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Shanks v Unilever? Or David v Goliath?

Could inventive employees be in line for a big pay-out?

Supreme Court

The surprising case of Professor Shanks against the consumer goods giant Unilever has caused a stir in pharmaceutical companies.

The implications of this Supreme Court judgment could mean a big pay-out for inventive employees, but will this turn out to be the case?

The law

For over 40 years, the Patents Act (PA) 1977 has dictated that an invention made by an employee will belong to the employer (if made in the course of the employee’s duties). This means that the employee has no right to any money in addition to their salary from the use of or sale of the invention.

The exception to this is when the employee is entitled to compensation from the employer because the employee’s invention is of ‘outstanding benefit’ to the employer. This means that the invention the employee made is special in some way; it is out of the ordinary.

This rule applies to patents applied for pre-2005. After 2005, the employee must also show that it would be ‘just’ for them to receive compensation.

Additionally, the benefit arising from the invention has to be greater than the benefit a company would normally expect to receive from an employee’s invention. This deceptively simple rule was the focus of the case that made it all the way to the Supreme Court.

The facts

Professor Shanks was employed as an inventor by a subsidiary of Unilever called Central Resources Limited (CRL). In 1982, Professor Shanks put together the prototype of an invention that would  later become known as the Electrochemical Capillary Fill Device (ECFD) and the similar Fluorescent Capillary Fill Device (FCFD).

Both devices became widely used, with the ECFD technology being present in the majority of glucose testing products by the 2000s. The patents became worth approximately £24.3m (as calculated by the Hearing Officer in the initial claim by Professor Shanks and confirmed in the Supreme Court. The figure was rounded down to £24m in Court).

While both Professor Shanks and Unilever agreed that Unilever was the owner of the patents for the ECFD and the FCFD, Professor Shanks believed that he should be compensated for the benefit his invention brought to Unilever.

He therefore launched an application for compensation in the United Kingdom Intellectual Property Office. Following this initial application in June 2006, Professor Shanks climbed the ladder of the legal system, appealing to the High Court, the Court of Appeal and finally to the ultimate deciders – the Supreme Court.

The impact

An outstanding benefit

The issue facing the Supreme Court was whether any invention, no matter how incredible or outstanding, could be more than a small blip on Unilever’s radar, given Unilever’s huge overall profitability. Essentially, was Unilever ‘too big to pay’?

Previously, the lower courts had all compared Professor Shanks’ contribution to the profits and turnover of the giant Unilever group as a whole. In comparison with that, it was not surprising that Professor Shanks could not say that his contribution was of ‘outstanding benefit’.

In contrast, the Supreme Court ultimately decided that the benefit Professor Shanks provided should be compared to the profit and turnover of CRL, the smaller subsidiary, rather than Unilever. This crucial diversion paved the way for Professor Shanks’ success at trial.

In comparison with CRL, Professor Shanks’ invention was of sufficient benefit to award him compensation. However, pharmaceutical companies will be relieved to hear that this decision was taken because the type of work that CRL did was very different from the work undertaken by Unilever.

In general, the benefit provided by an invention will likely still be compared to the company group as a whole. Therefore, the only pharmaceutical companies that are at risk are those that are part of a group that encompasses a wide variety of businesses.

How much money will companies have to pay?

After a court has decided that an employee is owed compensation, the amount that person receives is ‘taken to be the amount which could reasonably be expected to be derived by the employer if that person had not been connected with him’.

In this case, Professor Shanks was ultimately awarded £2m as a ‘fair share’ of the benefit Unilever derived from the invention, calculated at 5% of the £24m that the patents were worth, with an uplift to take account of inflation.

Pharmaceutical companies may wish to note the factors which prevented this 5% from being raised to 10% or even 20% (as Professor Shanks tried to argue).

This included the fact that Professor Shanks was employed as an inventor and received a salary for his work, that he made the invention in the course of his employee duties, the level of skill and effort Professor Shanks put into the invention, and the fact that the patents only became commercial successful as a result of Unilever’s contribution to developing the invention and licensing the patent.

There is an inherent uncertainty for pharmaceutical companies here, as each invention will come with its own unique set of facts.

The future

This case may at first give the impression that inventors will be flocking to court to see what they can get, but employed inventors would be wise to remember that successful claims for compensation are rare.

Since the introduction of the PA 1977, the case of Professor Shanks is only the second case in which employees received additional compensation for their invention from their employer, the other being Kelly and Chiu v GE Healthcare Ltd [2009] EWHC 181 (Pat).

Notably, this case also related to an invention in the medical field, in this case an invention which formed the basis of a successful radioactive imaging agent. Moreover, it took Professor Shanks 13 years of expensive litigation to get to this point.

While the ‘too big to pay’ argument has been knocked off its pedestal, the result is not an open season on companies. Instead it simply requires courts to take a more nuanced approach when considering if an inventor deserves compensation.

Of course, there are practical schemes that pharmaceutical companies could put in place to reduce the likelihood of claims being brought against them. For example, they could initiate (or improve the terms of) a bonus scheme for particularly successful inventions.

Ultimately, this judgment is not as bad for companies as it may have first appeared.

Dennis Lee is a Partner, dennislee@bdbpitmans. com and Daisy Fulton is a Solicitor, daisyfulton@, both at BDB Pitmans

3rd March 2020

Dennis Lee is a Partner, dennislee@bdbpitmans. com and Daisy Fulton is a Solicitor, daisyfulton@, both at BDB Pitmans

3rd March 2020

From: Research



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