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Aisling O’Dwyer, an associate in the IP team and Ella Wells, a trainee patent attorney at CMS, comment on the decision which is awaited in the matter of Shanks v Unilever Plc & Ors.

In February 2019, the Supreme Court was asked to consider the meaning of “outstanding benefit” in employee-inventor compensation cases. Here, we briefly discuss the guidance previously given by the Court of Appeal, and consider the open issues it is hoped that the Supreme Court will resolve, which include whether a company can ever be “too big to pay”.

Background 

Inventions made in the course of an employee’s normal duties belong to the employer under The Patents Act 1977, s 39(1)(a). s 40(1)(b) permits an employee to apply for compensation from its employer where “having regard among other things to the size and nature of the employer’s undertaking, the invention or the patent for it (or the combination of both) is of outstanding benefit to the employer”.

The dispute concerns European Patent No. 0 170 375 and related patents (the “Patents”), which relate to a device for blood glucose testing invented by Professor Shanks while he was employed by Unilever UK Central Resources Limited (“Unilever”).  It was common ground between the parties that Unilever was the rightful owner of the Patents.

Professor Shanks brought a claim for compensation against Unilever, and in doing so was required to demonstrate his invention was of “outstanding benefit” to Unilever. “Benefit” is defined in s 43(7) as “benefit in money or money’s worth”. s 41 provides guidance relating to the calculation of fair compensation.

Professor Shanks invented the test device primarily at home, and the financial benefit of the invention was almost entirely profit as Unilever entered a number of licensing agreements but never produced a blood glucose test device themselves. Professor Shanks also produced evidence demonstrating the rate of return on his invention was much higher than most other Unilever products.

First Instance 

At first instance (BL O/259/13) the Hearing Officer concluded the financial benefit to Unilever from the Patents was £24.5m.  It was held that, in the circumstances of the case (i.e. having regard to the size and nature of Unilever) this was not an “outstanding benefit”. The Hearing Officer noted that, had the invention been of “outstanding benefit”, he would have awarded Professor Shanks 5% of the benefit.

High Court

The decision was appealed to the High Court [2014] EWHC 1647 (Pat), where Arnold J accepted Unilever’s argument that the figure of £24.5m should be reduced by 30% to reflect the amount of corporation tax that was paid by Unilever in the relevant period, and thus the sum was reduced to £17m. Again, it was decided that Professor Shanks’ invention was not of “outstanding benefit” to Unilever. Furthermore, Arnold J indicated that, had it been necessary for him to calculate a fair share of the benefit for Professor Shanks, he would have awarded just 3% of the benefit to Professor Shanks.

Court of Appeal

On the basis that the case raised important issues regarding “outstanding benefit” and how this benefit should be calculated, a second appeal was heard by the Court of Appeal, [2017] EWCA Civ 2, before Patten LJ, Briggs LJ, and Sales LJ.

Professor Shanks contended the Patents conferred outstanding benefit to Unilever, and that his fair share of the benefit should be 33%. He appealed Arnold J’s decision to calculate the benefit net of tax, and submitted that the benefit should include an allowance for the “time value” of money (i.e. the greater benefit of receiving money now rather than an identical sum later).

Unilever submitted the decision of Arnold J should be upheld and that the Hearing Officer should have deducted development costs when calculating the benefit, which would have the effect of reducing the invention’s financial benefit by a further £1.75m. Unilever also contended that adequate weight should be given to the provision of advice, facilities, and other resources to Professor Shanks when calculating a fair share of the benefit.

Unilever’s central argument was that any benefit derived from the invention would dwarfed by Unilever’s annual profits, and there could not be of “outstanding benefit”. Professor Shanks submitted that Unilever were essentially stating they were “too big to pay” – if a comparison between the benefit derived and the profitability of the employer’s undertaking was required, it would be impossible for an employee of large companies to ever establish an invention had been of “outstanding benefit”.

The Court of Appeal agreed that “outstanding benefit” could not be determined by a simple comparison of the financial benefit derived from the invention and the employer’s profitability. However, turnover and profitability were relevant factors in making an assessment, as “outstanding” is a relevant concept. The court also held the “employer’s undertaking” should not be unnecessarily restricted to the actual employing entity (in this instance, Unilever), and so the overall profitability of Unilever was of relevance.

The Court of Appeal held the Hearing Officer was not incorrect to reach the conclusion he did, and he did so based on sound evidence and facts. He was correct to be unpersuaded that the benefits derived from the invention could not be described as outstanding when looked at in the context of the overall performance of Unilever.  The Court of Appeal further determined that the “time value of money” was not relevant when calculating a fair share of the benefit, and that the benefit derived from the invention should not be calculated net of tax. The Court of Appeal therefore accepted the Hearing Officer’s initial assessment of the financial benefit deriving from the Patents as £24.5m.

Briggs LJ agreed (obiter) with Patten LJ’s reasons “with some reluctance” as a key factor in this case was the sheer size of Unilever, and therefore, had Professor Shanks been employed by a much smaller employer-undertaking, he may have succeeded in his claim for compensation.

Supreme Court Appeal

The case was heard by the Supreme Court over three sessions from 6 to 7 February 2019.  In addition to considering the meaning of an “outstanding benefit” under s 40(1)(b), it is anticipated the court will provide guidance regarding whether an employer-undertaking can be “too big to pay” and how the “benefit” of an invention should be calculated, including in relation to the time value of money.

The Supreme Court’s decision is eagerly anticipated as there are very few decisions which address employee-inventor compensation.  The question of how an “outstanding benefit” should be calculated, and whether the profitability of a whole group should be taken into consideration may have significant ramifications for future cases.