Shanks for Nothing

Picture of Luke Patel

Luke Patel

In a previous article we looked at the employee invention compensation case of Unilever plc –v- Shanks, where the Court held that an employee was entitled to a fair share of his employer’s royalties derived from an invention over which the employer had secured a patent. However, a decision not to award any employee inventor compensation in that case has now been upheld.

Whilst the patent for an invention will normally be granted to the inventor, where the inventor is employed in a capacity in which they are likely to invent something (for example, as a member of a research and development team) then the patent can be granted to their employer. The law has long recognised that occasionally inventions can be so exceptional that it would be unfair to restrict the inventor simply to payment of their salary and that they should rightfully be entitled to a share of the profits. Section 40 of the Patents Act 1977 provides for an award of compensation to the employee in circumstances where the patent is of outstanding benefit to the employer. The employee is entitled to a fair share of the benefit the employer has derived.

Professor Ian Shanks was employed by Unilever UK and invented a measuring device for use in diabetic testing kits in 1984 which was patented and later licensed to third parties for royalties of in excess of £20 million.

The Shanks case follows that of Kelly and Chiu –v- GE Healthcare Ltd in 2009 which was the first successful employee inventor compensation case in the UK. Drs Kelly and Chiu were employed as research scientists and invented a heart radioactive imaging agent. The product generated revenues of in excess of £1.3 billion for their employer. The Court held that the invention was outstanding (meaning something special or out of the ordinary and more than substantial, significant or good) and the benefit was something more than would normally be expected to arise from the duties for which the employee is paid.

Following the Court of Appeal’s decision in the Shanks case, that an employee could be entitled to a fair share of his employer’s royalties derived from an invention, the case was remitted to the Intellectual Property Office, who found that no payment was due because the invention was not of outstanding benefit to Unilever. The High Court has now upheld that decision on appeal.

The Shanks case was distinguished from the Kelly case where the employer would have been in crisis but for the relevant patents. Here, Unilever’s business was sufficiently large that the benefit was not “crucial to [its] success” and so was not sufficiently important. Accordingly, the Hearing Officer had made no error of principle in determining that the benefit was not outstanding.

The High Court held that in order to determine the benefit received from the patents, the gross sums received should be discounted to reflect the fact that Unilever paid corporation tax on those receipts and so any benefit should be net of tax.

If the benefit had been found to be outstanding, the Court was of the view that the ‘fair share of the benefit’ should be no more than 3%, as awarded in the Kelly case.

Luke Patel
Commercial Dispute Resolution Department
0113 2279316

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