

Where it appears to the court or the comptroller on an application made by an employee within the prescribed period that the employee has made an invention belonging to the employer for which a patent has been granted, that 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 to be paid by the employer, the court or the comptroller may award him such compensation of an amount determined under section 41 below. (emphasis added)

As known by anyone who has studied UK patent law for the purposes of qualification or otherwise, a critical flaw in this piece of legislation is the lack of definition for the word "outstanding". A word which is ostensibly both subjective and akin to a superlative, it is unsurprising that the mysterious notion of what an "outstanding" benefit may be has led to only one major case where a claim under S40(1) PA '77 has succeeded.

In Kelly, the "outstanding" nature of the benefit to Amersham International Plc (who employed Kelly et al.) was based upon a finding that Amersham was facing a "crisis", and the blockbuster nature of the patented imaging agent "transformed" the company. The patents in Kelly were judged to have been of around £50m in value to Amersham.

It is perhaps unfortunate to all would-be claimants under S40(1) PA '77 that Kelly has become somewhat of a comparative standard for "outstanding" under common law. While the fact that Amersham may have ceased to exist without Kelly's inventions cannot be denied, it would seem a rather arbitrary and unfair requirement that all future claims would only succeed for companies facing impending doom.

The decision

1. Outstanding benefit

The decisions by Arnold J and the Comptroller General that no outstanding benefit was conferred to Unilever by the Shanks patents were upheld.

A significant portion of the appeal centred on whether Unilever was, essentially, "too big to pay". Much of Unilever's initial submissions pointed out that for a company with £billions in turnover, the value of the Shanks patents were ultimately dwarfed by the size of the company. Counsel for Shanks pointed out that this would amount to a situation where in respect of companies like Unilever, it was impossible to ever establish a comparison which would lead to compensation being claimed under S40(1) PA '77.

While Patten LJ agreed that "outstanding benefit" could not be determined by a trivial comparison between value and turnover alone, he still sided with the original decision at the UKIPO. Of particular note is the end of paragraph 59 of the judgment:

...As I have already said, S.40(1) was designed, as I read it, to deal with exceptional cases. There must be an outstanding benefit to the employer company and not just generally. Cases like Kelly illustrate the sort of circumstances where those conditions will be satisfied.

It is clear that the superlative nature of "outstanding" is crucial in the interpretation taken here. In this regard, there was no doubt for Patten LJ that regardless of the significance of ~£24m (which even the Hearing Officer concluded was substantial despite Unilever's pleadings), the fact that Unilever was outwardly unaffected by the Shanks patents was an overriding factor in determining that the benefit could not be classed as such.

2. Other issues under appeal

Prof Shanks also contested the fact that the "time value of money" was not taken into account when calculating the "value" of the Shanks patents to Unilever. In short, it was submitted that the fact that Unilever had use of the money derived from inter alia licence fees meant that the fact that they could use the capital for other investments meant that the eventual "value" obtained from the patents could be far greater than simply the direct fees accrued from licencees.

This was quickly dismissed by Patten LJ, stating that given that the monies received could have been used in both profitable as well as loss-making ventures made the exercise random and unpredictable and ultimately unrelated to what could be attributed directly from the existence of the patents. Interestingly, Briggs LJ remarked (obiter) that such calculations may play a role where the real value of money had changed considerably during the lifetime of the patent (e.g. times of high inflation or interest rates) and that this should be taken into account when calculating the employee's fair share.

Patten LJ also concluded that corporation tax should not be taken into account for calculating the profits accrued from the Shanks patents, as this would have to necessarily take into account the tax position of the company as a whole. Like the "time value of money", Patten LJ decided that any tax was a consequence of the benefit rather than part of the benefit itself.

Conclusion

S40(1) PA '77 remains an incredibly high hurdle for potential claimants. It is interesting to note that Briggs LJ at paragraph 89 concluded that despite the (correct) reasoning given, this was a case where the size of Unilever was a key factor, and that Prof Shanks may well have succeeded in his claim if his employer was a smaller undertaking.

Full decision: http://dycip.com/shanksunilver