Shanks v Unilever Plc & Ors

For employee compensation under the Patents Act 1977, “outstanding benefit” is an exceptional and relative concept assessed in the context of all relevant circumstances, including the size and nature of the employer’s undertaking. Group turnover and profits may be relevant, but a fixed percentage comparison cannot decide the issue. The assessment must also consider matters such as return, cost, risk and effect on the business. The undertaking may be identified by economic reality and include group companies exploiting the invention. Direct exploitation receipts form the benefit; subsequent use of the money and corporation tax are not themselves part of it. A specialist tribunal’s assessment is disturbed only for clear material error.

Professor Ian Shanks appealed from the dismissal of his employee-compensation claim under section 40(1) of the Patents Act 1977. The claim concerned patents arising from an invention made while he was employed by Unilever UK Central Resources Ltd.

The Comptroller-General rejected the claim, finding that the patents had generated substantial financial benefit but not an outstanding benefit. Arnold J dismissed the first appeal: [2014] EWHC 1647 (Pat). The Court of Appeal considered whether the benefit was outstanding, whether it should include the time value of money or be reduced for corporation tax, and whether the matter should be remitted for assessment of fair share.

1. Appeal dismissed. The Court of Appeal unanimously upheld the decision that the patents did not confer an outstanding benefit on Unilever. The Court expressed no view on the fair share that would have been payable if the statutory threshold had been met.
2. Under section 40(1) of the Patents Act 1977, outstanding benefit is an ordinary, exceptional and relative concept. It must be assessed by a multi-factorial comparison in the context of the employer’s undertaking. Total group turnover and profits are relevant, but cannot alone determine the issue or be applied through a fixed percentage. The return, cost, risk, expected results of the employee’s work and effect on the business may also be relevant. Memco-Med Ltd’s Patent [1992] RPC 403 and GEC Avionics Ltd’s Patent [1992] RPC 107 were accepted as useful approaches, while the suggestion in British Steel PLC’s Patent [1992] RPC 117 that the patent must stand out from the rest was not adopted. Kelly v GE Healthcare Ltd [2009] EWHC 181 (Pat) illustrated the exceptional, transformative case in which the threshold may be met.
3. The employer’s undertaking is determined by economic and business realities. It may include group companies where the employing research subsidiary’s work was intended to benefit the group and the group received the exploitation income.
4. The direct receipts from exploitation of the patents were the relevant benefit. The employer’s subsequent use of those receipts was not itself part of the benefit. The Court distinguished Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34 because this was statutory compensation, not restitution. Briggs LJ added that time-value adjustments may sometimes be needed to compare money at different dates and may be relevant to fair-share quantification; Sales LJ agreed. Those observations did not affect the result.
5. Corporation tax was a consequence of the benefit, not part of the benefit generated by the patents. The gross receipts therefore were not to be reduced for corporation tax. The damages analogy in British Transport Commission v Gourley [1956] AC 185 and the account-of-profits approach in Celanese International Corp v BP Chemicals Ltd [1999] RPC 203 did not govern the statutory calculation.
6. The Court reviewed the specialist Hearing Officer’s decision, rather than determining outstanding benefit afresh. Applying South Cone Inc v Bessant [2002] EWCA Civ 763, it found no clear and material error of principle or material misapprehension of fact.

1. Court of Appeal (Civil Division). Appeal dismissed on 18 January 2017.
2. High Court, Chancery Division, Patents Court. Arnold J dismissed the appeal from the Comptroller-General: [2014] EWHC 1647 (Pat).
3. Comptroller-General of Patents. The employee-compensation claim under section 40(1) of the Patents Act 1977 was dismissed.