Shanks v Unilever Plc and others

Under section 40(1) of the Patents Act 1977, an employee may receive compensation where the patented invention belongs to the employer, the patent confers an outstanding benefit and an award is just. “Outstanding” means exceptional or standing out. It is a relative and qualitative description of the patent's benefit in money or money's worth.

The assessment must reflect commercial reality from the actual employer's perspective. In a corporate group, like must be compared with like. Overall group turnover and profitability should not defeat a claim where unrelated business activities did not generate the patent's benefit. A fair share under section 41 may include an uplift reflecting inflation and the employer's use of the money. The benefit is assessed before corporation tax.

Professor Shanks invented a capillary-fill device while employed as a research scientist by Unilever UK Central Resources Ltd. The resulting patents belonged to his employer and generated a net benefit of about £24m through licensing and their eventual sale. He sought employee-inventor compensation under sections 40 and 41 of the Patents Act 1977.

The Comptroller's hearing officer found that the benefit was not outstanding when assessed against the size and nature of the Unilever group, although he would have awarded a 5% fair share. The High Court dismissed the appeal in [2014] EWHC 1647 (Pat). The Court of Appeal dismissed a further appeal in [2017] EWCA Civ 2, while reversing the deduction of corporation tax and deciding by a majority that changes in the value of money could be relevant.

The Supreme Court considered the proper assessment of outstanding benefit, the calculation of a fair share, taxation and the time value of money.

1. The appeal was allowed unanimously. Lord Kitchin, with whom Lady Hale, Lord Reed, Lord Hodge and Lady Black agreed, held that the patents were of outstanding benefit to the employer and that the inventor was entitled to £2m compensation.

2. Under section 40(1) of the Patents Act 1977, “employer” ordinarily means the inventor's actual employer. “Outstanding” describes the patent's benefit to that employer, not the employee's inventiveness. It means exceptional or standing out and is both relative and qualitative. The benefit must be assessed after deducting the costs incurred in securing it.

3. Where a group company operates a research facility for the whole group and assigns resulting patents to group members, commercial reality must be examined from the employer's perspective. The relevant comparison is between the patent's benefit to the group and the benefits obtained from other patents arising from that employer's research. This compares like with like. A tribunal should be cautious about treating the absence of a material effect on aggregate turnover or profitability as sufficient to deny outstanding benefit.

4. The hearing officer erred in principle by treating the whole Unilever group as the employer's undertaking and by comparing the patent income with profits from unrelated products. Those wider activities did not materially secure the patent benefit. The patents generated substantial rewards at no significant risk, produced a very high return and stood out against other patents arising from the employer's research. Their benefit was therefore outstanding.

5. The benefit should not be reduced for corporation tax. Tax is a consequence of the benefit rather than part of its measurement. The employer and employee must each account for tax on their respective portions.

6. A fair share under section 41 may reflect the time value of money or inflation. The employee had been kept out of his share for many years, and no unreasonable delay was found. The Comptroller's inability to award interest did not prevent an inflationary uplift.

7. The hearing officer properly applied the section 41(4) considerations and selected a 5% share. There was no evidential basis for reducing it to 3% because of Unilever's supposed ability to threaten infringement proceedings. Applying 5% to the £24m benefit and adjusting for inflation produced compensation of £2m.

1. United Kingdom Supreme Court: The appeal was allowed unanimously in [2019] UKSC 45. The patents were of outstanding benefit and compensation of £2m was awarded.
2. Court of Appeal: The appeal was dismissed in [2017] EWCA Civ 2. The court unanimously rejected a deduction for corporation tax. By a majority, it held that changes in the value of money could be relevant to outstanding benefit and a fair share.
3. High Court: The appeal from the hearing officer was dismissed in [2014] EWHC 1647 (Pat). The judge upheld the finding that the benefit was not outstanding, considered 3% an appropriate hypothetical share and rejected an adjustment for the time value of money.
4. Comptroller General of Patents: The hearing officer's decision, BL O/259/13, found that the benefit was not outstanding, but that a 5% share would otherwise have been appropriate.