David and Goliath: Slaying the might of Unilever

A decision issued by the Supreme Court last week represents a milestone for employee inventors as the Court considered, for the first time, an application for compensation under section 40 of the Patents Act 1977. Professor Shanks sought compensation on the basis that the patents for an invention which he made in 1982 have been of outstanding benefit to his employer.

Background and facts

Professor Shanks was employed by Unilever UK Central Resources Ltd (“CRL”) as an inventor in the early 80s; his remit was to develop biosensors for use in process control and process engineering. CRL employed all the Unilever group’s UK-based research staff. It was a wholly-owned subsidiary of Unilever plc.

A couple of months after he started working, he began to explore the possibility of using the biosensor technology for diagnostic devices, building his prototype at home using his daughter’s toy microscope kit and bulldog clips.  This eventually became the Electrochemical Capillary Fill Device, or ECFD. This invention has become an integral component in virtually all glucose testing products on the market today.

It was accepted by Professor Shanks that the rights to this invention belonged to CRL. CRL assigned all these rights to Unilever plc for £100. Although Unilever was not interested in developing these products themselves, they filed for patents in the UK and Europe in 1984 and 1985. When the glucose testing market expanded in the 1990s, the ECFD technology became something that most of the companies in the field were willing to pay millions of pounds to use. Through licensing and ultimately selling the patents in 2001, the total benefit to Unilever was about £24 million.

Professor Shanks made his application for compensation in June 2006, and it was heard by the Comptroller General of Patents (the Comptroller) in March 2012. Having regard to the size and nature of Unilever’s business, he found that the benefits provided by the patents fell short of being outstanding. This was the finding of both the High Court, to whom he appealed, and also the Court of Appeal. Professor Shanks appealed to the Supreme Court.

The decision

The claim for compensation was made under section 40 of the Patents Act 1977. Although the patent belonged to his employer, section 40 of the Act sets out circumstances in which an employee inventor can claim compensation. Specifically, where an invention for which a patent has been granted has provided an outstanding benefit to the employer, a court can make an award of compensation, in an amount determined by section 41. Benefit is defined by the Act as ‘benefit in money or money’s worth’.

Outstanding benefit to the employer

Identification of the employer was not difficult – Professor Shanks had been employed by CRL at the time of his invention. Defining ‘outstanding’ in the abstract was also not difficult. It required to be more than just ‘significant’ or ‘substantial’. It must be out of the ordinary. However, to measure whether a particular benefit had been outstanding, the Court required to have regard to that benefit in the context of the size and nature of the employer’s undertaking. The use of the word 'undertaking' was the difficulty in this case. The lower courts considered the £24 million worth of profits made from the Shanks patents against the wider Unilever company, meaning that the patents’ contribution was dwarfed by the total revenues made by Unilever.

The Supreme Court, however, took a different approach, focusing on the profits derived from like activities of the group.  They found that:

“a highly material consideration must be the extent of the benefit of the Shanks patents to the Unilever group and how that compares with the benefits the group derived from other patents resulting from the work carried out at CRL”.

The evidence showed that the Shanks patents were the best-performing patents of the group. When considering other factors such as Professor Shanks’ £18,000 annual salary, and £100 assignment fee, along with the high rate of return from a very small effort to commercialise the invention and the fact that it generated the benefit with no significant risk, the Court concluded that there had been an outstanding benefit to the employer. 

Fair share

Section 41 states that the compensation should be such that it will secure for the employee a fair share of the benefit with reference to four criteria: the nature of the employee’s duties and his remuneration and other advantages he derives; the effort and skill which the employee has devoted to making the invention; the effort and skill of any other person; and the contribution of the employer to the making developing and working of the invention.

The hearing officer had regard to all these matters, along with evidence about percentage award rates in company and university employee compensation schemes. He held that 5% would be the appropriate fair share of the benefit. This was changed to 3% in the High Court. The Supreme Court agreed with the original decision and awarded Professor Shanks a 5% share of the benefit.

They also applied an uplift to reflect the impact of time on the value of money. This argument had been opposed by Unilever on the basis that the Comptroller could not award interest on the award. They used an average inflation rate of 2.8% awarding Professor Shanks £2 million.

What does this mean?

A potentially significant case for employers and employees alike, the Supreme Court sets out a detailed analysis of the factors to consider when assessing whether a patent has provided an outstanding benefit to an employer.  By focusing and narrowing the scope of the relative value of the benefit, this case has potentially opened the door to more claims from employee inventors who are part of larger corporate enterprises. For employers, it is important to note that these provisions cannot be contracted out of, and it may be worth looking again at how inventors are remunerated.

For Professor Shanks this was not about the money. He fought his 13-year battle with the might of Unilever on behalf of all employee inventors, to ensure that they are properly rewarded for their lifechanging and often lifesaving efforts.

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