Provided certain criteria are met, employees in the UK are entitled to compensation from their employers for inventions they have made which their employers own. However, the UK courts have historically been reluctant to award such compensation, and thus employee compensation actions in the UK seldom succeed. Over recent years, an increasing number of employee compensation actions have been decided in favour of the employee, and thus a recent decision explaining some of the requirements for successful employee compensation actions is well worth a read for inventive employees and their employers alike.
Under UK law, if an invention is devised by a person who is an employee of another party, and that other party owns the invention by virtue of being that person’s employer then, if a patent is granted for the invention and either the invention or the patent turns out to be of outstanding financial benefit to the employer, then the inventor is entitled to compensation representing a fair share of the money made by their employer. Such actions brought before the UK courts are typically known as “employee compensation actions”.
In the case of Parsons v Convatec, Dr Parsons (an analytical chemist who had worked for Convatec for about 30 years) had devised various inventions for which several patents had been granted. In 2022, Dr Parsons started an employee compensation action at the UK Patents Court, arguing that the inventions/patents to which he had contributed had been of outstanding benefit to Convatec, and thus the company should pay him a fair share of the money it had made, as it is required to do.
In response, Convatec asked the judge to strike out Dr Parsons’ case, presenting several different arguments in support of this request. The judge’s decision has recently been issued, and offers some interesting insights into the requirements for successful employee compensation actions in the UK.
It Does Not Matter Who The Patent Is Granted To
One argument Convatec put forward was that one of the relevant patents had been granted to a party it had conducted a joint venture with, not to Convatec itself. Accordingly, Convatec argued that Dr Parsons could not start an employee compensation action based on this patent.
The judge, Mr Justice Zacaroli, disagreed, holding instead that what matters is whether a patent has been granted (regardless of who it is granted to), whether the invention protected by the patent belongs to the employer, and whether the employer has derived outstanding financial benefit from either the invention or the patent.
The Employee Does Not Need To Be Named As An Inventor On The Patent
Convatec also argued that Dr Parsons could not start an employee compensation action in respect of any patents on which he was not named as an inventor.
Zacaroli J dismissed this argument, noting that UK law does not contain any such restriction. In particular, Zacaroli J noted that the inventor is allowed, under UK law, to waive their right to be mentioned on the patent, but that waiving this right does not prevent the inventor from starting an employee compensation action.
“Outstanding Benefit” Is Cumulative And The Test For “Outstanding Benefit” Is A Yes/No Question
The Limitation Act 1980 imposes a 6-year time limit for starting actions in the civil courts to recover sums of money. Thus, Convatec argued that Dr Parsons could not rely on financial benefit derived more than 6 years ago when trying to show that the invention/patent had been of outstanding benefit to Convatec.
Zacaroli J rejected this argument for two reasons.
Firstly, despite imposing the 6-year time limit, the Limitation Act 1980 also provides that a different time limit shall apply if another legal provision provides for one. This is the case in employee compensation actions, for which the Patents Act 1977 provides that such an action must be started after the patent concerned has been granted and no later than 1 year after its lapse/expiry. Thus, the 6-year time limit did not apply in this case.
Secondly, Zacaroli J held that “outstanding benefit” is not something that can be divided into time periods. Instead, Zacaroli J held, the determination of whether an invention/patent has been of outstanding benefit to the employer must take into account the cumulative benefits afforded to the employer over the lifetime of the patent. Only then should the court decide whether that cumulative benefit can be considered “outstanding”. Thus, this is a yes/no question to be answered before deciding how much compensation to award (if any).
It Is Irrelevant Whether The Invention Has Been Used In A Commercial Product
Convatec also argued that Dr Parsons could not show that one of the patents had been of outstanding benefit to it because it had never used the invention protected by the patent in any of its products.
Again, Zacaroli J disagreed.
Zacaroli J held that a patent can be of benefit to its owner in other ways, such as by deterring competitors from placing similar products on the market. Thus, if the patent owner has similar products of its own, then it may be able to obtain a dominant market position, allowing it to increase its prices above what it may otherwise be able to charge. In this manner, Zacaroli J held, Convatec would have been able to benefit from a patent for an invention it was not actively using.
The Courts Will Only Extend The Deadline For Starting Employee Compensation Actions If Compelling Reasons Are Given
The deadline for starting an employee compensation action in respect of a patent is 1 year after its expiry/lapse but, in the case of one patent, Dr Parsons’ action was brought more than 5 years after this deadline. In the case of another patent, Dr Parsons’ action was started more than 8 years after the deadline. Dr Parsons therefore asked the court to extend the deadline, which it has discretion to do.
Dr Parsons’ representative gave several reasons why the court should exercise its discretion to extend the deadline in this case including, for example, that Dr Parsons had waited until all of the relevant patents had expired and then acted reasonably in bringing a single claim in respect of all of them, rather than starting separate actions for each patent individually.
However, Zacaroli J was not satisfied by the reasons given, and thus decided not to extend the 1-year deadline. Thus, Dr Parsons’ claims in respect of these two patents were struck out.
The Parsons v Convatec decision sends some important messages to those involved in employee compensation actions.
Firstly, the employee does not need to be named as an inventor on the patent. As long as the employee is an inventor, then that is sufficient.
Additionally, the test for whether an invention or a patent has been of “outstanding benefit” to the employer should take into account the benefit accrued by the employer over the lifetime of the patent, and is not affected by whether the employer owned the patent at any time or whether the invention has ever been used in a commercial product.
Furthermore, if one intends to start an employee compensation action more than 1 year after the patent has expired/lapsed, then very convincing reasons justifying an extension of the deadline must be given.
If you are considering starting an employee compensation action or think an employee compensation action has been started against you unjustifiably, then Schlich can assist with this, and would be happy to discuss this with you further on request.