Employee Inventor Compensation - Annual Patents Review 2017

This is the Employee Inventor Compensation chapter of Gordon Harris' Annual Patents Review 2017. For the other chapters of the review, please follow the links below or download the Annual Patents Review 2017 in full.

1. Introduction
2. Infringement
3. Validity
4. Technical Matters and Procedure
5. Competition Law, Settlement and Licensing
6. Employee Inventor Compensation
7. Summary and Conclusions

6. Employee Inventor Compensation

The dispute between Shanks and Unilever (Shanks v Unilever^[92]) is one of the longer running episodes in the Patents Courts. This year there was further consideration by the Court of Appeal.

The question at the heart of this case is that arising out of section 40 of the Patents Act. It is whether a patent is, having regard among other things to the size and nature of the employer's undertaking, of outstanding benefit to the employer, and that by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer.

What constitutes outstanding benefit? In the present case Unilever's central argument was that the amount involved (somewhere between £70,000,000 and £33,000,000 depending on the outcome of other issues) was simply dwarfed by the turnover and profits of the Unilever group as a whole. Shanks categorised this as meaning that Unilever was "too big to pay".

So what was the correct approach? Lord Justice Patten LJ said ([28]):

I accept [the] submission that "outstanding benefit" cannot be determined simply by comparing the income generated by the patent with the overall turnover and profitability of the employer's undertaking. In particular, it cannot be necessary to show that the financial benefit from the patent exceeds a particular percentage of the total profits of the undertaking. In the case of a group like Unilever, that would exclude most patents even if the profits they generated where by any other standards exceptional. But a straightforward comparison of profitability may be sufficient, in the case of a much smaller company, to satisfy the test of outstanding benefit without recourse to a much wider consideration of the scope of the employee's duties and the expectations which the employer may be taken to have had about the level of return it would normally expect to see generated from its average research programme. The figures may in some cases be sufficient to speak for themselves.

One specific issue which had persisted through all the incarnations of the case relates to the "time value" of money. Shanks' argument here was that Unilever had had the benefit of the substantial profits raised as a result of his invention for a considerable period of time, and could have done more with that money, pursuing further research projects which may have become highly profitable, or making more basic investments. This was dealt with most succinctly in the judgment of Briggs LJ who said ([71]):

…where the analysis and quantification of the benefit of the invention to the employer depends either totally or partly upon the money received from its exploitation, the enquiry ought usually to be directed to the amounts actually received, at the time when they were received, and that the use to which the employer subsequently put those receipts should not be taken into account.

Links to the other sections of the Annual Patents Review 2017 are below.

1. Introduction
2. Infringement
3. Validity
4. Technical Matters and Procedure
5. Competition Law, Settlement and Licensing
6. Employee Inventor Compensation
7. Summary and Conclusions

Download the Annual Patents Review 2017 in full.

Footnotes:

[92] Shanks v Unilever plc & Ors [2017] EWCA Civ 2 (18 January 2017) Patten, Briggs & Sales LLJ