Shanks v Unilever – What does Outstanding mean?

EMPLOYEE COMPENSATION CLAIMS REVIEWED AGAIN.

The Supreme Court issued its judgement recently in relation to the application for employee compensation by Professor Shanks considering use of the “outstanding benefit” test in relation to a large company.

Shanks v Unilever – What does Outstanding mean?

The Supreme Court issued its judgement recently in relation to the application for employee compensation by Professor Shanks considering use of the "outstanding benefit" test in relation to a large company.

Prof Shanks was employed by CRL, a wholly owned subsidiary of Unilever, and worked on the development of biosensors for use in process control and process engineering. Prof Shanks learned of the use of biosensors in monitoring diabetes and became interested in developing a useful product, although this was not completely within his remit. Shortly thereafter he conceived his invention which relates to capillary action by a small gap in say an LCD display that will draw in water and other liquids. Prof Shanks applied this to electrodes and enzyme electrochemical techniques for measuring glucose concentration. The first prototype was built from his daughter's toy microscope kit ultimately leading to a diabetes testing kit. There was no doubt that the invention was made as part of his employment and thus belonged to his employer.

Ultimately patents were filed to this invention, but Unilever was not itself interested in developing a business based on this technology but did licence the patents. Patent licencing was never considered to be a key part of the Unilever business and while licences were granted no great effort was put into this. Eventually the patents were sold when Unilever sold its diagnostic business. While the sums involved seem large (£24m), they are not large when compared to the overall profits of Unilever.

Prof Shanks applied for compensation arguing that the invention provided and "outstanding benefit" to Unilever.

The original Hearing Officer found that due to the size of the business, the contribution was not of "outstanding benefit". An Appeal was made to the High Court which also found that the patents were not of outstanding benefit to Unilever. A further Appeal to the Court of Appeal yet again upheld the original decision to reject the application for employee compensation.

Finally an Appeal was made to the Supreme Court, where a judgement has recently been issued overturning the previous decisions, and acknowledging Prof Shanks's contribution as outstanding and awarding him compensation.

In his judgement Lord Kitchin considered the principles governing the assessment of outstanding benefit, and how should a fair share of an outstanding benefit be assessed?

Section 40(1) of The Patents Act 1977 defines when employee compensation must be awarded to an employee for inventions belonging to the employer. Specifically, it is required that "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 exact amount of the compensation is to be determined in accordance with Section 41 of The Patents Act 1977, which requires that the employee is awarded a "fair share" of the benefit which the employer has derived from the invention and/or the patent. To determine what constitutes a "fair share", Section 41(4) suggests that a number of matters that must be taken into account, specifically the nature of the employee's duties, his remuneration and the other compensations, the effort and skill which the employee has devoted to making the invention, the effort and skill which any other person has devoted to making the invention, and the contribution made by the employer to the making, developing and working of the invention by the provision of advice, facilities and other assistance, by the provision of opportunities and by his managerial and commercial skill and activities.

Lord Kitchin assessed that as Prof Shanks was employed by CRL, the research part of Unilever, and not Unilever as a whole, the assessment of outstanding contribution is in relation to CRL not Unilever. The decision of the Supreme Court provides additional guidance on how it is to be assessed whether an invention and/or the patent for it is of outstanding benefit to the employer.

In the earlier judgement, the Court had compared the contribution of Prof Shanks's invention to the overall business of Unilever, including their foods and personal care arms. However, once the assessment is in relation to CRL, the significant contribution by the Shanks patents is clear.

The judge specifically considered whether the size and success of Unilever as a whole contributed to the success and benefit provided by the Shanks patents, and concluded that this was not the case. The Skanks patents were not used in the Unilever business but licenced out – unusually. Licensees approached Unilever, not the other way around, so Unilever's contribution was minimal.

The Hearing Officer's initial assessment was flawed in that he initially suggested that the approach should be more than simply comparing profit from the Shanks patents to overall Unilever profit, but then did just that. Thus Lord Kitchin concluded that the Hearing Officer was wrong in principle.

Turning to the assessment of the quantum of the compensation, Lord Kitchin noted that the Hearing Officer had suggested that 5% of the profits generated by the Shanks patents would be the right amount of compensation. While different figures were suggested in later decisions, Lord Kitchin found this level of compensation to be correct. Kitchin also suggested that it should be adjusted for inflation (receive an uplift to reflect the impact of time on the value of money), and awarded Prof Shanks £2m.

The reasons underlying this decision seem more reasonable. Most previous decision have resulted in penalising an inventor for working for a large company or even group of companies. While previous assessment hasn't been ruled out entirely, this judgement seems to look at the contribution to the relevant parts of the business, and thus increases the likelihood of an employee-inventor receiving compensation.

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