Employee inventor compensation - can an employer be 'too big to pay'?

Employee inventor compensation - can an employer be 'too big to pay'?

If a UK-based employee makes an invention in the course of his or her duties as an employee the invention usually belongs to the employer, who is entitled to apply to patent the invention anywhere in the world.  However, the employee inventor may claim compensation in addition to his or her salary if the invention or patent turns out to be of ‘outstanding benefit’ to the employer*.  The Court of Appeal decision in Shanks v Unilever (January 2017) indicates that it is more difficult for an employee to show ‘outstanding benefit’ if the employer is a large undertaking, in this case Unilever, than if it is a small business.

In deciding whether there has been an outstanding benefit the court must “have regard among other things to the size and nature of the employer’s undertaking”, and “benefit” is defined as “benefit in money or money’s worth”.

Unilever did not work the patent
The invention in this case related to a method used in blood glucose testing for diabetes. Professor Shanks developed the first prototype for the invention at home using his daughter’s toy microscope kit, but this work fell within the scope of his duties as an employee, so the invention belonged to Unilever. Patents were obtained, but Unilever was not interested in moving into the field of blood glucose testing and did not use the invention itself. The technology, however, proved important and was very widely licensed to companies producing diabetes testing kits despite limited promotion by Unilever. Licensing in this way was in contrast to the way Unilever usually exploited patents by incorporating the technology into its own products. The UK Intellectual Property Office Hearing Officer who originally heard Professor Shanks’ claim concluded that the financial benefit to Unilever from the patents was £24.5 million but that this was not, in the circumstances, outstanding.

The benefit must be exceptional
Earlier cases have established that in order to be outstanding the benefit must be exceptional, something more than one would normally expect to arise out of the employee’s duties, not just substantial or good. This is a high bar.  Unilever’s central argument on the issue of outstanding benefit was that £24.5 million, although not an inconsiderable sum in itself, was “simply dwarfed by the turnover and profits of the Group as a whole”. Professor Shanks’ argument was that the Hearing Officer had focused too much on this one factor and should have given more weight to other factors; these other factors included, for example, that the patents had produced a very high rate of return, which was unique in terms of licence fee income, and this had been achieved at no material risk to Unilever and virtually no cost. The patents were described as a mousetrap which had brought a windfall of £24.5 million from an invention which the group did not even want to put into production, and the technology had been developed by Professor Shanks partly in his own time, so his other work had not been affected. Professor Shanks referred to Unilever’s argument comparing the income from this patent to the turnover and profits of the group as a whole as ‘too big to pay’. He argued that if no more than a simple comparison between the value of a patent and the turnover and profitability of the employer's undertaking was in issue, it must follow that in relation to companies like Unilever it would be all but impossible for any employee to establish that the benefit generated by the relevant patents had been outstanding. The result would be that the compensation regime would have no possible application to a whole raft of major research industries.

Too big to pay?
The Court of Appeal emphasised that turnover and profitability would always be relevant factors but that they were not the only factors. In this case, however, the court felt that the Hearing Officer had taken the other factors into account. He had been alive to the points made by Professor Shanks but was also aware that the income produced by the patents came in over an extended period of time and produced no obvious benefit to the business as a whole rather than in cash. Giving the main judgment of the court, Lord Justice Patten commented that there was something to be said for the argument that if all the patents produced was money, then it was not irrelevant to look at the benefit they brought largely in money terms.  In these circumstances the court upheld the Hearing Officer’s conclusion that the benefit which the patents brought could not be described as outstanding when looked at in the context of the overall performance of the group. However, one of the three Court of Appeal judges, Lord Justice Briggs, whilst agreeing that Professor Shanks’ appeal should be dismissed, said that he did so with some reluctance, commenting that “It may be going too far to say that Unilever was ‘too big to pay’ but there is no escaping the fact that Professor Shanks might well have succeeded had his employer had a much smaller undertaking than did Unilever.”

The focus is on the benefit to the business
On the face of it the decision may seem rather hard on Professor Shanks, but it must be remembered that the focus of the employee inventor provisions is firmly on the benefit of the invention/patent to the business rather than on how inventive the employee has been. There is no obligation on the employer to exploit the patent at all. Whereas this decision is likely to be welcomed by larger businesses, Briggs LJ’s comments also suggest that in future courts may be anxious to avoid the charge of ‘too big to pay’ and will be looking particularly carefully at other factors too.

If you have any questions on these or other issues relating to intellectual property, do please contact Tom Lingard, Partner and Head of Intellectual Property or Charlotte Tillett, Partner and Head of Life Sciences, who will be happy to discuss.

* S.40 Patents Act 1977. The case was decided under the old law which referred only to the patent being of outstanding benefit, but this does not affect the issues here.

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