Shanks v Unilever Plc & Ors

Whether a patent is of outstanding benefit under section 40(1) of the Patents Act 1977 is a qualitative, multi-factorial assessment. The tribunal must consider the benefit in the context of the size and nature of the employer’s undertaking, but a large and profitable employer is not immune from employee compensation. An unusual method of obtaining the benefit is not, by itself, decisive. The benefit is assessed when received and excludes subsequent investment returns. Relevant costs are excluded where the work would have been undertaken without patent protection. A fair share under section 41 must reflect all the statutory factors, including the employer’s commercial contribution and ability to secure licensing income.

Professor Ian Shanks appealed against the Comptroller-General’s decision of 21 June 2013, which dismissed his claim for employee compensation under section 40(1) of the Patents Act 1977. The hearing officer found that Unilever had obtained a net benefit of about £24.3 million from the Shanks patents, but that the benefit was not outstanding. He alternatively assessed Professor Shanks’s fair share at 5%.

The appeal challenged the valuation of the benefit, the identification of the relevant undertaking, the finding that the benefit was not outstanding, and the alternative fair-share assessment. Unilever supported the dismissal but challenged parts of the alternative findings.

1. Appeal dismissed. The hearing officer had applied the correct legal approach. His conclusions involved factual and multi-factorial assessments to which an appellate court should show appropriate restraint, particularly when reviewing a specialist tribunal.
2. The test under section 40(1) is qualitative. The benefit must be assessed in the overall context of the employer’s undertaking, including its size and nature. This does not mean that a large employer can never receive an outstanding benefit, nor that the assessment is a simple comparison with turnover or profits.
3. The hearing officer was entitled to take account of the Unilever group as the relevant undertaking. The Court of Appeal’s earlier interpretation of section 41(2) equated the benefit to the employer with the benefit received by Unilever plc and Unilever NV.
4. The benefit derived from the patents was the licence income and the attributable part of the Unipath sale proceeds. The time value of money was not a benefit derived from the patents. The benefit was assessed when the money was received, and the statutory scheme did not support an effectively indefinite inquiry into subsequent investment returns.
5. The benefit was net of corporation tax. Research and development costs were not deducted because the hearing officer had found that the work would have proceeded without patent protection. The hearing officer was also entitled to retain a 5% discount for the Birch patents.
6. The conclusion that the benefit was not outstanding disclosed no error of principle. The high rate of return and limited commercial risk favoured Professor Shanks, but the weight to be given to those matters was for the hearing officer.
7. The alternative fair-share assessment required proper regard to Unilever’s size, financial resources and ability to secure licences. Those factors explained why a higher percentage than in Kelly v GE Healthcare Ltd was not justified. If an award had been payable, 3% would have been appropriate, rather than 5%.

• High Court (Patents Court): appeal from the Comptroller-General’s decision of 21 June 2013 (BL O/259/13); appeal dismissed.
• Court of Appeal: an interim appeal in the same litigation was decided in [2010] EWCA Civ 1283; that decision was treated as governing the interpretation of section 41(2).