Professor Shanks’ 13 year skirmish with former employee Unilever has finally come to an end with the Supreme Court’s ruling that his invention for an electrochemical capillary fill device (used by diabetics in blood glucose testing) was of outstanding benefit to Unilever and its wholly-owned subsidiary company CRL.
Professor Shanks was employed by CRL in the early 1980’s and first devised his invention (which it was acknowledged was not part of his day-to-day research role) at home using slides from his daughter’s toy microscope kit. The invention was subsequently patented by Unilever, despite the field of blood glucose testing not being of interest to the Unilever group. However, the patents were of interest to third parties enabling Unilever to negotiate multiple licence deals. Professor Shanks considered the revenue generated from these licences to be such that he was entitled to compensation under section 40 Patents Act 1977, which in short, provides that an employee inventor may be awarded compensation for a patented invention owned by his employer provided that the patent has been of “outstanding benefit” to the employer.
Initially, Professor Shanks brought his case before the Patent Office where the hearing officer valued the patents at approximately £24 million. Nevertheless, having regard to the size and nature of Unilever’s business as a whole, the hearing officer felt this benefit fell short of being outstanding and ruled that Professor Shanks was not entitled to compensation. Professor Shanks’ appeals to the High Court and Court of Appeal were similarly dismissed.
The issues for the Supreme Court were twofold and concerned the applicable principles governing the assessment of outstanding benefit and how a fair share of any outstanding benefit should be assessed. In considering the meaning of “outstanding”, Lord Kitchin giving the leading judgment drew guidance from the case law in this area, particularly the decision in Kelly v GE Healthcare (the first case in which the issue of employee compensation had come before the courts) but ultimately concluded that outstanding is an ordinary English word “meaning exceptional or such as to stand out”. Moreover, it is not related to the degree of inventiveness of the employee but to the benefit in terms of money (or money’s worth of the patent) to the employer.
More interesting was the Court’s analysis of what was the size and nature of the employer’s undertaking, an issue to which the court must according to statute have regard in assessing whether the benefit from a patent has been outstanding. Lord Kitchin acknowledged that the question of whether the relevant undertaking in this case was the CRL subsidiary company or the Unilever group as a whole was not without difficulty. He advised that the correct approach was to look at the commercial reality of the situation from the perspective of the inventor’s employer CRL. Lord Kitchin felt that the hearing officer had erred in principle in considering the relevant undertaking to be the Unilever group. The hearing officer should have had regard to the size and nature of CRL in assessing the nature of the benefit to CRL and Unilever of the patents. Lord Kitchin was also critical of the hearing officer’s focus on the overall turnover and profits generated by the Unilever group (in particular the success of unrelated products such as deodorants and Viennetta) in assessing whether the benefit attributable to the patents was outstanding. Lord Kitchin referred to the Unilever submission that £24 million, whilst an appreciable sum, is insignificant considering Unilever’s overall income and profits (the so-called “too big to pay” submission). He noted that a court should “be very cautious before accepting a submission that a patent has not been of outstanding benefit to an employer simply because it has had no significant impact on its overall profitability or the value of all of its sales”. Lord Kitchin noted that the hearing officer, having warned against an approach that would result in an employer effectively being considered too big to pay, then proceeded to allow this to form an important part of his assessment; this was wrong in principle. Also relevant was the fact that the benefit derived from the patents was a consequence of the licences entered into with third parties rather than being connected to the size and success of Unilever’s business.
Having concluded that the benefit Unilever and CRL enjoyed from the Shanks patents was outstanding, Lord Kitchin proceeded to reaffirm the hearing officer’s conclusion that 5% of this benefit represented a fair share and, taking into account the fact that an uplift needed to applied to reflect the fact that Unilever had enjoyed the monetary benefits of the patents for some time, awarded Professor Shanks £2 million compensation.
This case is undoubtedly important. Not only is it the first time the Supreme Court has considered an employee’s claim to compensation under s.40 Patents Act, but remarkably it overturned three instances which all found against the employee, and provided only the second example of a ruling in an inventor’s favour in over 40 years. Before the Supreme Court judgment, the Kelly v GE Healthcare case was the only example of inventors having been successful in their claim to compensation, and Lord Kitchin acknowledged that the patents in that case were transformative, going far beyond what could have been expected. The same cannot be said for the Shanks patents. The principal question for consideration by employee inventors and their employers alike is therefore whether the “outstanding benefit” hurdle has been lowered? This might either be directly by interpreting the words more generously to inventors, or by approaching the question of what is the employer’s undertaking in a rather more limited way than the entirety of the relevant corporation. The answer is far from clear, but it seems highly unlikely that the decision will pave the way for a deluge of claims by dissatisfied employees. Pursuing a claim to compensation is a costly exercise and not without personal challenges and financial risks.
The case is also a reminder that employers should consider ways to avoid making inventors feel aggrieved, and at the same time positively incentivise them by providing sensible, modest recognition, both financial and non-financial which will likely stop claims being brought.