The Supreme Court has clarified when the courts might award an employee statutory compensation under the Patents Act 1977. As only the second case of this nature to succeed in court, Shanks v Unilever could prompt more employees to seek additional compensation for their inventions. However, the two successful cases both involved a unique set of circumstances and the threshold for an employee to successfully bring a compensation claim remains high.
Under section 40(1) of the Patents Act 1977, the court may award an employee compensation where they have created an invention which belongs to their employer and that invention is successfully protected as a patent. To be entitled to compensation, the patent must provide outstanding benefit to the employer, while having regard to the size and nature of the employer’s undertaking. Where the payment of compensation is considered ‘just’, the court must then seek to determine what amounts to a fair share of the benefit. To do so, several factors are taken into account.
Professor Shanks was an employee of Unilever UK Central Resources Limited (CRL), a wholly owned subsidiary of Unilever PLC (Unilever). In the 1980s, Shanks invented a method of using biosensors in disposable devices to measure glucose for monitoring diabetes. The rights to the invention were then assigned to Unilever, which successfully registered various patents across the world, eventually yielding a return to the company of over £24m in revenue by way of licensing deals. Shanks claimed that the patents resulting from his invention provided an outstanding benefit to his employer, thereby granting him a statutory entitlement to a fair share of the profits.
The case reached the Supreme Court which found in Professor Shanks’ favour and decided that the Shanks patents had, in fact, provided a ‘substantial and significant’ benefit to Unilever, which was outstanding compared to the benefit that Unilever had derived from other patents. The court awarded him compensation of 5% of the profits earned by Unilever, totalling £2m.
The court found that ‘outstanding’ is to be given its plain English meaning of 'exceptional' or 'such as to stand out', and that the benefit must be to the inventor's actual employer, rather than its wider group. The Supreme Court also considered that, in this case, it would be wrong to compare the benefit provided by the Shanks patents against the Unilever group's turnover or overall profitability, given the difference in the wider group’s business activities (which included selling ice cream and deodorant) compared to the work carried out at CRL. Instead, the benefits derived from the Shanks patents were compared to the contribution that other registered patents in Unilever’s portfolio provided to the group, so the Unilever group as a whole was considered the appropriate ‘undertaking’.
While this decision was undoubtedly a positive result for Professor Shanks, the case took over 13 years to finally be decided in the Supreme Court. Also, each employee compensation claim will turn on its own facts, meaning that this recent decision does not suddenly mean that other employee compensation claims will be successful.
That being said, employers cannot contract out of the statutory compensation so should make sure that they are properly documenting inventions and contributions to those by their employees, as well as adequately compensating employees to both encourage innovation and thereby reduce the risk of employees seeking additional compensation through the courts.
If you would like to speak with us to determine how this judgment- or any other intellectual property matter- may affect your business, we would be pleased to assist you. Please contact Chris Shelley or Rachel Bradley, partners in the commercial, IP and IT team.
This article has been co-written with Laurence Nelson, a trainee solicitor in the commercial, IP and IT team.