Unilever Plc & Ors v Shanks

Employee-inventor compensation under section 40(1) of the Patents Act 1977 depends on the actual benefit obtained by the inventor’s actual employer. The legislation does not impose a duty to exploit the invention effectively or substitute the benefit obtainable through optimal exploitation.

Where the employer assigns the invention to a connected person, “that person” in section 41(2) means the actual assignee with its actual attributes. The tribunal must assess what the employer could reasonably have derived had that assignee been unconnected, taking account of the benefit which the assignee in fact obtained. This deemed benefit applies both to the outstanding-benefit threshold and to the calculation of a fair share.

Professor Shanks invented a capillary-action device while employed by a research company within the Unilever group. Rights in the invention vested in his employer and were assigned for a nominal sum to another group company. Patents were obtained and eventually generated approximately £23 million in third-party licensing royalties.

Professor Shanks applied to the Comptroller-General of Patents for employee-inventor compensation under section 40 of the Patents Act 1977. The hearing officer’s decision was reversed by Mann J in the Patents Court, [2009] EWHC 3164 (Ch). Unilever appealed.

The central issue was the meaning of “that person” in section 41(2), and whether a connected-company assignment required a hypothetical open-market valuation or an assessment based on the actual assignee and the benefit actually obtained.

1. Appeal allowed unanimously. “That person” in section 41(2) of the Patents Act 1977 means the actual connected assignee with its actual attributes. The statute directs attention to the real assignment from the actual employer to the actual assignee, not to a hypothetical purchaser at an open-market auction.

2. Section 40(1) concerns the actual benefit obtained by the inventor’s particular employer. An employee must establish that the patent was of outstanding benefit to that employer and that it is just to award compensation. The size and nature of the employer’s undertaking form part of that assessment. The legislation neither requires the employer to use best endeavours to exploit the invention nor substitutes the value which optimal exploitation might have produced.

3. Where an invention or patent has been assigned to a connected person, section 41(2) deems the employer’s benefit to be what the employer could reasonably have derived had the actual assignee been unconnected. The assessment may take account of the benefit which the assignee subsequently obtained. It is not confined to predictions which could have been made on the assignment date. The deemed benefit is relevant both to the section 40(1) threshold and to the fair-share assessment under section 41(1).

4. A valuation confined to knowledge available at the assignment date could produce arbitrary results. A valuable invention might receive a nominal valuation because its commercial prospects or patent validity were initially uncertain. Conversely, an invention expected to succeed might attract substantial compensation despite proving worthless. Such outcomes would depart irrationally from the statutory paradigm in which the inventor’s employer retains the invention and its actual benefit is assessed.

5. On the stated assumption that the assignee received approximately £23 million as risk-free profit, the employer could reasonably have expected to derive that sum from an arm’s-length assignment to the same assignee. The remaining questions, including whether the benefit was outstanding and what constituted a fair share, were left for consequential determination or agreement.

• Court of Appeal (Civil Division): By [2010] EWCA Civ 1283, unanimously allowed Unilever’s appeal and held that section 41(2) referred to the actual connected assignee and permitted account to be taken of the benefit actually obtained.
• High Court, Chancery Division (Patents Court): Mann J, [2009] EWHC 3164 (Ch), reversed the hearing officer’s decision.
• Comptroller-General of Patents: The hearing officer, Dr Elbro, determined Professor Shanks’s employee-compensation application. The precise terms of that determination are not stated in the judgment.