In Ian Alexander Shanks v Unilever plc  EWHC 3164 (Ch), Mr Justice Mann allowed an appeal from a decision of the UK Patent Office. Mr Justice Mann held that the hypothetical transaction contemplated in Section 41(2) of the Patents Act 1977 in calculating compensation due to an employee to compensate him for making an invention of outstanding benefit to his employer, should be between the employer and an arm’s length buyer and not a party with all the same attributes as the actual buyer, minus its connection to the inventor’s employer.
In 1984, Professor Shanks made an invention that was patented by his employer, Unilever UK Central Resources Ltd (CRL). Later that year, the patent was transferred to Unilever. Unilever licensed it to a number of different licensees, which led to its widespread use, achieving around £23 million in royalties for Unilever (not CRL).
Professor Shanks brought an action against Unilever to claim compensation under Section 40 of the Patents Act 1977, which entitles an employee to compensation where that employee has invented something that is of outstanding benefit to his employer. Section 41 sets out the mechanism by which the compensation is calculated and essentially provides as follows:
41(1) An award of compensation to an employee… shall… secure for the employee a fair share…of the benefit which the employer has derived,… from the assignment, assignation or grant to a person connected with the employer of the property….
41(2) For the purposes of subsection (1) above the amount of any benefit derived… by an employer from the assignment, assignation or grant of – a) … any right in… a patent for the invention…to a person connected with him shall be taken to be the amount which could reasonably be expected to be so derived by the employer if that person had not been connected with him.
Unilever did not dispute the fact that CRL was connected to Unilever. However, it attempted to minimise its liability by arguing that the notional counterparty to the hypothetical transaction in Section 41(2) should be the same person, with the same characteristics, as the actual counterparty to the transaction, minus the connection. Professor Shanks argued that the section referred to a “generic assignee”, without all the characteristics of the actual assignee.
Professor Shanks applied to the Patent Office to amend his Statement of Case to include the argument that any benefit derived from the patent by any company in the Unilever Group should be taken to be the amount that CRL could reasonably be expected to have derived from the patent if the assignment had been to an unconnected person.
The hearing officer in the Patent Office held that the division between the two parties boiled down to what was meant by “that person” in Section 41(2). He found in favour of Unilever, that it referred to “a person connected with [CRL]... modified only by considering what that specific person would have done if they were not connected with the employer.” The hearing officer based this conclusion on the use of “that” person, holding that if a hypothetical person had been intended, the legislator could have said “a person” instead of “that person”. Therefore, Professor Shank's amendment to his Statement of Case was not allowed because it relied upon an unsustainable interpretation of the statute.
Professor Shanks appealed to the High Court.
Mr Justice Mann held Professor Shanks was entitled to rely on the principle that if it could be demonstrated that the literal construction of the statute led to an absurdity, then one was entitled to consider whether there was an alternative, less than literal, meaning that could be given to the words.
Mann J found that the literal meaning, which Unilever pursued, gave rise to a very uncommercial result, which was capable of leaving in place the price depressing factor that the subsection seemed intended to remove.
He held that his view that Parliament may not have intended the literal meaning was supported by the judgment in Kelly v GE Healthcare Ltd  EWHC 181 (Pat) in which Floyd J had noted that during the passage of the Bill through the House of Lords, one of the Law Lords had observed that he had “never seen such a collection of vague terms in his life”. Accordingly, Mann J allowed the appeal, finding that the Hearing Officer was wrong to strike out Professor Shanks’ amended Statement of Case.
Although the Patents Act is over 40 years old, the 2008 decision in Kelly, referred to in Mann J’s judgment, was the first ever case in which an employee had successfully claimed compensation under Sections 40 and 41. This judgment from Mann J paves the way for Professor Shanks to pursue his claim under the same section.